As filed with the Securities and Exchange Commission on [_________, 2000]
Investment Company Act File No. 811-[ ]
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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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STRATIGOS FUND, L.L.C.
(Exact name of Registrant as specified in Charter)
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 667-4225
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c/o HOWARD M. SINGER
Managing Director
CIBC World Markets Corp.
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Name and address of agent for service)
Copy to:
KENNETH S. GERSTEIN, ESQ.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
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This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), and will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in Registrant may only be made by individuals or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, interests in Registrant.
<PAGE>
PART A - INFORMATION REQUIRED IN A PROSPECTUS
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
The information required to be included in this Registration Statement
by Part A and Part B of Form N-2 is contained in the Confidential Memorandum
which follows.
<PAGE>
Copy Number: ________________
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STRATIGOS FUND, L.L.C.
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CONFIDENTIAL MEMORANDUM
APRIL 2000
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CIBC OPPENHEIMER ADVISERS, L.L.C.
INVESTMENT ADVISER
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One World Financial Center, 31st Floor
200 Liberty Street
New York, New York 10281
(212) 667-4225
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF STRATIGOS FUND, L.L.C. AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE INTERESTS IN STRATIGOS FUND, L.L.C. ("INTERESTS") HAVE
NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY OR
REGULATORY AUTHORITY OR ANY NATIONAL SECURITIES EXCHANGE. NO AGENCY, AUTHORITY
OR EXCHANGE HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL
MEMORANDUM OR THE MERITS OF AN INVESTMENT IN THE INTERESTS OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TO ALL INVESTORS
INTERESTS ARE NOT INSURED BY THE UNITED STATES FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. INTERESTS ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT GUARANTEED BY, CANADIAN IMPERIAL
BANK OF COMMERCE OR ANY OTHER BANK. INTERESTS ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF THE FULL AMOUNT INVESTED.
INTERESTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAWS OF
ANY OF THE STATES OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS
CONFIDENTIAL MEMORANDUM WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT FOR OFFERS AND SALES OF SECURITIES
THAT DO NOT INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE
SECURITIES LAWS.
THIS CONFIDENTIAL MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
INTERESTS IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT
AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OR SALE. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS
CONCERNING STRATIGOS FUND, L.L.C. THAT ARE INCONSISTENT WITH THOSE CONTAINED IN
THIS CONFIDENTIAL MEMORANDUM. PROSPECTIVE INVESTORS SHOULD NOT RELY ON ANY
INFORMATION NOT CONTAINED IN THIS CONFIDENTIAL MEMORANDUM OR THE EXHIBITS
HERETO.
THIS CONFIDENTIAL MEMORANDUM IS INTENDED SOLELY FOR THE USE OF
THE PERSON TO WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF EVALUATING A
POSSIBLE INVESTMENT BY THE RECIPIENT IN THE INTERESTS DESCRIBED HEREIN, AND IS
NOT TO BE REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN
PROFESSIONAL ADVISERS OF THE PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS
CONFIDENTIAL MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT HIS OR HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL,
TAX, FINANCIAL OR OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN
STRATIGOS FUND, L.L.C. FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
<PAGE>
RESOLD EXCEPT AS PERMITTED UNDER THE LIMITED LIABILITY COMPANY AGREEMENT OF
STRATIGOS FUND, L.L.C., THE 1933 ACT, AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR UP TO
TWO (2) YEARS FROM THE DATE THAT A REPURCHASE REQUEST HAS BEEN MADE BY AN
INVESTOR.
FOR GEORGIA RESIDENTS ONLY
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON
PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
<PAGE>
TABLE OF CONTENTS
Page
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SUMMARY OF TERMS........................................................ 1
THE COMPANY............................................................. 14
STRUCTURE............................................................... 14
INVESTMENT PROGRAM...................................................... 14
TYPES OF INVESTMENTS AND RELATED RISK FACTORS........................... 17
ADDITIONAL RISK FACTORS................................................. 32
BOARD OF MANAGERS....................................................... 35
THE ADVISER AND CIBC WM................................................. 37
VOTING.................................................................. 40
CONFLICTS OF INTEREST................................................... 40
BROKERAGE............................................................... 43
FEES AND EXPENSES....................................................... 44
CAPITAL ACCOUNTS AND ALLOCATIONS........................................ 46
SUBSCRIPTION FOR INTERESTS.............................................. 51
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS..................... 53
TAX ASPECTS............................................................. 57
ERISA CONSIDERATIONS.................................................... 71
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY
COMPANY AGREEMENT ..................................................... 73
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 Confidential Memorandum and by the terms
and conditions of the limited liability company agreement of Stratigos Fund,
L.L.C. (the "Company Agreement"), each of which should be read carefully and
retained by any prospective investor.
THE COMPANY: Stratigos Fund, L.L.C. (the
"Company") is a recently formed
Delaware limited liability company,
registered under the Investment
Company Act of 1940 (the "1940 Act")
as a closed-end, non-diversified,
management investment company.
The Company is a specialized
investment vehicle that may be
referred to as a registered private
investment company. The Company is
similar to an unregistered private
investment partnership in that (i)
the Company's portfolio may be more
actively managed than most other
investment companies, (ii) interests
in the Company ("Interests") are
sold in comparatively large minimum
denominations in private placements
solely to high net worth individual
and institutional investors, and
thus are restricted as to transfer,
and (iii) the capital accounts of
persons who purchase Interests
offered hereby ("Members") are
subject to both asset-based charges
and performance-based allocations in
connection with the Company's
activities. Unlike a private
investment partnership but like
other registered investment
companies, however, the Company has
registered under the 1940 Act to be
able to offer its Interests without
limiting the number of investors
that can participate in its
investment program.
INVESTMENT PROGRAM: The Company's objective is to
achieve maximum capital appreciation
by investing in a focused portfolio
consisting primarily of equity
securities of emerging technology
companies. The Company will pursue
its investment objective by (i)
investing in the equity securities
of technology companies that its
investment adviser believes are
positioned for outstanding growth
over a complete market cycle
(typically 5-7 years) and (ii)
seeking profit opportunities
presented by selling short weaker
technology issues.
The Company's portfolio will include
long and short positions in a
focused universe of technology
companies,
<PAGE>
investing primarily in such
companies' equity securities and,
where consistent with its
objectives, also will invest in:
preferred stock (including preferred
stock convertible into equity
securities); rights, options and
warrants on equity securities; and
swaps, swaptions, and other
derivative instruments such as
forward contracts and options on
stock indices and structured
equity-related products. The Company
also may make frequent use of
leverage by purchasing securities on
margin as part of its investment
program. The Company generally will
maintain a strong net long bias, and
will endeavor to maintain its strong
net long posture other than in
extremely adverse market conditions
or for defensive purposes. The
Company does not intend as a general
matter to attempt to hedge its
portfolio and, combined with its use
of leverage and the fact that
certain of the Company's positions
may, without restriction, grow over
time into a significant portion of
its overall portfolio, the Company's
portfolio will likely be more
volatile than if the Company hedged
its investments or maintained a
fully diversified portfolio.
Unless warranted in the judgment of
its investment adviser, the Company
generally will not invest in
traditional debt securities. (See
"Investment Program.") However,
during periods of adverse market
conditions the Company may
temporarily invest all or any
portion of its assets in high
quality debt securities, including
money market instruments, or hold
its assets as cash. The Company may
also invest in money market
instruments or hold cash for
liquidity purposes.
RISK FACTORS: The Company's investment program is
speculative and entails substantial
risks. There can be no assurance
that the Company's investment
objective will be achieved. In
particular, the Company's use of
leverage, short sales and derivative
transactions, and potentially
limited diversification can, in
certain circumstances, result in
significant losses to the Company.
Additionally, because the Company
will normally invest primarily in
the securities of companies engaged
in the technology sector, the
Company's investments and its
performance will be affected by risk
factors particular to the technology
sector, as well as general market
and economic conditions affecting
the securities markets generally.
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<PAGE>
Investing in securities of
technology companies involves
substantial risks. These risks
include: the fact that certain
companies in the Company's portfolio
may have limited operating
histories; rapidly changing
technologies and products which may
quickly become obsolete; cyclical
patterns in information technology
spending which may result in
inventory write-offs, cancellation
of orders and operating losses;
scarcity of management, engineering
and marketing personnel with
appropriate technological training;
the possibility of lawsuits related
to technological patents; changing
investors' sentiments and
preferences with regard to
technology sector investments (which
are generally perceived as risky)
with their resultant effect on the
price of underlying securities; and
volatility in the U.S. and non-U.S.
stock markets affecting the prices
of technology company securities,
which may cause the Company's
performance to experience
substantial volatility.
As a non-diversified investment
company, there are no percentage
limitations on the portion of the
Company's assets that may be
invested in the securities of any
one issuer. The Company intends to
invest no more than 15% of the value
of its total assets (unleveraged and
measured at the time of purchase) in
the securities of any one issuer.
However, while seeking desirable
investments, the Company may
temporarily exceed this limitation.
The Company's investment portfolio
may be subject to greater risk and
volatility than if investments were
made in the securities of a broader
range of issuers.
The Company will invest primarily in
the securities of U.S. issuers, but
may invest a portion of its assets
in the securities of foreign
issuers. Investments in foreign
securities are affected by risk
factors generally not thought to be
present in the U.S., including,
among other things, increased
political, regulatory, contractual
and economic risk and exposure to
currency fluctuations. Certain other
types of investments, such as
derivatives and illiquid
investments, also involve particular
risks as described herein. In
addition, the Company's use of
leverage and short selling can
result in significant losses to the
Company's investment portfolio.
The Incentive Allocation (defined
below) may create an incentive for
the investment adviser to cause the
Company to make investments that are
riskier or more speculative
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<PAGE>
than would be the case in the
absence of the Incentive Allocation.
In addition, because the Incentive
Allocation is calculated on a basis
that includes unrealized
appreciation of the Company's
assets, the allocation may be
greater than if it were based solely
on realized gains.
There are special tax risks
associated with an investment in the
Company.
The Company is a recently formed
entity and has no operating history
upon which investors can evaluate
its performance. The personnel of
CIBC WM, which is the member of the
investment adviser, is responsible
for managing the Company's
investment portfolio, however, have
substantial experience in managing
investments and private investment
funds.
Interests will not be traded on any
securities exchange or other market
and are subject to substantial
restrictions on transfer. Although
the Company may offer to repurchase
Interests from time to time, a
Member may not be able to liquidate
its Interest for up to two years.
(See "Types of Investments and
Related Risk Factors," "Tax
Aspects," and "Redemptions,
Repurchases of Interests and
Transfers.")
MANAGEMENT: The board of managers of
the Company (the "Board of
Managers") has overall
responsibility for the management
and supervision of the operations of
the Company. The initial Managers
serving on the Board of Managers
have been elected by the
organizational Member of the Company
(who is not affiliated with CIBC
World Markets Corp. ("CIBC WM")). By
signing the Company Agreement, each
Member will be deemed to have voted
for the election of each of the
initial Managers. Any vacancy in the
position of Manager may be filled by
the remaining Managers, or, if
required by the 1940 Act, by a vote
of a plurality of the votes cast at
a meeting of the Members (excluding
any votes eligible to be cast by the
Members affiliated with CIBC WM).
(See "Board of Managers" and
"Voting.")
The investment adviser may be deemed
to control the Company for purposes
of the 1940 Act.
ADVISER: CIBC Oppenheimer Advisers, L.L.C.
(the "Adviser") a Delaware limited
liability company, serves as the
investment adviser of the Company
and will be responsible
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<PAGE>
for managing the Company's
investment portfolio pursuant to the
terms of an investment advisory
agreement with the Company. CIBC WM
is the managing member and
controlling person of the Adviser.
Investment professionals employed by
CIBC WM will manage the Company's
investment portfolio on behalf of
the Adviser under the supervision of
CIBC WM. The Adviser holds a
non-voting Special Advisory Member
interest (the "Special Advisory
Account") in the Company solely for
the purpose of receiving the
Incentive Allocation. In addition,
the Adviser or an affiliate of the
Adviser will make a capital
contribution to the Company as a
Member. The capital account of the
Adviser and any affiliate as a
Member will not exceed approximately
5% of the aggregate capital accounts
of the Members.
CIBC WM (directly or through
affiliates, including the Adviser)
provides investment advisory
services to registered investment
companies, private investment
partnerships and individual client
accounts. The Adviser has selected
Mr. Panayotis ("Takis") Sparaggis to
serve as the portfolio manager of
the Company. Mr. Sparaggis, an
employee of CIBC WM, also serves as
the portfolio manager for five other
investment funds: Balius Fund,
L.L.C. ("Balius Fund"), Xanthus
Fund, L.L.C. ("Xanthus Fund"), and
CIBC Oppenheimer Technology
Partners, L.L.C., ("Technology
Partners"), each a Delaware limited
liability company, and CIBC
Oppenheimer Technology
International, Ltd. ("Technology
International") and CIBC Oppenheimer
Balius International, Ltd. ("Balius
International"), each a Cayman
Islands company. Balius Fund and
Balius International (which are
unregistered private investment
funds) have investment programs
substantially similar to that of the
Company. Xanthus Fund (which is a
company registered under the 1940
Act), Technology Partners and
Technology International (which are
unregistered private investment
funds) are hedged funds which invest
primarily in a broader range of
issues within the technology sector,
including established technology
companies, as well as media
companies and emerging technology
issues. Mr. Sparaggis is also a
portfolio manager for Oppenheimer
Investment Advisers ("OIA")
investment management program, with
primary responsibility for the OIA
MidCap Managed Account Portfolios
(the "MidCap Portfolios").
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<PAGE>
The Company has entered into an
investment advisory agreement (the
"Investment Advisory Agreement")
with the Adviser, which is effective
for an initial term expiring August
1, 2002, and may be continued in
effect from year to year thereafter
if the continuance is approved
annually by the Board of Managers.
The Board of Managers may terminate
the Investment Advisory Agreement on
60 days' prior written notice to the
Adviser.
CIBC WM and the Adviser may be
deemed to "control" the Company for
purposes of the Bank Holding Company
Act of 1956, as amended (the "BHC
Act"), to which the Adviser, CIBC WM
and affiliates of CIBC WM are
subject. As a result, certain
activities of the Company may be
restricted by the BHC Act and rules
and regulations thereunder, as
described elsewhere in this
Confidential Memorandum.
PLACEMENT AGENT: CIBC WM acts as the placement agent
for the Company, without special
compensation from the Company, and
will bear its own costs associated
with its activities as placement
agent. The Board of Managers may
terminate CIBC WM as placement agent
on 30 days' prior written notice.
CIBC WM intends to compensate its
account executives for their ongoing
servicing of clients with whom they
have placed Interests. This
compensation will be based on a
formula that takes into account the
amount of client assets being
serviced as well as the investment
results attributable to clients'
assets invested in the Company. (See
"Conflicts Of Interest - CIBC WM.")
CIBC WM (subject to the approval of
the Board of Managers) may delegate
any of its duties, functions or
powers as placement agent to
unaffiliated third parties to act as
sub-placement agents for the Company
and may compensate them therefor.
The Company will not bear any costs
associated with any such
arrangements.
CONFLICTS OF INTEREST: Certain conflicts of interest may
arise from the following: (i) CIBC
WM and its affiliates, including the
Adviser, may each engage in
investment management activities for
their own accounts and the accounts
of others in which the Company has
no interest and may have actual or
potential conflicts of interest with
respect to investments made by the
Adviser on behalf of the Company;
(ii) the Adviser and its affiliates
will manage accounts (in which the
Company has
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<PAGE>
no interest) of certain other
persons in accordance with
investment programs that are
substantially similar to the
Company's investment program, but
(a) these accounts may commit a
larger percentage of their
respective assets to an investment
opportunity than the Adviser may
commit of the Company's assets and
(b) there may be circumstances under
which the Adviser and its affiliates
will consider participation by such
accounts in investment opportunities
in which the Adviser does not intend
to invest on behalf of the Company;
(iii) situations may occur where the
Company could be disadvantaged
because of the investment activities
conducted by CIBC WM and its
affiliates for their own accounts or
for accounts they manage; (iv) the
Adviser and its affiliates may in
the future provide investment
advisory services from time to time
to private investment partnerships
or other entities or accounts that
are advised by CIBC WM or its
affiliates; (v) the Portfolio
Manager also serves as portfolio
manager of Balius Fund, Balius
International, Technology Partners,
Technology International and Xanthus
Fund, as well as the Mid Cap
Portfolios; (vi) from time to time,
in the ordinary course of their
brokerage, investment or dealer
activities, CIBC WM and its
affiliates may trade, position or
invest in, for their own accounts,
the same securities as those in
which the Company invests; (vii) the
Company may be subject to the same
restrictions relating to the
purchase and sale of securities
contained on CIBC WM's recommended
and restricted list as are imposed
on CIBC WM's proprietary accounts;
(viii) the investment banking and
corporate finance activities of CIBC
WM, Canadian Imperial Bank of
Commerce (the parent company of CIBC
WM) or their respective affiliates
may restrict the ability of the
Company to purchase or sell certain
securities; and (ix) the Adviser,
CIBC WM and affiliates of CIBC WM
are subject to regulation under the
BHC Act and to restrictions imposed
by the Board of Governors of the
Federal Reserve System on their
transactions and relationships with
the Company and these restrictions
may affect the investments made by
the Company. Future activities of
CIBC WM and its affiliates,
including the directors, principals,
officers and employees of the
foregoing, may give rise to
additional conflicts of interest.
(See "Conflicts Of Interest.")
FEES AND EXPENSES: CIBC WM will provide certain
administration and investor services
to the Company, including, among
other things,
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<PAGE>
providing office space and other
support services to the Company,
maintaining and preserving certain
records of the Company, preparing
and filing various materials with
state and Federal regulators,
providing legal and regulatory
advice in connection with
administrative functions and
reviewing and arranging for payment
of the Company's expenses. In
consideration for these services,
the Company will pay CIBC WM a
monthly administration fee of
0.08333% (1% on an annualized basis)
of the Company's net assets (the
"CIBC WM Fee"). The CIBC WM Fee will
be paid to CIBC WM out of the
Company's assets, and will be
reflected in each Member's capital
account (including the Adviser's
capital account but excluding the
Special Advisory Account) as a
reduction to net profits or an
increase to net losses credited to
or debited against each Member's
capital account. (See "Capital
Accounts and Allocations.")
The Company will bear all expenses
incurred in connection with its
business and operations, including,
but not limited to, the following:
all costs and expenses related to
portfolio transactions and positions
for the Company's account,
including: fees payable to
consultants and professionals; legal
fees; accounting fees; custody
expenses; costs of insurance;
organizational and registration
expenses; certain offering expenses;
expenses of meetings of the Board of
Managers and Members; the CIBC WM
Fee; and fees payable to PFPC Inc.
for providing certain
administration, accounting and
investor services to the Company.
(See "Fees and Expenses.") These
expenses will not be charged to the
Special Advisory Account.
SALES CHARGE: Investors purchasing Interests may
be charged sales commissions of up
to 3% of the amount transmitted in
connection with their subscriptions
for Interests. (See "Subscription
for Interests.")
ALLOCATION OF PROFIT AND LOSS: The net profits or net losses of the
Company (including, without
limitation, net realized gain or
loss and the net change in
unrealized appreciation or
depreciation of securities
positions) will be credited to or
debited against the capital accounts
of the Members at the end of each
fiscal period in accordance with
their respective investment
percentages for the period. Each
Member's investment percentage will
be determined by dividing as of the
start of a fiscal period the balance
of the Member's capital account
-8-
<PAGE>
by the sum of the balances of the
capital accounts of all Members.
(See "Capital Accounts and
Allocations - Allocation of Net
Profits and Net Losses.")
INCENTIVE ALLOCATION: Generally at the end of each fiscal
year, an incentive allocation of 20%
of the net profits, if any, that
have been credited to the capital
account of a Member during the
period (an "Incentive Allocation")
will be debited from the Member's
capital account (including the
Adviser's capital account) and
credited to the Special Advisory
Account. The Incentive Allocation
will be charged to a Member only to
the extent that cumulative net
profits with respect to the Member
through the close of any period
exceeds the highest level of
cumulative net profits with respect
to the Member through the close of
any prior period. For this purpose,
cumulative net profits will be
adjusted to reflect any repurchases
of a Member's Interest. The Adviser
may withdraw any Incentive
Allocation credited to its Special
Advisory Account by the last
business day of the month following
the date on which the Incentive
Allocation was made. (See "Capital
Accounts and Allocations - Incentive
Allocation.")
SUBSCRIPTION FOR INTERESTS: The minimum initial investment in
the Company is $150,000 and the
minimum additional investment in the
Company is $25,000. The minimum
initial and additional contributions
may be reduced by the Board of
Managers. In connection with initial
and additional investments, a sales
charge of up to 3% of the amount
transmitted for such investments may
be imposed in the sole discretion of
the investor's account executive.
Amounts paid as sales charges, if
any, are included for purposes of
determining whether applicable
minimum investment requirements have
been satisfied.
For the first twelve months from the
date the Company commences
operations, the Board of Managers
may accept initial and additional
subscriptions for Interests as of
the first day of each month.
Thereafter, the Board of Managers
may accept initial and additional
subscriptions for Interests by
eligible investors at such times as
may be determined by the Board of
Managers, but not more frequently
than as of the first day of each
calendar quarter, unless the Board
of Managers has received a letter
from counsel to the Adviser stating
that, under applicable banking laws,
the Board of Managers may accept
initial and additional subscriptions
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<PAGE>
from eligible investors on a more
frequent basis. All subscriptions
are subject to the receipt of
cleared funds on or before the
acceptance date and require the
investor to submit a completed
subscription document before the
acceptance date. The Board of
Managers reserves the right to
reject any subscription for
Interests and may, in its sole
discretion, suspend subscriptions
for Interests at any time. The Board
of Managers has authorized the
Company to accept initial
subscriptions for Interests from
eligible investors who are
directors, officers or employees (or
members of their families) of CIBC
WM or its affiliates in amounts of
$50,000 or more. Interests may not
be purchased by nonresident aliens,
foreign corporations, foreign
partnerships, foreign trusts or
foreign estates, all as defined in
the Internal Revenue Code of 1986,
as amended (the "Code"). In
addition, because the Company may
generate "unrelated business taxable
income" ("UBTI"), charitable
remainder trusts may not want to
purchase Interests because a
charitable remainder trust will not
be exempt from Federal income tax
under Section 664(c) of the Code for
any year in which it has UBTI.
INITIAL CLOSING DATE: The anticipated initial closing date
for subscriptions for Interests is
August 1, 2000.
TRANSFER RESTRICTIONS: Interests held by Members may be
transferred only (i) by operation of
law pursuant to the death, divorce,
bankruptcy, insolvency or
dissolution of a Member or (ii)
under certain limited circumstances,
with the written consent of the
Board of Managers (which may be
withheld in its sole discretion and
is expected to be granted, if at
all, only under extenuating
circumstances). The Board of
Managers generally will not consent
to a transfer unless the following
conditions are met: (i) the
transferring Member has been a
Member for at least six months; (ii)
the proposed transfer is to be made
on the effective date of an offer by
the Company to repurchase Interests;
and (iii) the transfer does not
constitute a change in beneficial
ownership. The foregoing permitted
transferees will not be allowed to
become substituted Members without
the consent of the Board of
Managers, which may be withheld in
its sole discretion. A Member who
transfers an Interest may be charged
reasonable expenses, including
attorneys' and accountants' fees,
incurred by the Company in
connection with the transfer. (See
"Redemptions, Repurchases of
Interests and Transfers - Transfers
of Interests.")
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WITHDRAWALS AND REPURCHASES
OF INTERESTS BY THE COMPANY: No Member will have the right to
require the Company to redeem its
Interest. The Company may from time
to time offer to repurchase
Interests pursuant to written
tenders by Members. Repurchases will
be made at such times and on such
terms as may be determined by the
Board of Managers, in its sole
discretion. In determining whether
the Company should repurchase
Interests or portions thereof from
Members pursuant to written tenders,
the Board of Managers will consider
the recommendation of the Adviser.
The Adviser expects that it will
recommend to the Board of Managers
that the Company offer to repurchase
Interests from Members at the end of
2001. Thereafter, the Adviser
expects that it generally will
recommend to the Board of Managers
that the Company offer to repurchase
Interests from Members once each
year, effective at the end of the
year. The Board of Managers will
also consider the following factors,
among others, in making this
determination: (i) whether any
Members have requested to tender
Interests or portions thereof to the
Company; (ii) the liquidity of the
Company's assets; (iii) the
investment plans and working capital
requirements of the Company; (iv)
the relative economies of scale with
respect to the size of the Company;
(v) the history of the Company in
repurchasing Interests or portions
thereof; (vi) the economic condition
of the securities markets; and (vii)
the anticipated tax consequences of
any proposed repurchases of
Interests or portions thereof. (See
"Redemptions, Repurchases of
Interests and Transfers - No Right
of Redemption" and "- Repurchases of
Interests.")
The Company Agreement provides that
the Company shall be dissolved if
the Interest of any Member that has
submitted a written request, in
accordance with the terms of the
Company Agreement, to tender its
entire Interest for repurchase by
the Company has not been repurchased
within a period of two years of the
request.
SUMMARY OF TAXATION: Counsel to the Company will render
an opinion that the Company will be
treated as a partnership and not as
an association taxable as a
corporation for Federal income tax
purposes. Counsel to the Company
also will render its opinion that,
under a "facts and circumstances"
test set forth in regulations
adopted by the U.S. Treasury
Department, the Company will not be
treated as a "publicly traded
partnership" taxable as a
corporation. Accordingly, the
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Company should not be subject to
Federal income tax, and each Member
will be required to report on its
own annual tax return such Member's
distributive share of the Company's
taxable income or loss.
If it were determined that the
Company should be treated as an
association or a publicly traded
partnership taxable as a corporation
(as a result of a successful
challenge to the opinions rendered
by counsel to the Company or
otherwise), the taxable income of
the Company would be subject to
corporate income tax and any
distributions of profits from the
Company would be treated as
dividends.
ERISA PLANS AND OTHER
TAX-EXEMPT ENTITIES:
Investors subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), and
other tax-exempt entities (each, a
"tax-exempt" entity) may purchase
Interests with the approval of the
Board of Managers. The Company may
utilize leverage in connection with
its trading activities. Therefore, a
tax-exempt Member may incur income
tax liability with respect to its
share of the net profits from these
leveraged transactions to the extent
they are treated as giving rise to
"unrelated business taxable income."
The Company provides to tax-exempt
Members such accounting information
as they require to report their
"unrelated business taxable income"
for income tax purposes.
Investment in the Company by
tax-exempt entities requires special
consideration. Trustees or
administrators of these entities are
urged to carefully review the
matters discussed in this
Confidential Memorandum.
TERM: The Company's term is perpetual
unless the Company is otherwise
terminated under the terms of the
Company Agreement.
REPORTS TO MEMBERS: The Company furnishes to Members as
soon as practicable after the end of
each taxable year such information
as is necessary for them to complete
Federal and state income tax or
information returns, along with any
other tax information required by
law. The Company will also send
Members an unaudited semi-annual and
an audited annual report within 60
days after the close of the period
for which the report is being made.
Members also will be sent
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quarterly reports regarding the
Company's operations during each
quarter.
FISCAL YEAR: The 12-month period ending December
31. The first fiscal year of the
Company will commence on the date of
the initial closing and will end on
December 31, 2000.
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THE COMPANY
Stratigos Fund, L.L.C. (the "Company") is registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end
management investment company. The Company was organized as a limited liability
company under the laws of Delaware on April 14, 2000, and has no operating
history. The Company's principal office is located at One World Financial
Center, 31st Floor, 200 Liberty Street, New York, New York 10281, and its
telephone number is (212) 667-4225. CIBC Oppenheimer Advisers, L.L.C. (the
"Adviser"), a Delaware limited liability company, serves as the investment
adviser to the Company and is responsible for the Company's investment
activities pursuant to an investment advisory agreement. Responsibility for the
overall management and supervision of the operations of the Company is vested in
the individuals who serve as the Board of Managers of the Company (the "Board of
Managers"). (See "Board of Managers.")
STRUCTURE
The Company is a specialized investment vehicle that combines
many of the features of a private investment partnership with those of a
closed-end investment company. Private investment partnerships are unregistered,
commingled asset pools that are often aggressively managed and offered in large
minimum denominations (often over $1 million) through private placements to a
limited number of high net worth individual and institutional investors. The
general partners of these partnerships are typically compensated through
asset-based fees and performance-based allocations. Closed-end investment
companies are 1940 Act registered pools typically organized as corporations or
business trusts that usually are managed more conservatively than most private
investment partnerships, subject to relatively modest minimum investment
requirements (often less than $2,000) and publicly offered to a broad range of
investors. The advisers to these companies are typically compensated through
asset-based (but not performance-based) fees.
The Company is similar to a private investment partnership in
that its investment portfolio may be more actively managed than most other
investment companies and interests in the Company ("Interests") will be sold in
comparatively large minimum denominations ($150,000) in private placements
solely to high net worth individual and institutional investors, whose capital
accounts will be subject to both asset-based fees and performance-based
allocations. However, the Company, like other closed-end investment companies,
has registered under the 1940 Act to be able to offer its Interests without
limiting the number of investors that can participate in its investment program.
This permits a larger number of investors that have a higher tolerance for
investment risk to participate in an aggressive investment program without
making the more substantial minimum capital commitment that is required by many
private investment partnerships.
INVESTMENT PROGRAM
The Company's objective is to achieve maximum capital
appreciation by investing in a focused portfolio consisting primarily of equity
securities of emerging technology
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companies. The Company will pursue its investment objective by (i) investing in
the equity securities of technology companies that the Adviser believes are
positioned for outstanding growth over a complete market cycle (generally 5-7
years) and (ii) seeking profit opportunities presented by selling short weaker
and second to third tier technology issues.
The Company's portfolio will include long and short positions
in a focused universe of technology companies, investing primarily in such
companies' equity securities and, where consistent with its objectives, also
will invest in: preferred stock (including preferred stock convertible into
equity securities); rights, options and warrants on equity securities; and
swaps, swaptions, and other derivative instruments such as forward contracts and
options on stock indices and structured equity related products. The Company
also may make frequent use of leverage by purchasing securities on margin as
part of its investment program. The Company generally will maintain a strong net
long bias, and will endeavor to maintain its strong net long posture other than
in extremely adverse market conditions or for defensive purposes. The Company
does not intend as a general matter to attempt to hedge its portfolio and,
combined with the Company's use of leverage and the fact that certain of the
Company's positions may, without restriction, grow over time into a significant
portion of its overall portfolio, the Company's portfolio will likely be more
volatile than if the Company hedged its investments or maintained a fully
diversified portfolio. (See "Types of Investments and Related Risk Factors.")
Unless warranted in the judgment of the Adviser, the Company
generally will not invest in traditional debt securities. (See "Investment
Program.") However, during periods of adverse market conditions the Company may
temporarily invest all or any portion of its assets in high quality debt
securities, including money market instruments, or hold its assets as cash. The
Company may also invest in money market instruments or hold cash for liquidity
purposes.
INVESTMENT METHODOLOGY
The Company will seek to capitalize aggressively on the strong
secular trends in the technology sector. It will invest in the stocks of
companies the Adviser believes to be high quality emerging technology companies
and will sell short the stocks of companies the Adviser believes are weaker,
low-quality companies with deteriorating fundamentals. The Company generally
will maintain a strong net long bias and generally will not utilize instruments
or strategies such as index options, convertible bond arbitrage and pair trades,
for purposes of hedging its portfolio or investment risk. The Company may make
frequent use of derivatives for directional purposes as a part of its investment
strategy.
The Adviser believes the technology sector is at a critical
inflection point of accelerating growth as the broadband wave is expected to
fuel tremendous demand for network-enabled software and hardware infrastructure
products and services. As a result, many of the "legacy" players -- some of
which have been great technology companies in the nineties -- may face slowing
growth or be otherwise negatively affected by the shift away from the
second-generation client-server model of computing toward the third-generation,
network-centric computing architectures of emerging growth technology companies.
While these "legacy" players may comprise a portion of the Company's portfolio,
they will not be the focus of the Company's investment strategy.
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<PAGE>
The Company will attempt to capitalize on these powerful
trends by investing in next generation emerging technology companies (including
established companies that have a strong presence in an emerging technology)
which the Adviser believes will lead the technology sector in the next decade.
The Company will attempt to take long positions in such companies early in their
growth curve and will, as a core portion of its portfolio strategy, hold winning
investments and allow them to grow as a percent of the portfolio. The portfolio
manager of the Company (the "Portfolio Manager") has maintained close ties to
the technology industry that it is anticipated will assist the Portfolio Manager
in identifying the dominant technology players of the next decade early on in
the growth cycle. As a result, over time the Company will, if its strategy
succeeds, likely include a number of substantial investment positions.
Additionally, each year the Company will seek to reduce its exposure to
underperforming positions. It is the intention of the Adviser that, to the
extent consistent with the overall investment strategy of the Company, these
portfolio management techniques also will result in a tax-sensitive return
profile.
In the Adviser's view, this basic strategy of letting
successful investments grow as a portion of the portfolio, combined with its
endeavor to winnow away unsuccessful positions, gives the Company the potential
to produce exceptional returns for technology investors. However, this strategy
also involves greater risk to the extent that adverse movements in the prices of
stocks constituting the Company's larger investment positions will have a
greater impact on the Company's investment performance than would otherwise be
the case.
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
In addition to its frequent and potentially substantial use of
leverage in connection with its long positions, the Company's investment program
includes short selling of securities which the Adviser believes to be weaker,
low quality technology issues.(1) Short sales will be effected in cases where
the Adviser determines that certain factors are likely to have a downward impact
on a company's securities. Such factors include falling market share,
decelerating revenue growth and relative lag in technology development. In
addition, short positions may be taken if, in the view of the Adviser, such
positions will reduce the risk inherent in taking long positions, although, as a
general matter, the Company does not intend to hedge its portfolio. In addition,
the Portfolio Manager may trade in forward contracts on stock indices
representing certain classes of securities in addition to, or in lieu of, a
position in an equity security.
- ------------------
(1) A short sale involves the sale of a security which the Company does not own
in the expectation of purchasing the same security (or a security
exchangeable therefor) at a later date at a lower price. To make delivery
to the buyer, the Company must borrow the security and the Company is
obligated to return the security to the lender, which is accomplished by a
later purchase of the security by the Company. When the Company makes a
short sale, it must leave the proceeds thereof with the broker and it must
also deposit with the broker an amount of cash or United States Government
or other securities sufficient under current margin regulations to
collateralize its obligation to replace the borrowed securities which have
been sold. The Company realizes a profit or a loss as a result of a short
sale if the price of a security decreases or increases between the date of
the short sale and the date on which the Company covers its short position,
i.e., purchases the security to replace the borrowed security. The Company
may earn fee income in the form of rebates from short positions effected
through CIBC WM comparable to what could be earned by an unaffiliated
client of CIBC WM of a similar size, level of activity and mix of business.
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<PAGE>
The Company's investment program emphasizes active management
of the Company's portfolio. Consequently, the Company's portfolio turnover and
brokerage commission expenses may exceed those of other investment funds that
invest in technology companies.
The Company may invest its excess funds in short term
investments, including U.S. Government securities, money market funds,
commercial paper, certificates of deposit and bankers' acceptances.
In pursuing its investment objective, or for hedging purposes,
the Company may use various investment techniques and strategies. These may
include the use of leverage, short sales of securities and the purchase and sale
of options on securities and stock indices, subject, however, to certain
limitations described elsewhere in this Confidential Memorandum, including any
policies that may be established by the Board of Managers. The use of these
investment techniques and instruments involves certain risks. (See "Types of
Investments and Related Risk Factors.") The Company will comply with applicable
regulatory requirements, including the asset coverage requirements of the 1940
Act, in connection with its use of these strategies.
Additional information about the types of investments that
will be made by the Company, its investment practices and related risk factors
is provided below. Except as otherwise indicated, the Company's investment
policies and restrictions are not fundamental and may be changed without a vote
of members of the Company (each, a "Member"). (See "Types of Investments and
Related Risk Factors - Investment Policies And Restrictions.")
THE COMPANY'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS
SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT
OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE COMPANY'S USE OF LEVERAGE, SHORT
SELLING AND DERIVATIVES TRANSACTIONS, AND ITS LIMITED DIVERSIFICATION CAN, IN
CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO THE COMPANY.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
INVESTING IN EMERGING TECHNOLOGY COMPANIES
Because the Company will principally invest its assets in the
securities of companies engaged in the technology sector, the Company's
investments and its performance will be affected by risk factors particular to
the technology sector, as well as market and economic conditions affecting the
securities markets generally.
Investing in securities and other instruments of emerging
technology companies involves substantial risks. These risks include: the fact
that many companies in the Company's portfolio may have limited operating
histories; rapidly changing technologies and products which may quickly become
obsolete; cyclical patterns in information technology spending which may result
in inventory write-offs, cancellation of orders and operating losses; scarcity
of management, engineering and marketing personnel with appropriate
technological training; the
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possibility of lawsuits related to technological patents; changing investors'
sentiments and preferences with regard to technology sector investments (which
are generally perceived as risky) with their resultant effect on the price of
underlying securities; and volatility in the U.S. stock markets affecting the
prices of technology company securities, which may cause the Company's
performance to experience substantial volatility.
EQUITY SECURITIES
A significant portion of the Company's investment portfolio
normally will consist of long and short positions in common stocks and other
equity securities. The values of equity securities change in response to many
factors, including, but not limited to, the activities and financial condition
of individual companies, the business market in which individual companies
compete and general market and economic conditions.
The Company's investments in equity securities of U.S.
companies will include securities that are listed on U.S. securities exchanges
as well as unlisted securities that are traded over-the-counter. Equity
securities of companies traded over-the-counter may not be traded in the volumes
typically found on a national securities exchange. Consequently, the Company may
be required to dispose of these securities over a longer (and potentially less
favorable) period of time than is required to dispose of the securities of
exchange listed companies. There is no minimum required market capitalization of
the companies in which the Company may invest, and the Company may invest a
significant portion of its assets in securities of companies having smaller
market capitalization. Investments in companies with smaller market
capitalizations are generally riskier than investments in larger,
well-established companies. Smaller companies often are more recently formed
than larger companies and may have limited product lines, distribution channels
and financial and managerial resources. There is often less publicly available
information about these companies than there is for larger, more established
issuers, making it more difficult for the Adviser to analyze the value of the
company. The equity securities of smaller companies are often traded
over-the-counter or on regional exchanges and those securities may not be traded
in the volume typical for securities that are traded on a national securities
exchange. Consequently, the Company may be required to sell these securities
over a longer period of time (and potentially at less favorable prices) than
would be the case for securities of larger companies. In addition, the prices of
the securities of smaller companies may be more volatile than those of larger
companies.
COMMON STOCKS. Common stocks are shares of a corporation or
other entity that entitle the holder to a pro rata share of the profits, if any,
of the entity without preference over any other shareholder or claim of
shareholders, after making required payments to holders of the entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference
over an issuer's common stock as to dividends and upon the event of liquidation,
but it ranks junior to debt securities in an issuer's capital structure.
Preferred stock generally pays dividends in cash (or additional shares of
preferred stock) at a defined rate, but unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of
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directors. Dividends on preferred stock may be cumulative, meaning that, in the
event the issuer fails to make one or more dividend payments on the preferred
stock, no dividends may be paid on the issuer's common stock until all unpaid
preferred stock dividends have been paid. Preferred stock may also be subject to
optional or mandatory redemption provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest that is
generally paid or accrued on debt or a dividend that is paid or accrued on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics, in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying common stock due to their debt characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors may also have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a debt security.
A convertible security may be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Company is called
for redemption, the Company will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Company's
ability to achieve its investment objective.
BONDS AND OTHER DEBT SECURITIES
GENERALLY. The Company may invest a portion of its assets in
bonds and other debt securities when, in the judgement of the Adviser (subject
to any policies established by the Board of Managers), such investments are
warranted. In addition, the Company may invest
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without limit in high quality debt securities for temporary defensive purposes
and to maintain liquidity. Debt securities include, among other securities:
bonds, notes and debentures issued by corporations; debt securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities
("U.S. Government Securities") or by a foreign government; municipal securities;
and mortgage-backed and asset-backed securities. These securities may pay fixed,
variable or floating rates of interest, and may include zero coupon obligations.
Debt securities are subject to the risk of the issuer's inability to meet
principal and interest payments on its obligations (i.e., credit risk) and are
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (i.e., market risk).
The Company may invest in both investment grade and
non-investment grade debt securities. Investment grade debt securities are
securities that have received a rating from at least one nationally recognized
statistical rating organization ("NRSRO") in one of the four highest rating
categories or, if not rated by any NRSRO, have been determined by the Adviser to
be of comparable quality. Non-investment grade debt securities (typically called
"junk bonds") are securities that have received a rating from a NRSRO of below
investment grade or have been given no rating, and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Non-investment grade debt securities in the lowest rating
categories may involve a substantial risk of default or may be in default.
Adverse changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuers of non-investment grade debt securities to make principal and interest
payments than is the case for higher grade debt securities. An economic downturn
affecting an issuer of non-investment grade debt securities may result in an
increased incidence of default. In addition, the market for lower grade debt
securities may be thinner and less active than for higher-grade debt securities.
The Company will not invest more than 20% of its total assets in non-convertible
debt securities which have not received an investment grade rating from at least
one NRSRO.
LIMITED DIVERSIFICATION
The Company is a "non-diversified" investment company. Thus,
there are no percentage limitations on the percentage of the Company's assets
that may be invested in the securities of any one issuer. To the extent that a
relatively high percentage of the Company's assets were invested in the
securities of a limited number of issuers, some of which may be within the same
industry, the Company's investment portfolio will be more susceptible to any
single economic, political or regulatory occurrence than the portfolio of a
diversified investment company.
The Company intends to invest no more than 15% of the value of
its total assets (unleveraged and measured at the time of investment) in the
securities of any one issuer. However, while seeking desirable investments, the
Company may temporarily exceed this limitation subject to other applicable
policies and procedures. In addition, because the Company's investment strategy
involves holding successful investment positions, there is a possibility that a
limited number of positions will represent a significant portion of the
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Company's portfolio. This would expose the Company to greater risk than would be
the case if it held a larger number of smaller positions.
FOREIGN SECURITIES
Although the Company invests primarily in the securities of
publicly traded U.S. issuers, it may invest up to one-third of the value of its
total assets in securities of foreign issuers and in depositary receipts, such
as American Depositary Receipts ("ADRs"), that represent indirect interests in
securities of foreign issuers. Foreign securities in which the Company may
invest may be listed on foreign securities exchanges or traded in foreign
over-the-counter markets. Investments in foreign securities are affected by risk
factors generally not thought to be present in the U.S. These factors include,
but are not limited to, the following: varying custody, brokerage and settlement
practices; difficulty in pricing; less public information about issuers of
foreign securities; less governmental regulation and supervision over the
issuance and trading of securities than in the U.S.; the unavailability of
financial information regarding the foreign issuer or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation or nationalization; the imposition of withholding
and other taxes; adverse political, social or diplomatic developments;
limitations on the movement of funds or other assets of the Company between
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
Other risks of investing in foreign securities include changes
in currency exchange rates (in the case of securities that are not denominated
in U.S. dollars) and currency exchange control regulations or other foreign or
U.S. laws or restrictions, or devaluations of foreign currencies. A decline in
the exchange rate would reduce the value of certain of the Company's foreign
currency denominated portfolio securities irrespective of the performance of the
underlying investment. In addition, the Company may incur costs in connection
with conversion between various currencies. The foregoing risks may be greater
in emerging industrialized and less developed countries.
The Company may enter into forward currency exchange contracts
("forward contracts") for hedging purposes and non-hedging purposes to pursue
its investment objective. Forward contracts are transactions involving the
Company's obligation to purchase or sell a specific currency at a future date at
a specified price. Forward contracts may be used by the Company for hedging
purposes to protect against uncertainty in the level of future foreign currency
exchange rates, such as when the Company anticipates purchasing or selling a
foreign security. This technique would allow the Company to "lock in" the U.S.
dollar price of the security. Forward contracts may also be used to attempt to
protect the value of the Company's existing holdings of foreign securities.
There may be, however, imperfect correlation between the Company's foreign
securities holdings and the forward contracts entered into with respect to those
holdings. Forward contracts may also be used for non-hedging purposes to pursue
the
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Company's investment objective (subject to any policies established by the Board
of Managers), such as when the Adviser anticipates that particular foreign
currencies will appreciate or depreciate in value, even though securities
denominated in those currencies are not then held in the Company's investment
portfolio. There is no requirement that the Company hedge all or any portion of
its exposure to foreign currency risks.
LEVERAGE
The Company may borrow money to purchase securities, a
practice known as "leverage," which involves certain risks. In this regard, the
Company may make margin purchases of securities, borrow money from banks and
enter into reverse repurchase agreements. The Company may also borrow money for
temporary or emergency purposes or in connection with the repurchase of
Interests.
Trading equity securities on margin involves an initial cash
requirement representing at least 50% of the underlying security's value with
respect to transactions in U.S. markets and varying (typically lower)
percentages with respect to transactions in foreign markets. Borrowings to
purchase equity securities typically will be secured by the pledge of those
securities. The financing of securities purchases may also be effected through
reverse repurchase agreements with banks, brokers and other financial
institutions. This involves the transfer by the Company of the underlying
security to a counterparty in exchange for cash proceeds based on a percentage
(which can be as high as 95% to 100%) of the value of the debt instrument.
Although leverage will increase investment return if the
Company earns a greater return on the investments purchased with borrowed funds
than it pays for the use of those funds, the use of leverage will decrease
investment return if the Company fails to earn as much on investments purchased
with borrowed funds as it pays for the use of those funds. The use of leverage
will therefore magnify the volatility of the value of the Company's investment
portfolio. In the event that the Company's equity or debt instruments decline in
value, the Company could be subject to a "margin call" or "collateral call,"
pursuant to which the Company must either deposit additional collateral with the
lender or suffer mandatory liquidation of the pledged securities to compensate
for the decline in value. In the event of a sudden, precipitous drop in value of
the Company's assets, the Company might not be able to liquidate assets quickly
enough to pay off its borrowing. Money borrowed for leveraging will be subject
to interest costs that may or may not be recovered by return on the securities
purchased. The Company also may be required to maintain minimum average balances
in connection with its borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the cost
of borrowing over the stated interest rate.
The 1940 Act requires the Company to satisfy an asset coverage
requirement of 300% of its indebtedness, including amounts borrowed, measured at
the time the Company incurs the indebtedness (the "Asset Coverage Requirement").
This means that the value of the Company's total indebtedness may not exceed
one-third the value of its total assets (including such indebtedness), measured
at the time the Company incurs the indebtedness. The staff of the Securities and
Exchange Commission's Division of Investment Management (the "SEC Staff") takes
the position that short sales of securities, reverse repurchase agreements, use
of margin,
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sales of put and call options on specific securities or indices, investments in
certain other types of instruments (including certain derivatives such as swap
agreements), and the purchase and sale of securities on a when-issued or forward
commitment basis, may be deemed to constitute indebtedness subject to the Asset
Coverage Requirement.
The SEC Staff has stated, however, that it will not deem a
portfolio position involving such instruments to be subject to the Asset
Coverage Requirement if an investment company "covers" its position by
segregating liquid securities on its books or in an account with its custodian
in amounts sufficient to offset the liability associated with the position.
Generally, in conjunction with portfolio positions that are deemed to constitute
senior securities, the Company must: (1) observe the Asset Coverage Requirement;
(2) maintain daily a segregated account in cash or liquid securities at such a
level that the amount segregated plus any amounts pledged to a broker as
collateral will equal the current value of the position; or (3) otherwise cover
the portfolio position with offsetting portfolio securities. Segregation of
assets or covering portfolio positions with offsetting portfolio securities may
limit the Company's ability to otherwise invest those assets or dispose of those
securities.
In order to obtain "leveraged" market exposure in certain
investments and to increase the overall return to the Company of various
investments, the Company may purchase options and other synthetic instruments
that do not constitute "indebtedness" for purposes of the Asset Coverage
Requirement. These instruments may nevertheless involve significant economic
leverage and therefore may, in some cases, involve significant risks of loss.
SHORT SALES
As part of its investment program, the Company may effect
short sales of securities of companies that the Adviser (subject to any policies
established by the Board of Managers) believes are weaker, lower-quality
companies with deteriorating fundamentals. To effect a short sale, the Company
will borrow a security from a brokerage firm to make delivery to the buyer. The
Company is then obligated to replace the borrowed security by purchasing it at
the market price at the time of replacement. Until the security is replaced, the
Company is required to pay to the brokerage firm any accrued interest or
dividend and may be required to pay a premium.
The Company will realize a gain if the borrowed security
declines in price between the date of the short sale and the date on which the
Company replaces the security. The Company will incur a loss if the price of the
borrowed security increases between those dates. This loss can increase rapidly
and without effective limit. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium or interest the
Company may be required to pay in connection with a short sale. There is a risk
that the borrowed securities would need to be returned to the brokerage firm on
short notice. If a request for return of securities occurs at a time when other
short sellers of the subject security are receiving similar requests, a "short
squeeze" can occur, wherein the Company might be compelled, at the most
disadvantageous time, to replace borrowed securities previously sold short with
purchases on the open market, possibly at prices significantly in excess of the
price at which the securities were sold short. Short selling may exaggerate the
volatility of the
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Company's investment portfolio. Short selling may also produce higher than
normal portfolio turnover and may result in increased transaction costs to the
Company.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the Company's sale of a
security to a bank or securities dealer and the Company's simultaneous agreement
to repurchase that security for a fixed price (reflecting a market rate of
interest) on a specific date. These transactions involve a risk that the other
party to a reverse repurchase agreement will be unable or unwilling to complete
the transaction as scheduled, which may result in losses to the Company. Reverse
repurchase transactions are a form of leverage which may also increase the
volatility of the Company's investment portfolio. The Company has adopted
specific policies designed to minimize certain of the risks of loss associated
with reverse repurchase transactions.
SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Company may utilize a variety of special investment
instruments and techniques (described below) to hedge its investment portfolio
against various risks (such as changes in interest rates or other factors that
affect security values) or for non-hedging purposes to pursue the Company's
investment objective. These strategies may be executed through derivative
transactions. The instruments the Company may use and the particular manner in
which they may be used may change over time as new instruments and techniques
are developed or regulatory changes occur. Certain of the special investment
instruments and techniques that the Company may use are speculative and involve
a high degree of risk, particularly in the context of non-hedging transactions
to pursue the Company's investment objective. In addition, there is no
requirement that the Company hedge its portfolio or any of its investment
positions.
CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Company may
purchase call and put options in respect of specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes and
non-hedging purposes to pursue its investment objective. A put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security at a stated exercise price at any time prior to the
expiration of the option. Similarly, a call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at a stated exercise price at any time prior to the expiration of the
option.
A covered call option written by the Company is a call option
with respect to which the Company owns the underlying security. The sale of such
an option exposes the Company during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security that might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option written by the Company is a put option with
respect to which cash or liquid securities have been placed in a segregated
account on the Company's books or with the Company's custodian to fulfill the
obligation undertaken. The sale of such an option exposes the Company during the
term of the option to a decline in price of the underlying security while
depriving the Company of the opportunity to invest the segregated assets.
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The Company may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Company will realize a profit or loss if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Company
would ordinarily make a similar "closing sale transaction," which involves
liquidating the Company's position by selling the option previously purchased,
although the Company would be entitled to exercise the option should it deem it
advantageous to do so. The Company may also invest in so-called "synthetic"
options or other derivative instruments written by broker-dealers.
Options transactions may be effected on securities exchanges
or in the over-the-counter market. When options are purchased over-the-counter,
the Company bears the risk that the counterparty that wrote the option will be
unable or unwilling to perform its obligations under the option contract. These
options may also be illiquid and, in such cases, the Company may have difficulty
closing out its position. Over-the-counter options purchased and sold by the
Company may also include options on baskets of specific securities.
WARRANTS AND RIGHTS. Warrants are derivative instruments that
permit, but do not obligate, the holder to subscribe for other securities or
commodities. Rights are similar to warrants, but normally have a shorter
duration and are offered or distributed to shareholders of a company. Warrants
and rights do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle the holder to purchase, and they do
not represent any rights in the assets of the issuer. As a result, warrants and
rights may be considered more speculative than certain other types of
equity-like securities. In addition, the values of warrants and rights do not
necessarily change with the value of the underlying securities or commodities
and these instruments cease to have value if they are not exercised prior to
their expiration dates.
CALL AND PUT OPTIONS ON SECURITIES INDICES. The Company may
purchase and sell call and put options on stock indices (such as the Morgan
Stanley High Tech 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 non-hedging purposes to pursue its investment objective. A stock
index fluctuates with changes in the market values of the stocks included in the
index. The effectiveness of purchasing or writing stock index options for
hedging purposes will depend upon the extent to which price movements in the
Company's portfolio correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Company will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Company of options on stock indexes will be subject to the
Adviser's ability to predict correctly movements in the direction of the stock
market generally or of a particular industry or market segment. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
ADDITIONAL DERIVATIVE TRANSACTIONS. The Company may take
advantage of opportunities in the area of swaps, options on various underlying
instruments, swaptions and
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certain other customized derivative instruments. In addition, the Company may
take advantage of opportunities with respect to certain other derivative
instruments that are not presently contemplated for use by the Company or which
are currently not available, but which may be developed, to the extent such
opportunities are both consistent with the Company's investment objective and
legally permissible for the Company. Special risks may apply to instruments that
are invested in by the Company in the future, which risks cannot be determined
at this time or until such instruments are developed or invested in by the
Company.
A swap is a contract under which two parties agree to make
periodic payments to each other based on specified interest rates, an index or
the value of some other instrument, applied to a stated, or "notional", amount.
Swaps generally can be classified as interest rate swaps, currency swaps,
commodity swaps or equity swaps, depending on the type of index or instrument
used to calculate the payments. Such swaps would increase or decrease the
Company's investment exposure to the particular interest rate, currency,
commodity or equity involved. A swaption is an option entitling one party to
enter into a swap agreement with the counterparty. In addition to swaps and
swaptions, the Company may become a party to various other customized derivative
instruments entitling the counterparty to certain payments on the gain or loss
on the value of an underlying or referenced instrument. Certain swaps, options
and other derivative instruments may be subject to various types of risks,
including market risk, liquidity risk, counterparty credit risk, legal risk and
operations risk. In addition, swaps and other derivatives can involve
significant economic leverage and may, in some cases, involve significant risks
of loss.
LENDING PORTFOLIO SECURITIES
The Company may lend its portfolio securities to domestic and
foreign brokers, dealers and financial institutions. These loans will be secured
by collateral (consisting of cash, U.S. Government Securities or irrevocable
letters of credit) maintained in an amount equal to at least 100% of the market
value, determined daily, of the loaned securities. The Company may at any time
call the loan and obtain the return of the securities loaned. The Company will
be entitled to payments equal to the interest and dividends on the loaned
security and may receive a premium for lending the securities. Lending portfolio
securities may result in income to the Company, but there may be delays in the
recovery of the loaned securities or a loss of rights in the collateral supplied
should the borrower fail financially. Securities lending involves a form of
leverage, and the Company may incur a loss if securities purchased with the
collateral from securities loans decline in value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Company may purchase securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. These
transactions involve a commitment by the Company to purchase or sell securities
at a future date (ordinarily one or two months later). The price of the
underlying securities, which is generally expressed in terms of yield, is fixed
at the time the commitment is made, but delivery and payment for the securities
takes place at a later date. No income accrues on securities that have been
purchased pursuant to a forward commitment or on a
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when-issued basis prior to delivery to the Company. When-issued securities and
forward commitments may be sold prior to the settlement date. If the Company
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. These transactions will be subject to the Company's
limitation on indebtedness unless, at the time the Company enters into such a
transaction, a segregated account consisting of cash, U.S. Government Securities
or liquid securities equal to the value of the when-issued or forward commitment
securities is established and maintained. There is a risk that securities
purchased on a when-issued basis may not be delivered and that the purchaser of
securities sold by the Company on a forward basis will not honor its purchase
obligation. In such cases, the Company may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Company will invest primarily in publicly traded
securities, it may invest up to 15% of the value of its total assets (measured
at the time of investment) in restricted securities and other investments which
are illiquid. Restricted securities are securities that may not be sold to the
public without an effective registration statement under the Securities Act of
1933 ("1933 Act") or, if they are unregistered, may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
formation of capital, the Securities and Exchange Commission ("SEC") has adopted
Rule 144A under the 1933 Act, which is designed to further facilitate efficient
trading among qualified institutional investors by permitting the sale of
certain unregistered securities to qualified institutional buyers. The Company
will be eligible to purchase securities in Rule 144A transactions if and when it
and all other investment companies for which the Adviser serves as the
investment adviser own, in the aggregate, at least $100 million of securities of
unaffiliated issuers. To the extent privately placed securities held by the
Company qualify under Rule 144A, and an institutional market develops for those
securities, the Company likely will be able to dispose of the securities without
registering them under the 1933 Act. To the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could have the effect of increasing the level
of the Company's illiquidity. The Company may adopt procedures under which
certain Rule 144A securities will not be deemed to be subject to the Company's
15% of total assets limitation on investments in restricted and illiquid
securities, if certain criteria are satisfied with respect to those securities
and the market therefor. Foreign securities that can be freely sold in the
markets in which they are principally traded are not considered by the Company
to be restricted or illiquid. Regulation S under the 1933 Act permits the sale
abroad of securities that are not registered for sale in the United States.
Repurchase agreements with maturities of more than seven days will be treated as
illiquid.
Where registration is required to sell a security, the Company
may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the decision to sell and the time the
Company may be permitted to sell a security under an effective registration
statement. If, during such period, adverse market conditions were to develop,
the Company might obtain a less favorable price than prevailed when it decided
to sell. Restricted securities for which no market exists and other illiquid
investments are valued at fair value as
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determined in accordance with procedures approved and periodically reviewed by
the Board of Managers.
Restricted securities and other illiquid investments involve
the risk that the securities will not be able to be sold at the time desired by
the Adviser or at prices approximating the value at which the Company is
carrying the securities. As a result, in determining the proportion of the value
of its total assets that will be invested in restricted and other illiquid
investments, the Company will consider the need to maintain an adequate level of
liquidity in its portfolio in order to fund the repurchase of interests from
Members without unnecessarily adversely impacting the value of the Company's
portfolio. (See "Redemptions, Repurchases of Interests and Transfers -
Repurchases of Interests.") It is not expected that the Company will invest all
or a substantial portion of the value of its total assets in such restricted or
other illiquid investments.
TEMPORARY INVESTMENTS
For defensive purposes, the Company may temporarily invest all
or a substantial portion of its assets in high quality debt securities and money
market instruments, or may temporarily hold cash or cash equivalents in such
amounts as the Adviser deems appropriate under the circumstances. Securities
will be deemed to be of high quality if they are rated in the top three
categories by an NRSRO or, if unrated, are determined to be of comparable
quality by the Adviser. Money market instruments are high quality, short-term
debt obligations (which generally have remaining maturities of one year or
less), and may include: U.S. Government Securities; commercial paper;
certificates of deposit and banker's acceptances issued by domestic branches of
United States banks that are members of the Federal Deposit Insurance
Corporation; and repurchase agreements for U.S. Government Securities. In lieu
of purchasing money market instruments, the Company may purchase shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements involving those securities, subject to certain limitations
imposed by the 1940 Act.
The Company may also invest in money market instruments or
purchase shares of money market mutual funds pending investment of its assets in
equity securities or non-money market fixed-income securities, or to maintain
such liquidity as may be necessary to effect repurchases of Interests from
Members or for other purposes.
Repurchase agreements are agreements under which the Company
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a securities dealer that agrees to repurchase the securities
from the Company at a higher price on a designated future date. If the seller
under a repurchase agreement becomes insolvent, the Company's right to dispose
of the securities may be restricted, or the value of the securities may decline
before the Company is able to dispose of them. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
securities before the repurchase of the securities under a repurchase agreement
is accomplished, the Company may encounter a delay and incur costs, including a
decline in the value of the securities, before being able to sell the
securities. If the seller defaults, the value of the securities may decline
before the Company is able to dispose of them. If the Company enters into a
repurchase agreement that is
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subject to foreign law and the other party defaults, the Company may not enjoy
protections comparable to those provided to certain repurchase agreements under
U.S. bankruptcy law, and may suffer delays and losses in disposing of the
collateral as a result. The Company has adopted specific policies designed to
minimize certain of the risks of loss from the Company's repurchase agreement
transactions.
INVESTMENT POLICIES AND RESTRICTIONS
The Company has adopted the following fundamental investment
restrictions, which cannot be changed without the vote of a majority of the
Company's outstanding voting securities (as defined by the 1940 Act):
(1) The Company will not invest 25% or more of the value
of its total assets in the securities (other than
U.S. Government Securities) of issuers engaged in any
single industry, including any industry within the
technology sector.
(2) The Company will not issue senior securities
representing stock, but may borrow money from banks,
brokers and other lenders, and may engage in
transactions involving the issuance by the Company of
"senior securities" representing indebtedness, to the
extent permitted by the 1940 Act.
(3) The Company will not underwrite securities of other
issuers, except insofar as the Company may be deemed
an underwriter under the 1933 Act in connection with
the disposition of its portfolio securities.
(4) The Company will not make loans of money or
securities to other persons, except through
purchasing debt securities, lending portfolio
securities or entering into repurchase agreements in
a manner consistent with the Company's investment
policies.
(5) The Company will not purchase or sell commodities or
commodity contracts, but the Company may purchase and
sell foreign currency and enter into foreign currency
forward contracts, and may engage in other
transactions in financial instruments, in each case
to the extent permitted under the Company's
investment policies as in effect from time to time.
(6) The Company will not purchase, hold or deal in real
estate, but may invest in securities that are secured
by real estate or that are issued by companies that
invest or deal in real estate.
The investment objective of the Company is also fundamental
and may not be changed without a vote of a majority of the Company's outstanding
voting securities.
Under the 1940 Act, the vote of a majority of the outstanding
voting securities of an investment company, such as the Company, means the vote,
at an annual or a special meeting of the security holders of the company duly
called, (A) of 67 percent or more of the voting securities present at the
meeting, if the holders of more than 50 percent of the outstanding voting
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securities of the company are present or represented by proxy; or (B) of more
than 50 percent of the outstanding voting securities of the company, whichever
is less.
With respect to these investment restrictions, and other
policies described in this Confidential Memorandum, if a percentage restriction
is adhered to at the time of entering into the investment or transaction, a
later change in percentage resulting from a change in the values of investments
or the value of the Company's total assets, unless otherwise stated, will not
constitute a violation of the restriction or policy. In addition to the
restrictions contained in the fundamental investment policies stated above, the
Company is subject to certain restrictions imposed by the 1940 Act on registered
investment companies, including restrictions with respect to its investment in
the securities of other investment companies, insurance companies and companies
engaged in certain securities related businesses.
The Bank Holding Company Act of 1956, as amended (the "BHC
Act"), together with the rules and regulations of the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), currently impose certain
restrictions on the ability of bank holding companies and their subsidiaries to
own equity securities of certain issuers. The parent company of the Adviser is
Canadian Imperial Bank of Commerce ("CIBC"), which is subject to the BHC Act.
In particular, CIBC generally may not own or control, directly
or indirectly, 5% or more of the outstanding shares of any class of voting
securities or 25% or more of the outstanding equity (including subordinated
debt) of certain issuers (the "Equity Limit"). Because CIBC may be deemed to
control the Company within the meaning of the BHC Act, the Company's holdings of
all such securities will be aggregated with those of CIBC and its subsidiaries
(including CIBC WM) for purposes of calculating the Equity Limit. Consequently,
the Company generally will be unable to purchase equity securities that, when
taken together with the equity securities of an issuer owned or controlled by
CIBC and its subsidiaries, would cause the Equity Limit to be exceeded. In
addition, CIBC and its subsidiaries generally will be precluded under the BHC
Act from exerting a "controlling influence over the management or policies" of a
company with business activities in the United States. Consequently, activities
in relation to companies in which the Company may invest will need to be
conducted so as not to result in a determination of "control" within the meaning
of the BHC Act.
The Adviser does not expect that the restrictions currently
imposed by the BHC Act will adversely impact the investment operations of the
Company.
Under the BHC Act, a foreign bank or a bank holding company
may, if it meets certain criteria, become a financial holding company ("FHC")
and engage (and may acquire companies engaged) in a wide range of activities
that are "financial in nature" (or, in some circumstances, "incidental" or
"complementary" to financial activities), including certain banking, securities,
merchant banking and insurance activities. The BHC Act does not authorize bank
holding companies or FHCs to engage in activities that are not financial in
nature. As of March 13, 2000, CIBC became an FHC.
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As an FHC, CIBC may in the future elect to treat the Company
as part of its merchant banking activities. If CIBC were to elect to treat the
Company as part of its merchant banking activities, the Equity Limit would no
longer apply to the Company and the Company would become subject to the
provisions of the BHC Act governing merchant banking activities by affiliates of
FHCs. As a result, certain features of the Company's structure and business plan
may be modified and the organizational documents of the Company may be amended
to effect such modifications.
The Federal Reserve and the U.S. Department of Treasury have
issued an interim regulation (the "Interim Regulation") governing the merchant
banking activities of an FHC that would become applicable to the Company if CIBC
elected to conduct merchant banking activities by investment in or through the
Company. The Interim Rule would impose: limitations on the involvement of the
Company, the Adviser and CIBC (and its subsidiaries and affiliates) in the
routine management and operations of a portfolio company; possible limitations
on certain transactions between U.S. banking offices and any depository
institution subsidiaries of CIBC (the "U.S. Banking Offices") and certain
portfolio companies; possible limitations on cross-marketing by the U.S. Banking
Offices with the Company and certain portfolio companies; and limitations on the
duration of the Company's investment in a portfolio company. (The duration of
investments by the Company in a portfolio company would be limited to a maximum
of 10 years under the Interim Regulation.) Certain recordkeeping and reporting
requirements mandated by the Interim Regulation also would become applicable to
the Company. The regulators have solicited comments on the Interim Regulation
and may issue an amended regulation which would, when issued, also be applicable
to the Company.
If CIBC were to elect to treat the Company as part of its
merchant banking activities, in order to ensure compliance with the Interim
Regulation, the participation of the Adviser and the Company in the management
and operation of the Company's portfolio companies would be limited and
restricted in certain ways. If the Company acquired control of a portfolio
company and appointed its representatives to the board of directors, the Interim
Regulation would permit the Company (through its representatives on the board of
directors) to exercise customary oversight over the operations and management of
the portfolio company. However, the Interim Regulation would restrict the
Company's representatives from becoming officers, employees or agents of the
portfolio company, from exercising control (by contract or otherwise) of the
routine business decisions of the portfolio company, and from otherwise becoming
involved in the day-to-day operations of the portfolio company. Nonetheless, the
Interim Regulation would permit the Company's representatives to become involved
in the routine management and operation of the portfolio company, for up to six
months (or such longer period as the Federal Reserve may approve), when such
intervention is necessary to address a material risk to the value or operation
of the portfolio company.
If in the future CIBC ceased to qualify as an FHC under the
regulations of the Federal Reserve, additional restrictions might be imposed on
the Company's activities (such as restrictions on the Company's acquisition of
portfolio companies, which may include the Equity Limit), or CIBC may be
required to divest or restructure its interests in the Company. Investments in
banks, thrifts, bank holding companies and thrift holding companies are subject
to
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certain limits and approval requirements established by Federal and state
banking laws, including the BHC Act. Accordingly, the Company may limit its
investments in such entities.
The Company would also no longer be subject to the Equity
Limit in the event that the CIBC were not longer deemed to "control" the Company
for purposes of the BHC Act. At such time, the Company would be operated so as
to ensure that it continued to not be viewed as "controlled" by CIBC under the
BHC Act.
The Adviser will not cause the Company to make loans to or
receive loans from the Adviser or its affiliates, except to the extent permitted
by the 1940 Act or as otherwise permitted by applicable law. The Company may
effect brokerage transactions through affiliates of the Adviser, subject to
compliance with the 1940 Act. (See "Conflicts Of Interest - CIBC WM" and
"Brokerage.")
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The special allocation of 20% of net profits to the Special
Advisory Account (defined below) of the Adviser may create an incentive for the
Adviser to cause the Company to make investments that are riskier or more
speculative than would be the case in the absence of the Incentive Allocation.
In addition, because the allocation is calculated on a basis that includes
unrealized appreciation of the Company's assets, the Incentive Allocation may be
greater than if it were based solely on realized gains. (See "Capital Accounts
and Allocations - Incentive Allocation.")
TAX RISKS
Counsel to the Company will render an opinion that the Company
will be treated as a partnership and not as an association taxable as a
corporation for Federal income tax purposes. Counsel to the Company also will
render its opinion that, under a "facts and circumstances" test set forth in
regulations adopted by the U.S. Treasury Department, the Company will not be
treated as a "publicly traded partnership" taxable as corporation. If it were
determined that the Company should be treated as an association or publicly
traded partnership taxable as a corporation (as a result of a successful
challenge to the opinions rendered by counsel to the Company or otherwise), the
taxable income of the Company would be subject to corporate income tax and
distributions of profits from the Company would be treated as dividends. (See
"Tax Aspects - Tax Treatment of Company Operations - Classification of the
Company.")
LACK OF OPERATING HISTORY
The Company is a recently formed entity and has no operating
history upon which investors can evaluate the performance of the Company. As
discussed below, personnel of CIBC WM, which is the member of the Adviser
responsible for managing the Company's investment portfolio, however, have
substantial experience in managing investment portfolios and private investment
funds. Mr. Panayotis ("Takis") Sparaggis, the Portfolio Manager, also serves as
the portfolio manager for five other investment funds: Balius Fund, L.L.C.
("Balius Fund"), Xanthus
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<PAGE>
Fund, L.L.C. ("Xanthus Fund"), and CIBC Oppenheimer Technology Partners, L.L.C.,
("Technology Partners"), each a Delaware limited liability company, and CIBC
Oppenheimer Technology International, Ltd. ("Technology International") and CIBC
Oppenheimer Balius International, Ltd. ("Balius International"), each a Cayman
Islands company. Balius Fund and Balius International (which are unregistered
private investment funds) have investment programs substantially similar to that
of the Company. Xanthus Fund (which is a company registered under the 1940 Act),
Technology Partners and Technology International (which are unregistered private
investment funds) are hedged funds which invest primarily in a broader range of
issues within the technology sector, including established technology companies,
as well as media companies and emerging technology issues. Mr. Sparaggis is also
a portfolio manager for Oppenheimer Investment Advisers ("OIA") investment
management program, with primary responsibility for the OIA MidCap Managed
Account Portfolios (the "MidCap Portfolios").
LIQUIDITY RISKS
Interests will not be traded on any securities exchange or
other market and are subject to substantial restrictions on transfer. Although
the Company may offer to repurchase Interests from time to time, a Member may
not be able to liquidate its Interest in the Company for up to two years. The
Adviser expects that it will recommend to the Board of Managers that the Company
offer to repurchase Interests from Members at the end of 2001, and, for each
year thereafter, once each year, effective at the end of the year. (See
"Redemptions, Repurchases of Interests and Transfers.")
DISTRIBUTIONS TO MEMBERS AND PAYMENT OF TAX LIABILITY
The Company does not intend to make periodic distributions of
its net income or gains, if any, to Members. Whether or not distributions are
made, Members will be required each year to pay applicable Federal and state
income taxes on their respective shares of the Company's taxable income, and
will have to pay applicable taxes from other sources. The amount and times of
any distributions will be determined in the sole discretion of the Board of
Managers.
ACTIVE MANAGEMENT OF PORTFOLIO
The Company's investment program emphasizes active management
of the Company's portfolio. Consequently, the Company's portfolio turnover and
brokerage commission expenses may exceed those of other investment entities.
Although the Company cannot accurately predict its portfolio turnover, the
Adviser generally expects that the Company's portfolio turnover rate will not
exceed 50%. A high turnover rate may also result in the realization of capital
gains, including short-term gains which will be taxable to the Members as
ordinary income.
BANKING REGULATION
CIBC WM is an affiliate of CIBC and, as such, is subject to
certain U.S. and Canadian banking laws, including the BHC Act, and to regulation
by the Federal Reserve. These
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banking laws, rules, regulations and guidelines and the interpretation and
administration thereof by the staff of the regulatory agencies restrict the
transactions between CIBC WM and its affiliates, on the on hand, and the
Company, on the other hand, and may restrict the investments and transactions by
the Company.
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<PAGE>
BOARD OF MANAGERS
The Board of Managers has overall responsibility for the
management and supervision of the operations of the Company and has approved the
Company's investment program. It exercises the same powers, authority and
responsibilities on behalf of the Company as are customarily exercised by the
board of directors of a registered investment company organized as a
corporation, and it has complete and exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of the
Company's business. The persons comprising the Board of Managers ("Managers")
will not contribute to the capital of the Company in their capacity as Managers,
but may subscribe for Interests, subject to the eligibility requirements
described in this Confidential Memorandum.
The identity of the members of the Board of Managers, and
brief biographical information regarding each Manager, is set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH THE COMPANY DURING PAST 5 YEARS
--------------------- ---------------- ------------------------
<S> <C> <C>
Jesse H. Ausubel Manager Director, Program for the Human Environment and
c/o Rockefeller University Senior Research Associate, The Rockefeller
Mail Stop 234 University (1993 to present); Program Director,
1230 York Avenue Alfred P. Sloan Foundation (1994 to present);
New York, NY 10021 Adjunct Scientist, Woods Hole Oceanographic
Age 49 Institution (1995 to present). Mr. Ausubel also is a
Manager of Whistler Fund, L.L.C. ("Whistler"),
Wynstone Fund, L.L.C. ("Wynstone") and Xanthus, for
which the Adviser serves as investment adviser.
Charles F. Barber Manager Consultant, Former Chairman of the Board, ASARCO
66 Glenwood Drive Incorporated; Director of 16 investment companies
Greenwich, CT 06839 advised by Salomon Brothers Asset Management, Inc.
Age 83 Mr. Barber also is a Manager of Whistler, Wynstone
and Xanthus, for which the Adviser serves as the
investment adviser, and is a Director of the India
Fund, Inc. and the Asia Tigers Fund,Inc., for which
affiliates of the Adviser serve as investment
adviser.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Paul Belica Manager Advisor, Salomon Smith Barney (1988 to present);
359 Cedar Drive West Director, Deck House Inc. (1970 to present);
Briarcliff Manor, NY 10501 Director, Central European Value Fund (1994 to
Age 79 present); Director, Surety Loan Funding
Corporation (1998 to present). Mr. Belica also is
a Manager of Whistler, Wynstone and Xanthus, for
which the Adviser serves as investment adviser.
Howard M. Singer* Manager Mr. Singer is a Managing Director, Asset
CIBC World Markets Corp. Management, CIBC WM. He is an Individual General
1 World Financial Center Partner of Augusta Partners, L.P. and Troon
New York, NY 10281 Partners, L.P. and a Manager of Sawgrass Fund,
Age 36 L.L.C., Whistler, Wynstone and Xanthus, for which
the Adviser serves as investment adviser.
</TABLE>
* Manager who is an "interested person" (as defined by the 1940 Act) of the
Company.
Each of the Managers was elected to the Board of Managers by
the organizational Member of the Company (who is not affiliated with CIBC WM).
By signing the limited liability company agreement (the "Company Agreement") of
the Company, each Member will be deemed to have voted for the election of each
of the Managers.
The Managers serve on the Board of Managers for terms of
indefinite duration. A Manager's position in that capacity will terminate if the
Manager is removed, resigns or is subject to various disabling events such as
death, incapacity or bankruptcy. A Manager may resign, subject to giving 90
days' prior written notice to the other Managers if such resignation is likely
to affect adversely the tax status of the Company, and may be removed either by
vote of two-thirds (2/3) of the Managers not subject to the removal vote or by a
vote of the Members holding not less than two-thirds (2/3) of the total number
of votes eligible to be cast by all Members. In the event of any vacancy in the
position of a Manager, the remaining Managers may appoint an individual to serve
as a Manager, so long as immediately after the appointment at least two-thirds
(2/3) of the Managers then serving have been elected by the Members. The Board
of Managers may call a meeting of Members to fill any vacancy in the position of
a Manager, and must do so within 60 days after any date on which Managers who
were elected by the Members cease to constitute a majority of Managers then
serving.
The following table sets forth certain information regarding
the compensation expected to be received by the Managers who are not "interested
persons" (as defined by the 1940 Act) of the Company or the Adviser (the
"Independent Managers") from the Company and from all registered investment
companies for which the Adviser or its affiliates serve as
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investment adviser for the calendar year ending December 31, 2000. No
compensation is paid by the Company to Managers who are "interested persons" (as
defined by the 1940 Act) of the Company or the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Benefits Estimated Annual Total Compensation
Compensation from Accrued as Part of Benefits Upon from CIBC WM
Name of Person Company Company Expenses Retirement Registered Funds
- -------------- ----------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Jesse Ausubel $7,800 0 0 $31,200
Charles Barber $7,800 0 0 $31,200
Paul Belica $7,800 0 0 $31,200
</TABLE>
Currently, the Independent Managers are each paid an annual
retainer of $5,000 and per meeting fees of $700 (or $100 in the case of
telephonic meetings) by the Company, and are reimbursed by the Company for their
reasonable out-of-pocket expenses. The Managers do not receive any pension or
retirement benefits from the Company.
THE ADVISER AND CIBC WM
The Adviser serves as the Company's investment adviser and has
been given the responsibility to manage the investment portfolio of the Company,
subject to the ultimate supervision of and subject to any policies established
by the Board of Managers, pursuant to the terms of an investment advisory
agreement entered into between the Company and the Adviser dated and effective
as of August 1, 2000 (the "Investment Advisory Agreement").
The Adviser was formed as a Delaware limited liability company
in October 1997 and is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"). The Adviser serves as an investment
adviser or general partner of other registered and private investment companies.
The offices of the Adviser are located at One World Financial Center, 31st
Floor, 200 Liberty Street, New York, New York 10281, and its telephone number is
(212) 667-4225.
CIBC WM is the managing member of (and therefore controls) the
Adviser and oversees the Adviser's provision of investment advice to the
Company. The interest of CIBC WM in the Adviser, as it relates to the Adviser's
business of providing services to the Company, is represented by a separate
series of interests in the Adviser relating specifically to such business.
The Adviser and companies controlling the Adviser (including
CIBC WM, its managing member, and CIBC, CIBC WM's parent) may be deemed to
"control" the Company, as such term is defined by the 1940 Act. CIBC, the parent
company of CIBC WM, and its affiliates (including CIBC WM and the Adviser) are
subject to the BHC Act and the rules and regulations
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<PAGE>
of the Federal Reserve. Because CIBC may be deemed to control the Company for
purposes of the BHC Act, certain activities of the Company may be restricted by
the BHC Act and the rules and regulations of the Federal Reserve thereunder, as
described elsewhere in this Confidential Memorandum.
CIBC WM is the U.S. corporate, investment, institutional and
private client banking arm of CIBC, which currently is the second-largest bank
in Canada, with assets of approximately U.S. $170 billion as of October 31,
1999. Although CIBC has conducted business in the United States for over a
century, the name "CIBC Oppenheimer Corp." was adopted in November 1997 when
CIBC Wood Gundy Securities Corp. acquired Oppenheimer & Co., Inc., one of the
largest privately owned, full-service securities firms in the U.S. At the time
of the acquisition, the combined company was renamed "CIBC Oppenheimer Corp."
Effective May 3, 1999, CIBC Oppenheimer Corp. changed its name to CIBC World
Markets Corp. Known globally under the marketing name CIBC World Markets, this
worldwide business offers a complete range of investment and corporate banking,
capital markets, asset management and brokerage activities. CIBC WM also
provides wealth management and retail brokerage services under the marketing
name CIBC Oppenheimer. CIBC WM has approximately 4,500 employees in the United
States and 9,000 worldwide.
The Adviser has selected Mr. Panayotis ("Takis") Sparaggis to
serve as Portfolio Manager. Mr. Sparaggis, who joined Oppenheimer & Co., Inc. in
May 1995, is an Executive Director of CIBC WM, a registered investment adviser.
Since January 1, 1996, he has been a Senior Portfolio Manager for Oppenheimer
Investment Advisers ("OIA") investment management program, primarily responsible
for OIA's MidCap Managed Account Portfolios (the "MidCap Portfolios"). Mr.
Sparaggis will continue to be part of OIA while managing the Company's
portfolio. OIA offers a variety of investment products and services to high net
worth individuals and institutional clients. From 1993 until joining Oppenheimer
& Co., Inc., Mr. Sparaggis was with Credit Suisse First Boston Investment
Management and was responsible for security analysis and portfolio management
for domestic investments, including proprietary trading in long-short equities
and convertible arbitrage.
Mr. Sparaggis, who is 34, received a Ph.D. in Electrical and
Computer Engineering and a Masters in Business Administration simultaneously
from the University of Massachusetts in 1993. He was an IBM Fellow in physical
sciences in 1992 and 1993. He received a Masters in Electrical and Computer
Engineering from the University of Massachusetts in 1990 and a Bachelor of
Science degree in Electrical Engineering and Computer Science from the National
Technical University of Athens in 1988.
Mr. Sparaggis also serves as portfolio manager for Balius
Fund, Xanthus Fund, Technology Partners, Balius International and Technology
International (the "Other Funds"). Balius Fund and Balius International have
investment programs substantially similar to that of the Company. In addition to
acting as portfolio manager for the Company, the Other Funds and OIA's MidCap
Portfolios, Mr. Sparaggis is, and may become, involved with other investment
opportunities sponsored by CIBC WM, including the management of one or more
proprietary accounts.
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<PAGE>
Pursuant to the Investment Advisory Agreement, the Adviser is
responsible, subject to the supervision of the Board of Managers, for the
management of the Company's investment portfolio in accordance with the
investment objective and policies of the Company. The Adviser formulates a
continuing investment program for the Company. It makes all decisions regarding
investments to be purchased or sold for the Company (subject to the supervision
of the Board of Managers) and places all orders for the purchase and sale of
investments.
The Investment Advisory Agreement was approved by the Board of
Managers (including a majority of the Independent Managers), at a meeting held
in person on April 26, 2000, and was also approved on that date by the then sole
Member of the Company. The Investment Advisory Agreement is terminable without
penalty, on 60 days' prior written notice: by the Board of Managers; by vote of
a majority (as defined by the 1940 Act) of the outstanding voting securities of
the Company; or by the Adviser. The initial term of the Investment Advisory
Agreement expires on July 31, 2002. However, the agreement may be continued in
effect from year to year thereafter if such continuance is approved annually by
either the Board of Managers or the vote of a majority (as defined by the 1940
Act) of the outstanding voting securities of the Company; provided that in
either event the continuance is also approved by a majority of the Independent
Managers by vote cast in person at a meeting called for the purpose of voting on
such approval. The Investment Advisory Agreement also provides that it will
terminate automatically in the event of its "assignment," as defined by the 1940
Act and the rules thereunder.
The Investment Advisory Agreement provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations to the Company, the Adviser and any member,
director, officer or employee thereof, or any of their affiliates, executors,
heirs, assigns, successors or other legal representative, will not be liable to
the Company for any error of judgment, for any mistake of law or for any act or
omission by such person in connection with the performance of services to the
Company. The Investment Advisory Agreement also provides for indemnification, to
the fullest extent permitted by law, by the Company of the Adviser, or any
member, director, officer or employee thereof, and any of their affiliates,
executors, heirs, assigns, successors or other legal representatives, against
any liability or expense to which such person may be liable which arise in
connection with the performance of services to the Company, provided that the
liability or expense is not incurred by reason of the person's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Company.
The Investment Advisory Agreement provides that in
consideration of the services provided by the Adviser, the Adviser shall be
entitled to be the Special Advisory Member of the Company. In such capacity, the
Adviser is entitled to receive the Incentive Allocation. (See "Capital Accounts
and Allocations -- Incentive Allocation.") The incentive allocation arrangement
between the Company and the Adviser was also approved by the Board of Managers
(including a majority of the Independent Managers), and by vote of the then sole
Member of the Company, on April 26, 2000.
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<PAGE>
VOTING
Each Member has the right to cast a number of votes based on
the value of the Member's respective capital account at a meeting of Members
called by the Board of Managers or by Members holding 25% or more of the total
number of votes eligible to be cast. Members will be entitled to vote on any
matter on which shareholders of a registered investment company organized as a
corporation would normally be entitled to vote, including election of Managers,
approval of the agreement with the investment adviser of the Company, and
approval of the Company's auditors, and on certain other matters. Except for the
exercise of their voting privileges, Members in their capacity as such are not
entitled to participate in the management or control of the Company's business,
and may not act for or bind the Company. The interest of the Special Advisory
Member is non-voting.
CONFLICTS OF INTEREST
CIBC WM
In addition to serving as the managing member of the Adviser,
CIBC WM (directly or through its affiliates, including the Adviser) carries on
substantial investment activities for its own account and for other registered
investment companies, private investment partnerships, institutions and
individual clients (collectively, "CIBC WM Clients"). The Company has no
interest in these activities. As a result of the foregoing, CIBC WM and its
officers or employees who assist CIBC WM in its management of the Adviser will
be engaged in substantial activities other than on behalf of the Adviser and may
have conflicts of interest in allocating their time and activities between the
Adviser and CIBC WM Clients. Nevertheless, CIBC WM and its officers and
employees will devote so much time to the affairs of the Adviser as in their
judgment is necessary and appropriate.
CIBC WM acts as the placement agent for the Company and will
bear costs associated with its activities as placement agent. CIBC WM, as
managing member of the Adviser and in its capacity as placement agent for the
Company, intends to compensate its account executives for their ongoing
servicing of CIBC WM clients with whom they have placed Interests. CIBC WM
intends to compensate its account executives based upon a formula that takes
into account the amount of client assets being serviced as well as the
investment results attributable to clients' assets invested in the Company.
Additionally, in connection with initial and additional purchases of Interests,
an investor's account executive may charge the investor a sales commission of up
to 3% of the amount transmitted for such purchase (up to 3.1% of the amount
invested), in the sole discretion of the account executive. (See "Fees and
Expenses," "Capital Accounts and Allocations - Incentive Allocation" and
"Subscriptions for Interests - Sales Charge.")
Situations may arise in which accounts affiliated with CIBC WM
or its affiliates have purchased securities that would have been suitable for
investment by the Company, but which the Company, for various reasons, did not
choose to purchase. This could affect the availability (or price) of investments
to the Company at a later time. From time to time, in the course of its
brokerage, investment or dealer activities, CIBC WM or its affiliates may trade,
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<PAGE>
position or invest in, for its own account, the same securities, as those in
which the Company invests. This could have an adverse impact on the Company's
investment performance.
The Company's investment program is substantially similar to
that of Balius Fund and Balius International. In addition, Xanthus Fund,
Technology Partners and Technology International may from time to time purchase,
sell or hold certain investments which are also being purchased, sold or held by
the Partnership. The Adviser will allocate such investments among the Company
and the Other Funds on an equitable basis, taking into account such factors as
the relative amounts of capital available for new investments and the respective
investment programs, diversification goals and portfolio positions of the
Company and the Other Funds. The portfolios of the Company, Balius Fund and
Balius International may differ as a result of subscriptions and withdrawals
being made at different times and in different amounts, as well as because of
different tax and regulatory considerations. The portfolios of, and allocations
of investment opportunities between, the Company and these two other funds will
also differ until cash contributed to the Company upon commencement of its
operations is invested in a manner similar to these two funds. Such differences
and other factors will result in variances between the returns of the Company,
Balius Fund and Balius International.
From time to time the availability of particular securities in
the technology market is limited. The allocations of a "limited availability"
security will be made on as equitable a basis as possible by the Adviser. For
example, if a "limited availability" security is an appropriate investment for
the Company and one or more of the Other Funds, then, so as to treat all
accounts equitably, the Adviser may, for example, allocate the full amount
purchased to the Company and one of the Other Funds and, the next time a
"limited availability" security is purchased, allocate the full amount to a
different one of the Other Funds.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser and its affiliates serve or may serve as the
investment adviser for certain private investment companies, including the Other
Funds, and the Adviser presently serves as the adviser to other registered
investment companies, private investment partnerships or managed accounts that
may pursue and investment strategy similar to that of the company, including the
Other Funds (collectively, the "Other Accounts"). As a general matter, the
Adviser (subject to any policies established by the Board of Managers) will
consider participation by the Company in all appropriate investment
opportunities that are under consideration for investment for the Other
Accounts. There may be circumstances, however, under which the Adviser will
cause one or more of the Other Accounts to commit a larger percentage of their
respective assets to an investment opportunity than to which the Adviser will
commit the Company's assets. There may also be circumstances under which the
Adviser will consider participation by the Other Accounts in investment
opportunities in which the Adviser does not intend to invest on behalf of the
Company.
The Adviser will evaluate for the Company a variety of factors
that may be relevant in determining whether, and to what extent, a particular
investment opportunity or strategy is appropriate and feasible for the Company
at a particular time, including, but not limited to, the following: (1) the
nature of the investment opportunity taken in the context of the
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<PAGE>
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.
The members of the Adviser, and their directors, officers and
employees, may buy and sell securities or other investments for their own
accounts and may have actual or potential conflicts of interest with respect to
investments made by the Adviser on behalf of the Company. As a result of
differing trading and investment strategies or constraints, positions may be
taken by directors, officers and employees of CIBC WM (including personnel of
the Adviser) that are the same, different or made at a different time than
positions taken for the Company. In order to mitigate the possibility that the
Company will be adversely affected by this personal trading, the Company and the
Adviser have adopted a Joint Code of Ethics ("Code of Ethics") in compliance
with Section 17(j) of the 1940 Act that restricts securities trading in the
personal accounts of investment professionals and others who normally come into
possession of information regarding the Company's portfolio transactions. The
Code of Ethics can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the Public Reference Room may
be obtained by calling the SEC at 1-202-942-8090. The Code of Ethics is also
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of the Code of Ethics may be obtained, after
paying a duplicating fee, by E-mail at [email protected] or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
OTHER MATTERS
The Adviser, CIBC WM and their affiliates will not purchase
securities or other property from, or sell securities or other property to, the
Company except that the Company may engage in transactions with accounts which
are affiliated with the Company only because they are advised by CIBC WM or one
of its affiliates or because they have common officers, directors or managing
members. Such transactions would be effected in circumstances where the Adviser
has determined that it would be appropriate for the Company to purchase and
another CIBC WM Client to sell, or the Company to sell and another CIBC WM
Client to purchase, the same security or instrument on the same day. All such
purchases and sales would be made pursuant to procedures adopted by the Company
pursuant to Rule 17a-7 under the 1940 Act. Among other things, those procedures
are intended to ensure that (1) each such transaction will be effected for cash
consideration at the current market price of the particular securities, (2) no
such transaction will involve restricted securities or securities for which
market quotations are not readily available and (3) no brokerage commissions,
fees (except for customary transfer fees) or other remuneration will be paid in
connection with any such transaction. CIBC WM and its affiliated broker-dealers
may act as broker for the Company in effecting securities transactions. (See
"Brokerage.")
The Company is not permitted to purchase or sell securities of
any issuer as to which the Adviser has obtained material, non-public
information, until such time as the information is no longer material or has
become publicly known. This policy could adversely affect the Company's
investment performance because the Company may (i) hold securities of an
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issuer with respect to which the Adviser has adverse information, or (ii) not
purchase securities of any issuer with respect to which the Adviser has
favorable information.
As a result of the investment banking and corporate finance
activities of CIBC WM or CIBC, the Company may be subject to future restrictions
on its ability to purchase or sell certain securities. Additionally, the Company
may purchase securities during the existence of an underwriting or selling
syndicate in which CIBC WM or any of its affiliates is participating only
subject to certain conditions. This could have an adverse impact on the
Company's investment performance.
Under the BHC Act and other U.S. banking laws, and the rules,
regulations, guidelines and policies of the regulatory agencies and the staff
thereof, CIBC WM and its affiliates are subject to restrictions on the
transactions that they may make with the Company, and their restrictions may
affect the investments made by the Company.
Future investment activities of CIBC WM (or its affiliates)
and their principals, partners, directors, officers or employees may give rise
to additional conflicts of interest.
BROKERAGE
The Adviser is responsible for placing orders for the
execution of the Company's portfolio transactions and the allocation of
brokerage. Transactions on U.S. stock exchanges and on some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On the great
majority of foreign stock exchanges, commissions are fixed. No stated commission
is generally applicable to securities traded on a principal basis in
over-the-counter markets, but the prices of those securities include undisclosed
commissions or mark-ups. Transactions may also be executed on an agency basis in
over-the-counter markets, which will involve the payment of negotiated or fixed
commissions, when deemed consistent with the Company's brokerage policies.
In selecting brokers and dealers to effect transactions on
behalf of the Company, the Adviser seeks to obtain the best price and execution
for the Company, taking into account factors such as price, size of order,
difficulty of execution and operational facilities of a brokerage firm, the
scope and quality of brokerage services provided, and in the case of
transactions effected by the Company with unaffiliated brokers, the firm's risk
in positioning a block of securities. Although the Adviser generally seeks
reasonably competitive commission rates, the Company will not necessarily pay
the lowest commission available on each transaction. The Company has no
obligation to deal with any broker or group of brokers in executing transactions
in portfolio securities.
Consistent with the principle of seeking best price and
execution, the Adviser may place brokerage orders on behalf of the Company with
brokers (including affiliates of CIBC WM) that provide the Adviser and its
affiliates 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,
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economic factors and trends, portfolio strategy and the performance of accounts.
The expenses of the Adviser are not necessarily reduced as a result of the
receipt of this supplemental information, which may be useful to the Adviser and
its affiliates in providing services to clients other than the Company. In
addition, not all of the supplemental information is used by the Adviser in
connection with the Company. Conversely, the information provided to the Adviser
by brokers and dealers through which other clients of the Adviser and its
affiliates effect securities transactions may be useful to the Adviser in
providing services to the Company.
Although the Company cannot accurately predict its portfolio
turnover, the Adviser generally expects that the Company's portfolio turnover
rate will not exceed 50%. The Company's portfolio turnover rate may exceed that
of certain other private investment companies or other registered investment
companies, resulting in brokerage expenses that may exceed those of other
investment companies. A high turnover rate may also result in the realization of
capital gains, including short-term gains which will be taxable to the Members
as ordinary income.
The Company may execute portfolio brokerage transactions
through CIBC WM or its affiliates. These transactions would be effected pursuant
to procedures adopted by the Company pursuant to Section 17(e) of the 1940 Act
and Rule 17e-1 thereunder. Among other things, Section 17(e) and those
procedures provide that when acting as broker for the Company in connection with
the sale of securities to or by the Company, neither CIBC WM nor any of its
affiliates may receive any compensation exceeding the following limits: (1) if
the sale is effected on a securities exchange, the compensation may not exceed
the "usual and customary broker's commission" (as defined in Rule 17e-1 under
the 1940 Act); (2) if the sale is effected in connection with a secondary
distribution of securities, the compensation cannot exceed 2% of the sale price;
and (3) the compensation for sales otherwise effected cannot exceed 1% of the
sales price. Rule 17e-1 defines a "usual and customary broker's commission" as
one that is fair compared to the commission received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. Morgan
Stanley & Co., Inc. will serve as the Company's prime broker.
FEES AND EXPENSES
CIBC WM will provide certain administration and investor
services to the Company, including, among other things, providing office space
and other support services to the Company, screening potential investors,
preparing investor communications, maintaining and preserving certain records of
the Company, preparing and filing various materials with state and Federal
regulators, providing legal and regulatory advice in connection with
administrative functions and reviewing and arranging for payment of the
Company's expenses. In consideration for these services, the Company will pay
CIBC WM a monthly fee of 0.08333% (1% on an annualized basis) of the Company's
net assets (the "CIBC WM Fee"). Net assets means the total value of all assets
of the Company, less an amount equal to all accrued debts, liabilities and
obligations of the Company. The CIBC WM Fee will be computed based on the net
assets of the Company as of the start of business on the first business day of
each month, after adjustment for any subscriptions effective on that date, and
is due and payable in arrears within five business days after the end of that
month. The CIBC WM Fee will be an expense paid to CIBC WM out
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of the Company's assets, and will be reflected in each Member's capital account
(except the Special Advisory Account (defined below)) as a reduction to net
profits or an increase to net losses credited to or debited against each
Member's capital account.
PFPC Inc. ("PFPC") provides administration, accounting and
investor services to the Company, which are in addition to the services provided
by CIBC WM to the Company, as described above. In consideration for these
services, the Company will pay PFPC a fee (the "PFPC Fee") that is not
anticipated to exceed 0.35% (annualized) of the Company's net assets, plus
reimbursement of certain out-of-pocket expenses.
In addition, the capital accounts of Members (except the
Special Advisory Account (defined below)) may be subject to an Incentive
Allocation depending upon the investment performance of the Company. (See
"Capital Accounts and Allocations - Incentive Allocation.")
The Company will bear all expenses incurred in its business
and operations, other than those specifically required to be borne by CIBC WM.
Expenses borne by the Company include, but are not limited to, the following:
o all costs and expenses directly related to portfolio
transactions and positions for the Company's account,
including, but not limited to, brokerage commissions,
research fees, interest and commitment fees on loans and
debit balances, borrowing charges on securities sold
short, dividends on securities sold but not yet purchased,
custodial fees, margin fees, transfer taxes and premiums,
taxes withheld on foreign dividends and indirect expenses
from investments in investment funds;
o all costs and expenses associated with the organization
and registration of the Company, certain offering costs
and the costs of compliance with any applicable Federal or
state laws;
o attorneys' fees and disbursements associated with updating
the Company's Confidential Memorandum and subscription
documents (the "Offering Materials"); the costs of
printing the Offering Materials; the costs of distributing
the Offering Materials to prospective investors; and
attorneys' fees and disbursements associated with the
review of subscription documents executed and delivered to
the Company in connection with offerings of Interests;
o the costs and expenses of holding meetings of the Board of
Managers and any meetings of Members;
o fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals engaged
on behalf of the Company;
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o the CIBC WM Fee and the fees of custodians and persons
(such as PFPC) providing administrative services to the
Company;
o the costs of a fidelity bond and any liability insurance
obtained on behalf of the Company or the Board of
Managers;
o all expenses of computing the Company's net asset value,
including any equipment or services obtained for these
purposes;
o all charges for equipment or services used in
communicating information regarding the Company's
transactions among the Adviser and any custodian or other
agent engaged by the Company; and
o such other types of expenses as may be approved from time
to time by the Board of Managers.
The Adviser will be reimbursed by the Company for any of the
above expenses that it pays on behalf of the Company.
The Company's organizational expenses are estimated at
$175,000, and the Company will also bear certain expenses, not to exceed
$100,000, associated with the initial offering of Interests. Before a recent
change to the guidelines followed by the American Institute of Certified Public
Accountants applicable to the Company, the Company would have been able to
amortize the organizational expenses over a 60-month period. Because of that
change, however, the organizational expenses now must be expensed as incurred.
In order to achieve a more equitable distribution of the impact of those
expenses among Members, an amount equal to the organizational expenses incurred
by the Company will be allocated among and credited to or debited against the
capital accounts (described below) of all Members based on the percentage that a
Member's contributed capital to the Company bears to the total capital
contributed to the Company by all Members as of the relevant allocation date. An
initial allocation of organizational costs will be made as of the first date on
which capital contributions of Members are made. These allocations will
thereafter be adjusted as of each date, through and including December 31, 2000,
on which additional capital is contributed to the Company by Members.
Offering costs cannot be deducted by the Company or Members.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Company will maintain a separate capital account for each
Member (including the Adviser in respect of any capital contribution to the
Company by the Adviser, as a Member), which will have an opening balance equal
to the Member's initial contribution to the capital of the Company. Each
Member's capital account will be increased by the sum of the amount of cash and
the value of any securities constituting additional contributions by the Member
to the capital of the Company, plus any amounts credited to the Member's capital
account as described above with respect to organization expenses or as described
below.
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Similarly, each Member's capital account will be reduced by the sum of
the amount of any repurchase by the Company of the interest, or portion thereof,
of the Member, plus the amount of any distributions to the Member which are not
reinvested, plus any amounts debited against the Member's capital account as
described above with respect to organization expenses or as described below.
Capital accounts of Members are adjusted as of the close of
business on the last day of each fiscal period. Fiscal periods begin on the day
after the last day of the preceding fiscal period and end at the close of
business on the first to occur of the following: (1) the last day of a fiscal
year; (2) the day preceding any day on which a contribution to the capital of
the Company is made; (3) any day on which the Company repurchases any Interest
or portion of an Interest of any Member; or (4) any day on which any amount is
credited to or debited against the capital account of any Member other than an
amount to be credited to or debited against the capital accounts of all Members
in accordance with their respective investment percentages. An investment
percentage will be determined for each Member as of the start of each fiscal
period by dividing the balance of the Member's capital account as of the
commencement of the period by the sum of the balances of all capital accounts of
all Members as of that date.
The Company will maintain a "Special Advisory Account" for the
Adviser solely for the purpose of receiving the Incentive Allocation, as
described below.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Company for each fiscal
period will be allocated among and credited to or debited against the capital
accounts of all Members (but not the Special Advisory Account) as of the last
day of each fiscal period in accordance with Members' respective investment
percentages for the fiscal period. Net profits or net losses will be measured as
the net change in the value of the net assets of the Company (including any net
change in unrealized appreciation or depreciation of investments and realized
income and gains or losses and expenses (including organizational expenses)
during a fiscal period), before giving effect to any repurchases by the Company
of Interests or portions thereof, and excluding the amount of any items to be
allocated among the capital accounts of the Members other than in accordance
with the Members' respective investment percentages.
Allocations for Federal income tax purposes generally will be
made among the Members so as to reflect equitably amounts credited to or debited
from each Member's capital account for the current and prior fiscal years. (See
"Tax Aspects Allocation of Profits and Losses.")
INCENTIVE ALLOCATION
So long as the Adviser serves as the investment adviser of the
Company, the Adviser will be entitled to be the Special Advisory Member of the
Company. In such capacity, the Adviser will be entitled to receive an incentive
allocation (the "Incentive Allocation"), charged to the capital account of each
Member as of the last day of each "allocation period," of 20% of the amount by
which any "allocated gain" during an "allocation period" exceeds the
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positive balance in the Member's "loss recovery account." The Incentive
Allocation will be credited to the Special Advisory Account of the Adviser.
For purposes of calculating the Incentive Allocation,
"allocated gain" means the excess of the balance of a Member's capital account
at the end of an "allocation period" (after giving effect to allocations other
than the Incentive Allocation, but before giving effect to repurchases of
Interests by the Company or debits to the Member's capital account to reflect
any item not chargeable ratably to all Members), over the balance of the
Member's capital account at the start of the "allocation period." Consequently,
any Incentive Allocation to be credited to the Adviser will be increased by a
portion of the amount of any net unrealized appreciation, as well as net
realized gains, allocable to a Member.
An Incentive Allocation is charged only with respect to any
"allocated gain" in excess of the positive balance of a "loss recovery account"
maintained for each Member. A "loss recovery account" is a memorandum account
maintained by the Company for each Member, which has an initial balance of zero
and is (1) increased after the close of each "allocation period" by the amount
of any negative performance for the Member during the "allocation period," and
(2) decreased (but not below zero) after the close of each "allocation period"
by the amount of any allocated gain for the Member during the "allocation
period." Any positive balance in a Member's "loss recovery account" would be
reduced as the result of a repurchase or certain transfers with respect to the
Member's Interest in proportion to the reduction of the Member's capital account
attributable to the repurchase or transfer.
An "allocation period" as to each Member is a period
commencing on the admission of the Member to the Company, and thereafter each
period commencing as of the day following the last day of the preceding
allocation period with respect to such Member, and ending as of the close of
business on the first to occur of (1) the last day of a fiscal year of the
Company, (2) the day as of which the Company repurchases the entire Interest of
the Member, (3) the day as of which the Company admits as a substitute Member a
person to whom the entire Interest of the Member has been transferred or (4) the
day as of which the Investment Advisory Agreement terminates. The measurement of
any Incentive Allocation for an "allocation period" must take into account any
negative performance from a prior allocation period to the extent reflected in
the "loss recovery account." Therefore, the Incentive Allocation for any
allocation period after the initial allocation period in effect is a reflection
of the extent to which cumulative performance achieved with respect to a
Member's account since the Member's admission to the Company exceeds the highest
previous level of performance achieved through the close of any prior allocation
period.
By the last business day of the month following the date on
which an Incentive Allocation is made, the Adviser may withdraw up to 100% of
the Incentive Allocation (computed on the basis of unaudited data) that was
credited to the Special Advisory Account and debited from the Member's capital
account with respect to the allocation period. Within 30 days after the
completion of the audit of the Company's books, the Company will pay to the
Adviser any additional amount determined to be owed to the Adviser based upon
the audit, and the Adviser will pay to the Company any excess amount determined
to be owed to the Company.
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ALLOCATION OF SPECIAL ITEMS - CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the
Company which are attributable to any Member will be debited against the capital
account of that Member as of the close of the fiscal period during which the
Company paid those obligations, and any amounts then or thereafter distributable
to the Member will be reduced by the amount of those taxes. If the amount of
those taxes is greater than the distributable amounts, then the Member and any
successor to the Member's Interest is required to pay upon demand to the
Company, as a contribution to the capital of the Company, the amount of the
excess. The Company is not obligated to apply for or obtain a reduction of or
exemption from withholding tax on behalf of any Member, although in the event
that the Company determines that a Member is eligible for a refund of any
withholding tax, it may, at the request and expense of that Member, assist the
Member in applying for a refund.
Generally, any expenditures payable by the Company, to the
extent paid or withheld on behalf of, or by reason of particular circumstances
applicable to, one or more, but fewer than all of the Members, will be charged
to only those Members on whose behalf the payments are made or whose particular
circumstances gave rise to the payments. These charges shall be debited to the
capital accounts of the applicable Members as of the close of the fiscal period
during which the items were paid or accrued by the Company.
RESERVES
Appropriate reserves may be created, accrued and charged
against net assets and proportionately against the capital accounts of the
Members for contingent liabilities as of the date the contingent liabilities
become known to the Company. Reserves will be in such amounts (subject to
increase or reduction) which the Company may deem necessary or appropriate. The
amount of any reserve (or any increase or decrease therein) will be
proportionately charged or credited, as appropriate, to the capital accounts of
those investors who are Members at the time when the reserve is created,
increased or decreased, as the case may be; provided, however, that if the
reserve (or any increase or decrease therein) exceeds the lesser of $500,000 or
1% of the aggregate value of the capital accounts of all those Members, the
amount of the reserve, increase, or decrease shall instead be charged or
credited to those investors who were Members at the time, as determined by the
Company, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
capital accounts at that time.
NET ASSET VALUATION
The value of the net assets of the Company will be determined
as of the close of business at the end of any fiscal period in accordance with
the procedures set forth below or as may be determined from time to time
pursuant to policies established by the Board of Managers.
Domestic exchange traded and NASDAQ listed equity securities
(other than options) will be valued at their last composite sale prices as
reported on the exchanges where those securities are traded. If no sales of
those securities are reported on a particular day, the securities
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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 those
exchanges. Securities traded on a foreign securities exchange will be valued at
their last sale prices on the exchange where the securities are primarily
traded, or in the absence of a reported sale on a particular day, at their bid
prices (in the case of securities held long) or ask prices (in the case of
securities held short) as reported by that exchange. Listed options will be
valued at their bid prices (or ask prices in the case of listed options held
short) as reported by the exchange with the highest volume on the last day a
trade was reported. Other securities for which market quotations are readily
available will be valued at their bid prices (or ask prices in the case of
securities held short) as obtained from one or more dealers making markets for
those securities. If market quotations are not readily available, securities and
other assets will be valued at fair value as determined in good faith by, or
under the supervision of, the Board of Managers.
Debt securities (other than convertible debt securities) will
be valued in accordance with the procedures described above, which with respect
to these securities may include the use of valuations furnished by a pricing
service which employs a matrix to determine valuations for normal institutional
size trading units. The Board of Managers will periodically monitor the
reasonableness of valuations provided by the pricing service. Such debt
securities with remaining maturities of 60 days or less will, absent unusual
circumstances, be valued at amortized cost, so long as this method of valuation
is determined by the Board of Managers to represent fair value.
If in the view of the Adviser, the bid price of a listed
option or debt security (or ask price in the case of any such security held
short) does not fairly reflect the market value of the security, the Adviser may
request a valuation committee comprised of two Managers to instead adopt
procedures to value the security at fair value. In any such situation, the
valuation committee will consider the recommendation of the Adviser, and, if it
determines in good faith that an override of the value assigned to the security
under the procedures described above is warranted, will adopt procedures for
purposes of determining the fair value of the security.
All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars using foreign exchange rates
provided by a pricing service compiled as of 4:00 p.m. London time. Trading in
foreign securities generally is completed, and the values of foreign securities
are determined, prior to the close of securities markets in the U.S. Foreign
exchange rates are also determined prior to such close. On occasion, the values
of foreign securities and exchange rates may be affected by events occurring
between the time as of which determination of values or exchange rates are made
and the time as of which the net asset value of the Company is determined. When
an event materially affects the values of securities held by the Company or its
liabilities, such securities and liabilities may be valued at fair value as
determined in good faith by, or under the supervision of, the Board of Managers.
Prospective investors should be aware that situations
involving uncertainties as to the valuation of portfolio positions could have an
adverse effect on the Company's net assets if the Board's judgments regarding
appropriate valuations should prove incorrect.
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SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
For the first twelve months from the date the Company
commences operations, the Board of Managers may accept initial and additional
subscriptions for Interests as of the first day of each month. Thereafter, the
Board of Managers may accept initial and additional subscriptions for Interests
by eligible investors at such times as may be determined by the Board of
Managers, but not more frequently than as of the first day of each calendar
quarter, unless the Board of Managers has received a letter from counsel to the
Adviser stating that, under applicable banking laws, the Board of Managers may
accept initial and additional subscriptions from eligible investors on a more
frequent basis. All subscriptions are subject to the receipt of cleared funds on
or before the acceptance date in the full amount of the subscription, plus the
applicable sales charge, if any. (See "Subscription for Interests Sales
Charge.") The investor must also submit a completed subscription document before
the acceptance date. The Board of Managers reserves the right to reject any
subscription for Interests. The Board of Managers may, in its sole discretion,
suspend subscriptions for Interests at any time. The minimum initial investment
in the Company is $150,000 and the minimum additional investment in the Company
is $25,000. The minimum initial and additional contributions may be reduced by
the Board of Managers. In connection with initial and additional investments, an
investor's account executive may impose a sales charge of up to 3% of the amount
transmitted for such investments. Amounts paid as sales charges, if any, are
included for purposes of determining whether applicable minimum investment
requirements have been satisfied. The Board of Managers has authorized the
Company to accept initial subscriptions for Interests from eligible investors
who are directors, officers or employees (or members of their families) of CIBC
WM or its affiliates in amounts of $50,000 or more. Interests may not be
purchased by nonresident aliens, foreign corporations, foreign partnerships,
foreign trusts or foreign estates, all as defined in the Internal Revenue Code
of 1986, as amended (the "Code"). In addition, because the Company may generate
"unrelated business taxable income" ("UBTI"), charitable remainder trusts may
not want to purchase Interests because a charitable remainder trust will not be
exempt from Federal income tax under Section 664(c) of the Code for any year in
which it has UBTI.
Except as otherwise permitted by the Board of Managers,
initial and any additional contributions to the capital of the Company by any
Member will be payable in cash, and all contributions must be transmitted by the
time and in the manner that is specified in the subscription documents of the
Company. Initial and any additional contributions to the capital of the Company
will be payable in one installment and will be due at least three business days
prior to the proposed acceptance date of the contribution, although the Board of
Managers may accept, in its sole discretion, a subscription prior to receipt of
cleared funds.
Each new Member will be obligated to agree to be bound by all
of the terms of the Company Agreement. Each potential investor will also be
obligated to represent and warrant in a subscription agreement, among other
things, that the investor is purchasing an Interest for its own account, and not
with a view to the distribution, assignment, transfer or other disposition of
the Interest.
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If and when the Board of Managers determines to accept
securities as a contribution to the capital of the Company, the Company will
charge each Member making a contribution of securities an amount determined by
the Board of Managers and not exceeding 2% of the value of the contribution in
order to reimburse the Company for any costs it incurs in liquidating and
accepting the securities. This charge will be due and payable by the
contributing Member in full at the time of the contribution to the capital of
the Company to which the charge relates.
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ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the
Interest subscribed for is being acquired directly or indirectly for the account
of an "accredited investor" as defined in Regulation D under the 1933 Act, and
that the investor (as well as each of the investor's beneficial owners under
certain circumstances) has a net worth immediately prior to the time of
subscription of at least $1.5 million or such greater amount as may be required
by applicable law or by the Board of Managers, in its sole discretion. Existing
Members who subscribe for additional Interests will be required to meet the
foregoing eligibility criteria at the time of the additional subscription. The
relevant investor qualifications will be set forth in a subscription agreement
that must be completed by each prospective investor.
SALES CHARGE
In connection with initial and additional purchases of
Interests, an investor's account executive may charge the investor a sales
commission of up to 3% of the amount transmitted for such purchase (up to 3.1%
of the amount invested), in the sole discretion of the account executive.
REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Member or other person holding an Interest or a portion of
an Interest acquired from a Member will have the right to require the Company to
redeem that Interest or portion thereof. There is no public market for
Interests, and none is expected to develop. Consequently, investors may not be
able to liquidate their investment other than as a result of repurchases of
Interests by the Company, as described below. (The Adviser will have certain
rights to withdraw amounts from its Special Advisory Account.)
REPURCHASES OF INTERESTS
The Board of Managers may, from time to time and in its sole
discretion, determine to cause the Company to repurchase Interests or portions
thereof from Members (other than the Adviser in its capacity as the Special
Advisory Member) pursuant to written tenders by Members on such terms and
conditions as it may determine. In determining whether the Company should
repurchase Interests or portions thereof from Members pursuant to written
tenders, the Board of Managers will consider the recommendation of the Adviser.
The Adviser expects that it will recommend to the Board of Managers that the
Company offer to repurchase Interests from Members at the end of 2001.
Thereafter, the Adviser expects that generally it will recommend to the Board of
Managers that the Company offer to repurchase Interests from Members once in
each year, effective at the end of the year. The Board of Managers will also
consider the following factors, among others, in making its determination:
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o whether any Members have requested to tender Interests or
portions thereof to the Company;
o the liquidity of the Company's assets;
o the investment plans and working capital requirements of
the Company;
o the relative economies of scale with respect to the size
of the Company;
o the history of the Company in repurchasing Interests or
portions thereof;
o the economic condition of the securities markets; and
o the anticipated tax consequences of any proposed
repurchases of Interests or portions thereof.
The Company will repurchase Interests or portions thereof from
Members pursuant to written tenders on terms and conditions that the Board of
Managers determines to be fair to the Company and to all Members or persons
holding Interests acquired from Members, or to one or more classes of Members,
as applicable. When the Board of Managers determines that the Company shall
repurchase Interests or portions thereof, notice will be provided to Members
describing the terms thereof, containing information Members should consider in
deciding whether to participate in the repurchase opportunity and containing
information on how to participate. Members who are deciding whether to tender
their Interests or portions thereof during the period that a repurchase offer is
open may ascertain the net asset value of their Interests from PFPC during the
period.
The Company Agreement provides that the Company shall be
dissolved if the Interest of any Member that has submitted a written request to
tender its entire Interest for repurchase by the Company has not been
repurchased within a period of two years of such request.
Repurchases of Interests or portions thereof from Members by
the Company may be made, in the discretion of the Company, in part or in whole
for cash or for securities of equivalent value and shall be effective after
receipt by the Company of all eligible written tenders of Interests or portions
thereof from Members. The amount due to any Member whose Interest or portion
thereof is repurchased shall be equal to the value of the Member's capital
account or portion thereof based on the net asset value of the Company's assets
as of the expiration date of the tender offer (the "expiration date"), after
giving effect to all allocations to be made to the Member's capital account as
of that date. Payment of the purchase price pursuant to a tender of Interests
will consist of, first, cash and/or marketable securities traded on an
established securities exchange (valued at net asset value in accordance with
the Company Agreement and distributed to tendering Members on a pari passu
basis) in an aggregate amount equal to at least 95% of the estimated unaudited
net asset value of the Interests tendered, determined as of the expiration date.
Payment of this amount will be made promptly after the expiration date (the
"cash payment") in accordance with the terms of the written offer from the
Company to
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repurchase Interests. Generally, payment pursuant to a tender will also consist
of a promissory note (the "note") that is not expected to bear interest and is
not transferable, entitling the holder thereof to a contingent payment equal to
the excess, if any, of (a) the net asset value of the Interests tendered as of
the expiration date, determined based on the audited financial statements of the
Company, over (b) the cash payment. The note would be delivered to the tendering
Member promptly after the expiration date and would be payable in cash promptly
after completion of the annual audit of the financial statements of the Company.
The audit of the Company's financial statements will be completed within 60 days
after the end of each year. The Company does not impose any charges on a
repurchase of Interests or portion of Interests.
The Company intends to maintain daily a segregated account on
its books or with its custodian consisting of cash or liquid securities in an
amount equal to the aggregate estimated dollar amount of the notes. Payment for
repurchased Interests may require the Company to liquidate portfolio holdings
earlier than the Adviser would otherwise liquidate these holdings, potentially
resulting in losses, and may increase the Company's portfolio turnover. The
Adviser intends to take measures (subject to such policies as may be established
by the Board of Managers) to attempt to avoid or minimize potential losses and
turnover resulting from the repurchase of Interests.
A Member who tenders for repurchase only a portion of such
Member's Interest shall be required to maintain a capital account balance equal
to the greater of: (i) $150,000, net of the amount of the Incentive Allocation,
if any, that is to be debited from the capital account of the Member and
credited to the Special Advisory Member Account of the Adviser on the date of
expiration of the tender offer or would be so debited if such date of expiration
were a day on which an Incentive Allocation was made (the "Tentative Incentive
Allocation"); or (ii) the amount of the Tentative Incentive Allocation, if any.
If a Member tenders an amount that would cause the Member's capital account
balance to fall below the required minimum, the Company reserves the right to
reduce the amount to be purchased from such Member so that the required minimum
balance is maintained.
The Company may repurchase an Interest or portion thereof of a
Member or any person acquiring an Interest or portion thereof from or through a
Member in the event that:
o the Interest or a portion thereof has been transferred or
the Interest or a portion thereof has vested in any person
by operation of law as the result of the death,
dissolution, bankruptcy or incompetency of a Member;
o ownership of the Interest by a Member or other person will
cause the Company to be in violation of, or require
registration of any Interest or portion thereof under, or
subject the Company to additional registration or
regulation under, the securities, commodities or other
laws of the United States or any other relevant
jurisdiction;
o continued ownership of the Interest may be harmful or
injurious to the business or reputation of the Company,
the Board of Managers or the Adviser,
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or may subject the Company or any Members to an undue risk
of adverse tax or other fiscal consequences;
o 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
o it would be in the best interests of the Company for the
Company to repurchase the Interest or a portion thereof.
In the event that the Adviser holds an Interest in its
capacity as a Member, such Interest or a portion thereof may be tendered for
repurchase in connection with any repurchase offer made by the Company. The
Adviser is also entitled to make withdrawals from its Special Advisory Account
at the times described under "Capital Accounts and Allocations - Incentive
Allocation."
TRANSFERS OF INTERESTS
Except as otherwise described below, no person shall become a
substituted Member without the written consent of the Board of Managers, which
consent may be withheld for any reason in its sole discretion. Interests held by
Members may be transferred only (i) by operation of law pursuant to the death,
divorce, bankruptcy, insolvency or dissolution of a Member or (ii) under certain
limited circumstances, with the written consent of the Board of Managers (which
may be withheld in its sole discretion and is expected to be granted, if at all,
only under extenuating circumstances). The Board of Managers generally will not
consent to a transfer unless the following conditions are met: (i) the
transferring Member has been a Member for at least six months; (ii) the proposed
transfer is to be made on the effective date of an offer by the Company to
repurchase Interests; and (iii) the transfer does not constitute a change in
beneficial ownership. Notice to the Company of any proposed transfer must
include evidence satisfactory to the Board of Managers that the proposed
transfer is exempt from registration under the 1933 Act, that the proposed
transferee meets any requirements imposed by the Company with respect to
investor eligibility and suitability, including the requirement that any
investor (or investor's beneficial owners in certain circumstances) has a net
worth immediately prior to the time of subscription of at least $1.5 million or
such greater amounts as may be required by applicable law or by the Board of
Managers, in its sole discretion, and must be accompanied by a properly
completed subscription agreement. The Board of Managers may not consent to a
transfer of an Interest by a Member unless such transfer is to a single
transferee or after the transfer of a portion of the Interest, the balance of
the capital account of each of the transferee and transferor is not less than
$150,000. A Member who transfers an Interest may be charged reasonable expenses,
including attorneys' and accountants' fees, incurred by the Company in
connection with the transfer.
Any transferee that acquires an Interest or portion thereof in
the Company by operation of law as the result of the death, divorce,
dissolution, bankruptcy or incompetency of a Member or otherwise, shall be
entitled to the allocations and distributions allocable to the Interest so
acquired, to transfer the Interest in accordance with the terms of the Company
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Agreement and to tender the Interest for repurchase by the Company, but shall
not be entitled to the other rights of a Member unless and until the transferee
becomes a substituted Member as provided in the Company Agreement.
If a Member transfers an Interest or portion thereof with the
approval of the Board of Managers, the Company shall promptly take all necessary
actions so that each transferee or successor to whom the Interest or portion
thereof is transferred is admitted to the Company as a Member. Each Member and
transferee may be charged for all expenses, including attorneys' and
accountants' fees, incurred by the Company in connection with the transfer.
By subscribing for an Interest, each Member agrees to
indemnify and hold harmless the Company, the Board of Managers, the Adviser,
each other Member and any affiliate of the foregoing against all losses, claims,
damages, liabilities, costs and expenses (including legal or other expenses
incurred in investigating or defending against any losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement), joint or several, to which such persons may become subject by
reason of or arising from any transfer made by that Member in violation of these
provisions or any misrepresentation made by that Member in connection with any
such transfer.
The Adviser may not transfer its interest as the Special
Advisory Member.
TAX ASPECTS
The following is a summary of certain aspects of the income
taxation of the Company and its Members which should be considered by a
prospective Member. The Company has not sought a ruling from the Internal
Revenue Service (the "Service") or any other Federal, state or local agency with
respect to any of the tax issues affecting the Company, nor has it obtained an
opinion of counsel with respect to any Federal tax issues other than the
characterization of the Company as a partnership for Federal income tax
purposes.
This summary of certain aspects of the Federal income tax
treatment of the Company is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change. This summary does not discuss the impact of various proposals
to amend the Code which could change certain of the tax consequences of an
investment in the Company. This summary also does not discuss all of the tax
consequences that may be relevant to a particular investor or to certain
investors subject to special treatment under the Federal income tax laws, such
as insurance companies.
EACH PROSPECTIVE MEMBER SHOULD CONSULT WITH ITS OWN TAX
ADVISER IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
In addition to the particular matters set forth in this
section, tax-exempt organizations should review carefully those sections of the
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objectives of the Company are
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consistent with their overall investment plans. Each prospective tax-exempt
Member is urged to consult its own counsel regarding the acquisition of
Interests.
Tax Treatment of Company Operations
Classification of the Company. The Company will receive an
opinion of Schulte Roth & Zabel LLP, counsel to the Company, that under the
provisions of the Code and the Regulations, as in effect on the date of the
opinion, as well as under the relevant authority interpreting the Code and the
Regulations, and based upon certain representations of the Board of Managers,
the Company will be treated as a partnership for Federal income tax purposes and
not as an association taxable as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships"
are generally treated as corporations for Federal income tax purposes. A
publicly traded partnership is any partnership the interests in which are traded
on an established securities market or which are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests in the Company will
not be traded on an established securities market. Regulations concerning the
classification of partnerships as publicly traded partnerships (the "Section
7704 Regulations") provide certain safe harbors under which interests in a
partnership will not be considered readily tradable on a secondary market (or
the substantial equivalent thereof). The Company may not be eligible for any of
those safe harbors. In particular, it will not qualify under the private
placement safe harbor set forth in the Section 7704 Regulations if the Company
has more than 100 Members.
The Section 7704 Regulations specifically provide that the
fact that a partnership does not qualify for the safe harbors is disregarded for
purposes of determining whether interests in a partnership are readily tradable
on a secondary market (or the substantial equivalent thereof). Rather, in this
event the partnership's status is examined under a general facts and
circumstances test set forth in the Section 7704 Regulations. Schulte Roth &
Zabel LLP also will render its opinion that, under this "facts and
circumstances" test, and based upon the anticipated operations of the Company as
well as the legislative history to Section 7704, the text of the Section 7704
Regulations and certain representations of the Board of Managers, the interests
in the Company will not be readily tradable on a secondary market (or the
substantial equivalent thereof) and, therefore, that the Company will not be
treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however,
is binding on the Service or the courts. If it were determined that the Company
should be treated as an association or a publicly traded partnership taxable as
a corporation for Federal income tax purposes (as a result of a successful
challenge to such opinions by the Service, changes in the Code, the Regulations
or judicial interpretations thereof, a material adverse change in facts, or
otherwise), the taxable income of the Company would be subject to corporate
income tax when recognized by the Company; distributions of such income, other
than in certain redemptions of Interests, would be treated as dividend income
when received by the Members to the extent of the current or accumulated
earnings and profits of the Company; and Members would not be entitled to report
profits or losses realized by the Company.
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As an entity taxed as a partnership, the Company is not itself
subject to Federal income tax. The Company files an annual partnership
information return with the Service which reports the results of operations.
Each Member is required to report separately on its income tax return its
distributive share of the Company's net long-term capital gain or loss, net
short-term capital gain or loss and all other items of ordinary income or loss.
Each Member is taxed on its distributive share of the Company's taxable income
and gain regardless of whether it has received or will receive a distribution
from the Company.
Certain partnerships such as the Company with 100 or more
partners may elect to have a special set of rules and procedures apply that are
intended to simplify the calculation and reporting of certain partnership items,
and the handling of partnership audits. Among the items that would be affected
by the election are the calculation of long-term capital gains and the tax
treatment of expenses, if any, that are treated as itemized deductions by the
partners. If the Company is eligible, the Board of Managers may elect to have
such rules and procedures apply to the Company if it believes that they may be
beneficial to a majority of the Members. Once the election is made, it cannot be
revoked without the consent of the Service. There can be no assurance that, if
such an election is made, the anticipated benefits will be realized.
Furthermore, in certain cases, it is possible that the election would have an
adverse effect on the Members.
Allocation of Profits and Losses. Under the Company Agreement,
the Company's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Members and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Company for Federal income tax purposes. The Company Agreement provides that
items of income, deduction, gain, loss or credit actually recognized by the
Company for each fiscal year generally are to be allocated for income tax
purposes among the Members pursuant to Regulations issued under Sections 704(b)
and 704(c) of the Code, based upon amounts of the Company's net capital
appreciation or net capital depreciation allocated to each Member's capital
account for the current and prior fiscal years.
Under the Company Agreement, the Board of Managers has the
discretion to allocate specially an amount of the Company's capital gain and
loss for Federal income tax purposes to the Special Advisory Member to a
withdrawing Member to the extent that the Member's capital account exceeds, or
is less than, as the case may be, its Federal income tax basis in its
partnership interest. There can be no assurance that, if the Board of Managers
makes any such special allocations, the Service will accept such allocations. If
such allocations are successfully challenged by the Service, the Company's gains
or losses allocable to the remaining Members would be affected.
Tax Elections; Returns; Tax Audits. The Code provides for
optional adjustments to the basis of partnership property upon distributions of
partnership property to a partner and transfers of partnership interests
(including by reason of death) provided that a partnership election has been
made pursuant to Section 754. Under the Company Agreement, at the request of a
Member, the Board of Managers, in its sole discretion, may cause the Company to
make such an election. Any such election, once made, cannot be revoked without
the Service's consent. As a result of the complexity and added expense of the
tax accounting required to
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implement such an election, the Board of Managers presently does not intend to
make such election.
The Board of Managers decides how to report the partnership
items on the Company's tax returns, and all Members are required under the Code
to treat the items consistently on their own returns, unless they file a
statement with the Service disclosing the inconsistency. In the event the income
tax returns of the Company are audited by the Service, the tax treatment of the
Company's income and deductions generally is determined at the limited liability
company level in a single proceeding rather than by individual audits of the
Members. A Member, designated by the Board of Managers as the "Tax Matters
Partner", will have considerable authority to make decisions affecting the tax
treatment and procedural rights of all Members. Given the uncertainty and
complexity of the tax laws, it is possible that the Service may not agree with
the manner in which the Company's items have been reported. In addition, the Tax
Matters Partner has the authority to bind certain Members to settlement
agreements and the right on behalf of all Members to extend the statute of
limitations relating to the Members' tax liabilities with respect to Company
items.
Tax Consequences to a Withdrawing Member
A Member receiving a cash liquidating distribution from the
Company, in connection with a complete withdrawal from the Company, generally
will recognize capital gain or loss to the extent of the difference between the
proceeds received by such Member and such Member's adjusted tax basis in its
partnership interest. Such capital gain or loss will be short-term or long-term
depending upon the Member's holding period for its interest in the Company.
However, a withdrawing Member will recognize ordinary income to the extent such
Member's allocable share of the Company's "unrealized receivables" exceeds the
Member's basis in such unrealized receivables (as determined pursuant to the
Regulations). For these purposes, accrued but untaxed market discount, if any,
on securities held by the Company will be treated as an unrealized receivable,
with respect to which a withdrawing Member would recognize ordinary income. A
Member receiving a cash nonliquidating distribution will recognize income in a
similar manner only to the extent that the amount of the distribution exceeds
such Member's adjusted tax basis in its partnership interest.
As discussed above, the Company Agreement provides that the
Board of Managers may specially allocate items of Company capital gain and loss
to a withdrawing Member to the extent its capital account would otherwise exceed
or be less than, as the case may be, its adjusted tax basis in its partnership
interest. Such a special allocation of gain may result in the withdrawing Member
recognizing capital gain, which may include short-term gain, in the Member's
last taxable year in the Company, thereby reducing the amount of long-term
capital gain recognized during the tax year in which it receives its liquidating
distribution upon withdrawal. Such a special allocation of loss may result in
the withdrawing Member recognizing capital loss, which may include long-term
loss, in the Member's last taxable year in the Company, thereby reducing the
amount of short-term loss recognized during the tax year in which it receives
its liquidating distribution upon withdrawal.
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Distributions of Property. A partner's receipt of a
distribution of property from a partnership is generally not taxable. However,
under Section 731 of the Code, a distribution consisting of marketable
securities generally is treated as a distribution of cash (rather than property)
unless the distributing partnership is an "investment partnership" within the
meaning of Section 731(c)(3)(C)(i) and the recipient is an "eligible partner"
within the meaning of Section 731(c)(3)(C)(iii). The Company will determine at
the appropriate time whether it qualifies as an "investment partnership."
Assuming it so qualifies, if a Member is an "eligible partner", which term
should include a Member whose contributions to the Company consisted solely of
cash, the recharacterization rule described above would not apply.
Tax Treatment of Company Investments
In General. The Company expects to act as a trader or
investor, and not as a dealer, with respect to its securities transactions. A
trader and an investor are persons who buy and sell securities for their own
accounts. A dealer, on the other hand, is a person who purchases securities for
resale to customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or an
investor on the sale of securities are capital gains and losses. Thus, subject
to the treatment of certain currency exchange gains as ordinary income (see
"Currency Fluctuations - 'Section 988' Gains or Losses" below) and certain other
transactions described below, the Company expects that its gains and losses from
its securities transactions typically will be capital gains and capital losses.
These capital gains and losses may be long-term or short-term depending, in
general, upon the length of time the Company maintains a particular investment
position and, in some cases, upon the nature of the transaction. Property held
for more than one year generally will be eligible for long-term capital gain or
loss treatment. The application of certain rules relating to short sales, to
so-called "straddle" and "wash sale" transactions and to Section 1256 Contracts
(defined below) may serve to alter the manner in which the Company's holding
period for a security is determined or may otherwise affect the characterization
as short-term or long-term, and also the timing of the realization, of certain
gains or losses. Moreover, the straddle rules and short sale rules may require
the capitalization of certain related expenses of the Company.
The maximum ordinary income tax rate for individuals is 39.6%
and, in general, the maximum individual income tax rate for long-term capital
gains is 20% (unless the taxpayer elects to be taxed at ordinary rates - see
"Limitation on Deductibility of Interest" below), although in all cases the
actual rates may be higher due to the phase out of certain tax deductions,
exemptions and credits. The excess of capital losses over capital gains may be
offset against the ordinary income of an individual taxpayer, subject to an
annual deduction limitation of $3,000. For corporate taxpayers, the maximum
income tax rate is 35%. Capital losses of a corporate taxpayer may be offset
only against capital gains, but unused capital losses may be carried back three
years (subject to certain limitations) and carried forward five years.
The Company may realize ordinary income from dividends and
accruals of interest on securities. The Company may hold debt obligations with
"original issue discount." In such case, the Company would be required to
include amounts in taxable income on a current basis even though receipt of such
amounts may occur in a subsequent year. The Company may
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also acquire debt obligations with "market discount." Upon disposition of such
an obligation, the Company generally would be required to treat gain realized as
interest income to the extent of the market discount which accrued during the
period the debt obligation was held by the Company. The Company may realize
ordinary income or loss with respect to its investments in partnerships engaged
in a trade or business. Income or loss from transactions involving certain
derivative instruments, such as swap transactions, will also generally
constitute ordinary income or loss. In addition, amounts, if any, payable by the
Company in connection with equity swaps, interest rate swaps, caps, floors and
collars likely would be considered "miscellaneous itemized deductions" which,
for a noncorporate non-managing Member, may be subject to restrictions on their
deductibility. See "Deductibility of Company Investment Expenditures by
Noncorporate Members" below. Moreover, gain recognized from certain "conversion
transactions" will be treated as ordinary income.(2)
Currency Fluctuations - "Section 988" Gains or Losses. To the
extent that its investments are made in securities denominated in a foreign
currency, gain or loss realized by the Company frequently will be affected by
the fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to the Company's investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses of the Company on the acquisition and disposition of
foreign currency (e.g., the purchase of foreign currency and subsequent use of
the currency to acquire stock) will be treated as ordinary income or loss.
Moreover, under Section 988, gains or losses on disposition of debt securities
denominated in a foreign currency to the extent attributable to fluctuation in
the value of the foreign currency between the date of acquisition of the debt
security and the date of disposition will be treated as ordinary income or loss.
Similarly, gains or losses attributable to fluctuations in exchange rates that
occur between the time the Company accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Company actually collects such receivables or pays such liabilities may
be treated as ordinary income or ordinary loss.
As indicated above (see "Types of Investments and Related Risk
Factors"), the Company may acquire foreign currency forward contracts, enter
into foreign currency futures contracts and acquire put and call options on
foreign currencies. Generally, foreign currency regulated futures contracts and
option contracts that qualify as "Section 1256 Contracts" (see "Section 1256
Contracts" below), will not be subject to ordinary income or loss treatment
under Section 988. However, if the Company acquires currency futures contracts
or option contracts that are not Section 1256 Contracts, or any currency forward
contracts, any gain or loss realized by the Company with respect to such
instruments will be ordinary, unless (i) the contract is a
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(2) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is attributable to
the time value of the net investment in the transaction. The enumerated
transactions are (i) the holding of any property (whether or not actively
traded) and entering into a contract to sell such property (or substantially
identical property) at a price determined in accordance with such contract, but
only if such property was acquired and such contract was entered into on a
substantially contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would have the
economic characteristics of a loan but the interest-like return would be taxed
as capital gain or (iv) any other transaction specified in Regulations.
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capital asset in the hands of the Company and is not a part of a straddle
transaction and (ii) the Company makes an election (by the close of the day the
transaction is entered into) to treat the gain or loss attributable to such
contract as capital gain or loss.
Section 1256 Contracts. In the case of Section 1256 Contracts,
the Code generally applies a "mark to market" system of taxing unrealized gains
and losses on such contracts and otherwise provides for special rules of
taxation. A Section 1256 Contract includes certain regulated futures contracts,
certain foreign currency forward contracts, and certain options contracts. Under
these rules, Section 1256 Contracts held by the Company at the end of each
taxable year of the Company are treated for Federal income tax purposes as if
they were sold by the Company for their fair market value on the last business
day of such taxable year. The net gain or loss, if any, resulting from such
deemed sales (known as "marking to market"), together with any gain or loss
resulting from actual sales of Section 1256 Contracts, must be taken into
account by the Company in computing its taxable income for such year. If a
Section 1256 Contract held by the Company at the end of a taxable year is sold
in the following year, the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 Contracts
generally are characterized as short-term capital gains or losses to the extent
of 40% thereof and as long-term capital gains or losses to the extent of 60%
thereof. Such gains and losses will be taxed under the general rules described
above. Gains and losses from certain foreign currency transactions will be
treated as ordinary income and losses. (See "Currency Fluctuations - 'Section
988' Gains or Losses.") If an individual taxpayer incurs a net capital loss for
a year, the portion thereof, if any, which consists of a net loss on Section
1256 Contracts may, at the election of the taxpayer, be carried back three
years. Losses so carried back may be deducted only against net capital gain to
the extent that such gain includes gains on Section 1256 Contracts.
Mixed Straddle Election. The Code allows a taxpayer to elect
to offset gains and losses from positions which are part of a "mixed straddle."
A "mixed straddle" is any straddle in which one or more but not all positions
are Section 1256 Contracts. Pursuant to Temporary Regulations, the Company may
be eligible to elect to establish one or more mixed straddle accounts for
certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily "marking to market" of all open positions in the account
and a daily netting of gains and losses from positions in the account. At the
end of a taxable year, the annual net gains or losses from the mixed straddle
account are recognized for tax purposes. The application of the Temporary
Regulations' mixed straddle account rules is not entirely clear. Therefore,
there is no assurance that a mixed straddle account election by the Company will
be accepted by the Service.
Short Sales. Gain or loss from a short sale of property is
generally considered as capital gain or loss to the extent the property used to
close the short sale constitutes a capital asset in the Company's hands. Except
with respect to certain situations where the property used to close a short sale
has a long-term holding period on the date the short sale is entered into, gains
on short sales generally are short-term capital gains. A loss on a short sale
will be treated as a long-term capital loss if, on the date of the short sale,
"substantially identical property" has
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been held by the Company for more than one year. In addition, these rules may
also terminate the running of the holding period of "substantially identical
property" held by the Company.
Gain or loss on a short sale will generally not be realized
until such time that the short sale is closed. However, if the Company holds a
short sale position with respect to stock, certain debt obligations or
partnership interests that has appreciated in value and then acquires property
that is the same as or substantially identical to the property sold short, the
Company generally will recognize gain on the date it acquires such property as
if the short sale were closed on such date with such property. Similarly, if the
Company holds an appreciated financial position with respect to stock, certain
debt obligations, or partnership interests and then enters into a short sale
with respect to the same or substantially identical property, the Company
generally will recognize gain as if the appreciated financial position were sold
at its fair market value on the date it enters into the short sale. The
subsequent holding period for any appreciated financial position that is subject
to these constructive sale rules will be determined as if such position were
acquired on the date of the constructive sale.
Effect of Straddle Rules on Members' Securities Positions. The
Service may treat certain positions in securities held (directly or indirectly)
by a Member and its indirect interest in similar securities held by the Company
as "straddles" for Federal income tax purposes. The application of the
"straddle" rules in such a case could affect a Member's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.
Limitation on Deductibility of Interest and Short Sale
Expenses. For noncorporate taxpayers, Section 163(d) of the Code limits the
deduction for "investment interest" (i.e., interest or short sale expenses for
"indebtedness properly allocable to property held for investment"). Investment
interest is not deductible in the current year to the extent that it exceeds the
taxpayer's "net investment income," consisting of net gain and ordinary income
derived from investments in the current year less certain directly connected
expenses (other than interest or short sale expenses). For this purpose, any
long-term capital gain is excluded from net investment income unless the
taxpayer elects to pay tax on such amount at ordinary income tax rates.
For purposes of this provision, the Company's activities will
be treated as giving rise to investment income for a Member, and the investment
interest limitation would apply to a noncorporate Member's share of the interest
and short sale expenses attributable to the Company's operation. In such case, a
noncorporate Member would be denied a deduction for all or part of that portion
of its distributive share of the Company's ordinary losses attributable to
interest and short sale expenses unless it had sufficient investment income from
all sources including the Company. A Member that could not deduct losses
currently as a result of the application of Section 163(d) would be entitled to
carry forward such losses to future years, subject to the same limitation. The
investment interest limitation would also apply to interest paid by a
noncorporate Member on money borrowed to finance its investment in the Company.
Potential investors are advised to consult with their own tax advisers with
respect to the application of the investment interest limitation in their
particular tax situations.
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Deductibility of Company Investment Expenditures by
Noncorporate Members. Investment expenses (e.g., investment advisory fees) of an
individual, trust or estate are deductible only to the extent they exceed 2% of
adjusted gross income.(3) In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount (for
2000, $128,950 or $64,475 for a married person filing a separate return) to
deduct such investment expenses. Under such provision, investment expenses in
excess of 2% of adjusted gross income may only be deducted to the extent such
excess expenses (along with certain other itemized deductions) exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
It is unclear whether all or a portion of the Company's
operations will qualify as trading -- rather than investment -- activities, the
expenses for which would not be treated as investment expenses. Therefore,
pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility may apply to a noncorporate Member's share of the
expenses of the Company, including the CIBC WM Fee.
The consequences of these limitations will vary depending upon
the particular tax situation of each taxpayer. Accordingly, noncorporate Members
should consult their tax advisers with respect to the application of these
limitations.
Application of Rules for Income and Losses from Passive
Activities. The Code restricts the deductibility of losses from a "passive
activity" against certain income which is not derived from a passive activity.
This restriction applies to individuals, personal service corporations and
certain closely held corporations. Pursuant to Temporary Regulations issued by
the Treasury Department, income or loss from the Company's securities investment
and trading activity generally will not constitute income or loss from a passive
activity. Therefore, passive losses from other sources generally could not be
deducted against a non-managing Member's share of such income and gain from the
Company. Income or loss attributable to the Company's investment in a
partnership engaged in a non-securities trade or business may constitute passive
activity income or loss.
"Phantom Income" From Company Investments. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments (if any) by the Company in certain foreign corporations may cause a
Member to (i) recognize taxable income prior to the Company's
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(3) However, Section 67(e) of the Code provides that, in the case of a trust or
an estate, such limitation does not apply to deductions or costs which are paid
or incurred in connection with the administration of the estate or trust and
would not have been incurred if the property were not held in such trust or
estate. The Federal Court of Appeals for the Sixth Circuit, reversing a Tax
Court decision, has held that the investment advisory fees incurred by a trust
were exempt (under Section 67(e)) from the 2% of adjusted gross income floor on
deductibility. The Service, however, has stated that it will not follow this
decision outside of the Sixth Circuit. Members that are trusts or estates should
consult their tax advisors as to the applicability of this case to the
investment expenses that are allocated to them.
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receipt of distributable proceeds, (ii) pay an interest charge on receipts that
are deemed as having been deferred or (iii) recognize ordinary income that, but
for the "anti-deferral" provisions, would have been treated as long-term or
short-term capital gain.
Foreign Taxes
It is possible that certain dividends and interest received by
the Company from sources within foreign countries will be subject to withholding
taxes imposed by such countries. In addition, the Company may also be subject to
capital gains taxes in some of the foreign countries where it purchases and
sells securities. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to predict in advance the
rate of foreign tax the Company will pay since the amount of the Company's
assets to be invested in various countries is not known.
The Members will be informed by the Company as to their
proportionate share of the foreign taxes paid by the Company, which they will be
required to include in their income. The Members generally will be entitled to
claim either a credit (subject, however, to various limitations on foreign tax
credits) or, if they itemize their deductions, a deduction (subject to the
limitations generally applicable to deductions) for their share of such foreign
taxes in computing their Federal income taxes. A Member that is tax exempt will
not ordinarily benefit from such credit or deduction.
Unrelated Business Taxable Income
Generally, an exempt organization is exempt from Federal
income tax on its passive investment income, such as dividends, interest and
capital gains, whether realized by the organization directly or indirectly
through a partnership in which it is a partner.(4) This type of income is exempt
even if it is realized from securities trading activity which constitutes a
trade or business.
This general exemption from tax does not apply to the
"unrelated business taxable income" ("UBTI") of an exempt organization.
Generally, except as noted above with respect to certain categories of exempt
trading activity, UBTI includes income or gain derived (either directly or
through partnerships) from a trade or business, the conduct of which is
substantially unrelated to the exercise or performance of the organization's
exempt purpose or function. UBTI also includes "unrelated debt-financed income,"
which generally consists of (i) income derived by an exempt organization
(directly or through a partnership) from income-producing property with respect
to which there is "acquisition indebtedness" at any time during the taxable
year, and (ii) gains derived by an exempt organization (directly or through a
partnership) from the disposition of property with respect to which there is
"acquisition indebtedness" at any time during the twelve-month period ending
with the date of such disposition. With respect to its
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(4) With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to 1% if
the private foundation meets certain distribution requirements for the taxable
year. A private foundation will be required to make payments of estimated tax
with respect to this excise tax.
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investments in partnerships engaged in a trade or business, the Company's income
(or loss) from these investments may constitute UBTI.
The Company may incur "acquisition indebtedness" with respect
to certain of its transactions, such as the purchase of securities on margin.
Based upon a published ruling issued by the Service which generally holds that
income and gain with respect to short sales of publicly traded stock does not
constitute income from debt financed property for purposes of computing UBTI,
the Company will treat its short sales of securities as not involving
"acquisition indebtedness" and therefore not resulting in UBTI.(5) To the extent
the Company recognizes income (i.e., dividends and interest) from securities
with respect to which there is "acquisition indebtedness" during a taxable year,
the percentage of such income which will be treated as UBTI generally will be
based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
To the extent the Company recognizes gain from securities with
respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of their disposition, the percentage of
such gain which will be treated as UBTI will be based on the percentage which
the highest amount of such "acquisition indebtedness" is of the "average amount
of the adjusted basis" of such securities during the taxable year. In
determining the unrelated debt-financed income of the Company, an allocable
portion of deductions directly connected with the Company's debt-financed
property is taken into account. Thus, for instance, a percentage of losses from
debt-financed securities (based on the debt/basis percentage calculation
described above) would offset gains treated as UBTI.
Since the calculation of the Company's "unrelated
debt-financed income" is complex and will depend in large part on the amount of
leverage used by the Company from time to time,(6) it is impossible to predict
what percentage of the Company's income and gains will be treated as UBTI for a
Member which is an exempt organization. An exempt organization's share of the
income or gains of the Company which is treated as UBTI may not be offset by
losses of the exempt organization either from the Company or otherwise, unless
such losses are treated as attributable to an unrelated trade or business (e.g.,
losses from securities for which there is acquisition indebtedness).
To the extent that the Company generates UBTI, the applicable
Federal tax rate for such a Member generally would be either the corporate or
trust tax rate depending upon the nature of the particular exempt organization.
An exempt organization may be required to support, to the satisfaction of the
Service, the method used to calculate its UBTI. The Company will be required to
report to a Member which is an exempt organization information as to the portion
of its income and gains from the Company for each year which will be treated as
UBTI.
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(5) Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
(6) The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Company. An
exempt organization is required to make estimated tax payments with respect to
its UBTI.
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The calculation of such amount with respect to transactions entered into by the
Company is highly complex, and there is no assurance that the Company's
calculation of UBTI will be accepted by the Service.
In general, if UBTI is allocated to an exempt organization
such as a qualified retirement plan or a private foundation, the portion of the
Company's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Company generally should not affect
the tax-exempt status of such an exempt organization.(7) However, a charitable
remainder trust will not be exempt from Federal income tax under Section 664(c)
of the Code for any year in which it has UBTI. A title-holding company will not
be exempt from tax if it has certain types of UBTI. Moreover, the charitable
contribution deduction for a trust under Section 642(c) of the Code may be
limited for any year in which the trust has UBTI. A prospective investor should
consult its tax adviser with respect to the tax consequences of receiving UBTI
from the Company. (See "ERISA Considerations.")
Certain Issues Pertaining to Specific Exempt Organizations
Private Foundations. Private foundations and their managers
are subject to excise taxes if they invest "any amount in such a manner as to
jeopardize the carrying out of any of the foundation's exempt purposes." This
rule requires a foundation manager, in making an investment, to exercise
"ordinary business care and prudence" under the facts and circumstances
prevailing at the time of making the investment, in providing for the short-term
and long-term needs of the foundation to carry out its exempt purposes. The
factors which a foundation manager may take into account in assessing an
investment include the expected rate of return (both income and capital
appreciation), the risks of rising and falling price levels, and the need for
diversification within the foundation's portfolio.
In order to avoid the imposition of an excise tax, a private
foundation may be required to distribute on an annual basis its "distributable
amount," which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets (assets not used or held for use in carrying out
the foundation's exempt purposes), over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Company would most probably be classified as a nonfunctionally
related asset. A determination that an interest in the Company is a
nonfunctionally related asset could conceivably cause cash flow problems for a
prospective Member which is a private foundation. Such an organization could be
required to make distributions in an amount determined by reference to
unrealized appreciation in the value of its interest in the Company. Of course,
this factor would create less of a problem to the extent
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(7) Certain exempt organizations which realize UBTI in a taxable year will not
constitute "qualified organizations" for purposes of Section 514(c)(9)(B)(vi)(I)
of the Code, pursuant to which, in limited circumstances, income from certain
real estate partnerships in which such organizations invest might be treated as
exempt from UBTI. A prospective tax-exempt Member should consult its tax adviser
in this regard.
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that the value of the investment in the Company is not significant in relation
to the value of other assets held by a foundation.
In some instances, an investment in the Company by a private
foundation may be prohibited by the "excess business holdings" provisions of the
Code. For example, if a private foundation (either directly or together with a
"disqualified person") acquires more than 20% of the capital interest or profits
interest of the Company, the private foundation may be considered to have
"excess business holdings." If this occurs, such foundation may be required to
divest itself of its interest in the Company in order to avoid the imposition of
an excise tax. However, the excise tax will not apply if at least 95% of the
gross income from the Company is "passive" within the applicable provisions of
the Code and Regulations. Although there can be no assurance, the Board of
Managers believes that the Company will meet such 95% gross income test.
A substantial percentage of investments of certain "private
operating foundations" may be restricted to assets directly devoted to their
tax-exempt purposes. Otherwise, generally, rules similar to those discussed
above govern their operations.
Qualified Retirement Plans. Employee benefit plans subject to
the provisions of ERISA, Individual Retirement Accounts and Keogh Plans should
consult their counsel as to the implications of such an investment under ERISA.
(See "ERISA Considerations.")
Endowment Funds. Investment managers of endowment funds should
consider whether the acquisition of an Interest is legally permissible. This is
not a matter of Federal law, but is determined under state statutes. It should
be noted, however, that under the Uniform Management of Institutional Funds Act,
which has been adopted, in various forms, by a large number of states,
participation in investment partnerships or similar organizations in which funds
are commingled and investment determinations are made by persons other than the
governing board of the endowment fund is allowed.
State and Local Taxation
In addition to the Federal income tax consequences described
above, prospective investors should consider potential state and local tax
consequences of an investment in the Company. State and local tax laws differ in
the treatment of limited liability companies such as the Company. A few
jurisdictions may impose entity level taxes on a limited liability company if it
is found to have sufficient contact with that jurisdiction. Such taxes are
frequently based on the income and capital of the entity that is allocated to
the jurisdiction. Although there can be no assurance, except as noted below, the
Company intends to conduct its activities so that it will not be subject to
entity level taxation by any state or local jurisdiction.
State and local laws often differ from Federal income tax laws
with respect to the treatment of specific items of income, gain, loss, deduction
and credit. A Member's distributive share of the taxable income or loss of the
Company generally will be required to be included in determining its reportable
income for state and local tax purposes in the jurisdiction in which it is
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a resident. A partnership in which the Company acquires an interest may conduct
business in a jurisdiction which will subject to tax a Member's share of the
partnership'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 Member is a resident.
The Company, which is treated as a partnership for New York
State and New York City income tax purposes, should not be subject to the New
York City unincorporated business tax, which is not imposed on a partnership
which purchases and sells securities for its "own account." (This exemption may
not be applicable to the extent a partnership in which the Company invests
conducts a business in New York City.) By reason of a similar "own account"
exemption, it is also expected that a nonresident individual Member should not
be subject to New York State personal income tax with respect to his share of
income or gain realized directly by the Company. A nonresident individual Member
will not be subject to New York City earnings tax on nonresidents with respect
to his investment in the Company.
Individual Members who are residents of New York State and New
York City should be aware that the New York State and New York City personal
income tax laws limit the deductibility of itemized deductions for individual
taxpayers at certain income levels. These limitations may apply to a Member's
share of some or all of the Company's expenses. Prospective Members are urged to
consult their tax advisers with respect to the impact of these provisions and
the Federal limitations on the deductibility of certain itemized deductions and
investment expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and
the New York City general corporation tax, a corporation generally is treated as
doing business in New York State and New York City, respectively, and is subject
to such corporate taxes as a result of the ownership of a partnership interest
in a partnership which does business in New York State and New York City,
respectively.(8) Each of the New York State and New York City corporate taxes
are imposed, in part, on the corporation's taxable income or capital allocable
to the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a non-managing member in a New York partnership may, under certain
circumstances, elect to compute its New York State corporate franchise tax by
taking into account only its distributive share of such partnership's income and
loss. There is currently no similar provision in effect for purposes of the New
York City general corporation tax.
Regulations under both the New York State corporate franchise
tax and the New York City general corporation tax, however, provide an exception
to this general rule in the case of a "portfolio investment partnership", which
is defined, generally, as a partnership which meets the gross income
requirements of Section 851(b)(2) of the Code. New York State (but not New
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(8) New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a partnership
doing business in New York and (ii) has a tax basis in such limited partnership
interest not greater than $1 million.
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York City) has adopted regulations that also include income and gains from
commodity transactions described in Section 864(b)(2)(B)(iii) as qualifying
gross income for this purpose. The Company's qualification as a "portfolio
investment partnership" must be determined on an annual basis and, with respect
to any taxable year, the Company may not qualify. Therefore, a corporate Member
would not be treated as doing business in New York State and New York City
solely as a result of its interest in the Company.
A trust or other unincorporated organization which by reason
of its purposes or activities is exempt from Federal income tax is also exempt
from New York State and New York City personal income tax. A nonstock
corporation which is exempt from Federal income tax is generally presumed to be
exempt from New York State corporate franchise tax and New York City general
corporation tax. New York State imposes a tax with respect to such exempt
entities on UBTI (including unrelated debt-financed income) at a rate which is
currently equal to the New York State corporate franchise tax rate (plus the
corporate surtax). There is no New York City tax on the UBTI of an otherwise
exempt entity.
Each prospective corporate Member should consult its tax
adviser with regard to the New York State and New York City tax consequences of
an investment in the Company.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee
benefit plan, IRA, Keogh plan or other arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Code (an
"ERISA Plan") should consider, among other things, the matters described below
before determining whether to invest in the Company.
ERISA imposes certain general and specific responsibilities on
persons who are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department of
Labor ("DOL") regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, an
examination of the risk and return factors, the portfolio's composition with
regard to diversification, the liquidity and current return of the total
portfolio relative to the anticipated cash flow needs of the ERISA Plan, the
income tax consequences of the investment (see "TAX ASPECTS Unrelated Business
Taxable Income" and "- Certain Issues Pertaining to Specific Exempt
Organizations"), and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Company, a fiduciary should determine whether such an investment is
consistent with its fiduciary responsibilities and the foregoing regulations.
For example, a fiduciary should consider whether an investment in the Company
may be too illiquid or too speculative for a particular ERISA Plan, and whether
the assets of the ERISA Plan would be sufficiently diversified. If a fiduciary
with respect to any such ERISA Plan breaches his responsibilities with regard to
selecting an investment or an investment course of action for such ERISA Plan,
the fiduciary may be held personally liable for losses incurred by the ERISA
Plan as a result of such breach.
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Because the Company is registered as an investment company
under the 1940 Act, the underlying assets of the Company should not be
considered to be "plan assets" of the ERISA Plans investing in the Company for
purposes of ERISA's fiduciary responsibility and prohibited transaction rules.
Thus, neither the Adviser nor any of the Managers will be fiduciaries within the
meaning of ERISA.
The Board of Managers requires an ERISA Plan proposing to
invest in the Company to represent that it, and any fiduciaries responsible for
the Plan's investments, are aware of and understand the Company's investment
objective, policies and strategies, that the decision to invest plan assets in
the Company was made with appropriate consideration of relevant investment
factors with regard to the ERISA Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA.
Certain prospective Plan investors may currently maintain
relationships with the Adviser or the Managers, or with other entities which are
affiliated with the Adviser or the Managers. Each of such persons may be deemed
to be a party in interest to and/or a fiduciary of any ERISA Plan to which it
provides investment management, investment advisory or other services. ERISA
prohibits ERISA Plan assets to be used for the benefit of a party in interest
and also prohibits an ERISA Plan fiduciary from using its position to cause the
ERISA Plan to make an investment from which it or certain third parties in which
such fiduciary has an interest would receive a fee or other consideration. ERISA
Plan investors should consult with counsel to determine if participation in the
Company is a transaction which is prohibited by ERISA or the Code. Fiduciaries
of ERISA or Benefit Plan investors will be required to represent that the
decision to invest in the Company was made by them as fiduciaries that are
independent of such affiliated persons, that are duly authorized to make such
investment decision and that have not relied on any individualized advice or
recommendation of such affiliated persons, as a primary basis for the decision
to invest in the Company.
The provisions of ERISA are subject to extensive and
continuing administrative and judicial interpretation and review. The discussion
of ERISA contained in this Confidential Memorandum, is, of necessity, general
and may be affected by future publication of regulations and rulings. Potential
investors should consult with their legal advisors regarding the consequences
under ERISA of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary description of additional items and
of select provisions of the Company Agreement which may not be described
elsewhere in this Confidential Memorandum. The description of such items and
provisions is not definitive and reference should be made to the complete text
of the Company Agreement, which is attached hereto as Appendix A.
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MEMBER INTERESTS
Persons who purchase Interests in the offering being made
hereby will be Members. The Adviser and its affiliates may contribute capital to
and maintain an investment in the Company, and to that extent will be Members of
the Company. The Adviser, or its successor as investment adviser of the Company,
will also be a Special Advisory Member of the Company. In that regard, the
Company has established a Special Advisory Account solely for the purpose of
receiving the Incentive Allocation. The interest of the Special Advisory Member
does not participate in the income or gains of the Company, has no voting rights
and has no right to a share of the assets of the Company upon its liquidation,
except to the extent that the Special Advisory Member has received or is
entitled to receive the Incentive Allocation credited to the Special Advisory
Account and all or a portion of that allocation has not been withdrawn. The
Adviser may not contribute capital to the Company as Special Advisory Member.
LIABILITY OF MEMBERS
Under Delaware law and the Company Agreement, each Member will
be liable for the debts and obligations of the Company only to the extent of any
contributions to the capital of the Company (plus any accretions in value
thereto prior to withdrawal) and a Member, in the sole discretion of the Board
of Managers, may be obligated to return to the Company amounts distributed to
the Member in accordance with the Company Agreement in certain circumstances
where after giving effect to the distribution, certain liabilities of the
Company exceed the fair market value of the Company's assets.
DUTY OF CARE OF MANAGERS
The Company Agreement provides that a Manager shall not be
liable to the Company or any of the Members for any loss or damage occasioned by
any act or omission in the performance of the Manager's services as such in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the Manager's office. The
Company Agreement also contains provisions for the indemnification, to the
extent permitted by law, of a Manager by the Company (but not by the Members
individually) against any liability and expense to which the Manager may be
liable which arise in connection with the performance of the Manager's
activities on behalf of the Company. Managers shall not be personally liable to
any Member for the repayment of any positive balance in the Member's capital
account or for contributions by the Member to the capital of the Company or by
reason of any change in the Federal or state income tax laws applicable to the
Company or its investors. The rights of indemnification and exculpation provided
under the Company Agreement shall not be construed so as to provide for
indemnification of a Manager for any liability (including liability under
Federal securities laws which, under certain circumstances, impose liability
even on persons that act in good faith), to the extent (but only to the extent)
that such indemnification would be in violation of applicable law, but shall be
construed so as to effectuate the applicable provisions of the Company Agreement
to the fullest extent permitted by law.
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AMENDMENT OF THE COMPANY AGREEMENT
The Company Agreement may generally be amended, in whole or in
part, with the approval of the Board of Managers (including a majority of the
Independent Managers, if required by the 1940 Act) and, without the approval of
the Members, unless the approval of Members is required by the 1940 Act.
However, certain amendments to the Company Agreement involving capital accounts
and allocations thereto may not be made without the written consent of any
Member adversely affected thereby or unless each Member has received written
notice of the amendment and any Member objecting to the amendment has been
allowed a reasonable opportunity (pursuant to any procedures as may be
prescribed by the Board of Managers) to tender its entire interest for
repurchase by the Company.
POWER OF ATTORNEY
By subscribing for an interest in the Company, each Member
will appoint each of the Managers his or her attorney-in-fact for purposes of
filing required certificates and documents relating to the formation and
maintenance of the Company as a limited liability company under Delaware law or
signing all instruments effecting authorized changes in the Company or the
Company Agreement and conveyances and other instruments deemed necessary to
effect the dissolution or termination of the Company.
The power-of-attorney granted as part of each Member's
subscription agreement is a special power-of-attorney and is coupled with an
interest in favor of the Board of Managers and as such shall be irrevocable and
will continue in full force and effect notwithstanding the subsequent death or
incapacity of any Member granting the power-of-attorney, and shall survive the
delivery of a transfer by a Member of all or any portion of an Interest, except
that where the transferee thereof has been approved by the Board of Managers for
admission to the Company as a substitute Member, or upon the withdrawal of a
Member from the Company pursuant to a periodic tender or otherwise this
power-of-attorney given by the transferor shall terminate.
TERM, DISSOLUTION AND LIQUIDATION
The Company shall be dissolved:
o upon the affirmative vote to dissolve the Company by: (1)
the Board of Managers or (2) Members holding at least
two-thirds (2/3) of the total number of votes eligible to
be cast by all Members;
o upon the expiration of any two year period which commences
on the date on which any Member has submitted a written
notice to the Company requesting to tender its entire
interest for repurchase by the Company if that interest
has not been repurchased by the Company;
o upon the failure of Members to elect successor Managers at
a meeting called by the Adviser when no Manager remains to
continue the business of the Company; or
o as required by operation of law.
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Upon the occurrence of any event of dissolution, the Board of
Managers or CIBC WM, acting as liquidator under appointment by the Board of
Managers (or another liquidator, if the Board of Managers does not appoint CIBC
WM to act as liquidator or is unable to perform this function) is charged with
winding up the affairs of the Company and liquidating its assets. Net profits or
net loss during the fiscal period including the period of liquidation will be
allocated as described in the section titled "Capital Accounts and Allocations -
Allocation of Net Profits and Net Loss."
Upon the liquidation of the Company, its assets will be
distributed (1) first to satisfy the debts, liabilities and obligations of the
Company (other than debts to Members) including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Members, and (3)
finally to the Members proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the Board of Managers or liquidator determines that the distribution of
assets in kind would be in the interests of the Members in facilitating an
orderly liquidation.
REPORTS TO MEMBERS
The Company will furnish to Members as soon as practicable
after the end of each taxable year such information as is necessary for them to
complete Federal and state income tax or information returns, along with any
other tax information required by law. The Company will send to Members an
unaudited semi-annual and an audited annual report within 60 days after the
close of the period for which it is being made, or as otherwise required by the
1940 Act. Quarterly reports regarding the Company's operations during the period
will also be sent to Members.
FISCAL YEAR
The Company's fiscal year is the 12-month period ending on
December 31. The first fiscal year of the Company will commence on the date of
the initial closing and will end on December 31, 2000.
AUDITORS AND LEGAL COUNSEL
The Board of Managers has selected Ernst & Young LLP as the
independent public accountants of the Company. Ernst & Young LLP's principal
business address is located at 787 Seventh Avenue, 15th Floor, New York, New
York.
Schulte Roth & Zabel LLP, New York, New York, serves as legal
counsel to the Company. The firm also acts as legal counsel to the Adviser, CIBC
WM and its affiliates with respect to certain matters. Stroock & Stroock & Lavan
LLP, New York, New York, acts as legal counsel to the Independent Managers.
CUSTODIAN
PFPC Trust Company ("PFPC Trust") serves as the primary
custodian of the Company's assets, and may maintain custody of the Company's
assets with domestic and foreign
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subcustodians (which may be banks, trust companies, securities depositories and
clearing agencies), approved by the Board of Managers of the Company in
accordance with the requirements set forth in Section 17(f) of the 1940 Act and
the rules adopted thereunder. Assets of the Company are not held by the Adviser
or commingled with the assets of other accounts other than to the extent that
securities are held in the name of a custodian in a securities depository,
clearing agency or omnibus customer account of a custodian. PFPC Trust's
principal business address is 103 Bellevue Parkway, Wilmington, DE 19809.
INQUIRIES
Inquiries concerning the Company and Interests (including
information concerning subscription and withdrawal procedures) should be
directed to:
CIBC Oppenheimer Advisers, L.L.C.
c/o CIBC World Markets Corp.
One World Financial Center - 31st Floor
200 Liberty Street
New York, New York 10281
Telephone: 212-667-4225
Telecopier: 212-667-5689
For additional information contact:
Howard M. Singer
Managing Director
CIBC World Markets Corp.
* * * * *
All potential investors in the Company are encouraged to
consult appropriate legal and tax counsel.
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APPENDIX A
-------------------------------------------------------
STRATIGOS FUND, L.L.C.
(A Delaware Limited Liability Company)
------------------------------------
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of April 26, 2000
------------------------------------
One World Financial Center, 31st Floor
200 Liberty Street
New York, New York 10281
(212) 667-4225
TABLE OF CONTENTS
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Page
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<S> <C>
ARTICLE I DEFINITIONS...................................................................... 1
ARTICLE II ORGANIZATION; ADMISSION OF MEMBERS.............................................. 10
2.1 Formation of Limited Liability Company.............................................. 10
2.2 Name................................................................................ 10
2.3 Principal and Registered Office...................................................... 10
2.4 Duration............................................................................. 10
2.5 Objective and Business of the Company................................................ 10
2.6 Board of Managers.................................................................... 11
2.7 Members.............................................................................. 12
2.8 Special Advisory Member.............................................................. 12
2.9 Organizational Member................................................................ 12
2.10 Both Managers and Members........................................................... 12
2.11 Limited Liability................................................................... 12
ARTICLE III MANAGEMENT...................................................................... 13
3.1 Management and Control............................................................... 13
3.2 Actions by the Board of Managers..................................................... 13
3.3 Meetings of Members.................................................................. 14
3.4 Custody of Assets of the Company..................................................... 15
3.5 Other Activities of Members and Managers............................................. 15
</TABLE>
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<TABLE>
<S> <C>
3.6 Duty of Care......................................................................... 15
3.7 Indemnification...................................................................... 16
3.8 Fees, Expenses and Reimbursement..................................................... 17
ARTICLE IV TERMINATION OF STATUS OF ADVISER AND MANAGERS, TRANSFERS AND REPURCHASES......... 19
4.1 Termination of Status of the Adviser................................................. 19
4.2 Termination of Status of a Manager................................................... 20
4.3 Removal of the Managers.............................................................. 20
4.4 Transfer of Interests of Members..................................................... 20
4.5 Transfer of Interests of Special Advisory Member..................................... 21
4.6 Repurchase of Interests.............................................................. 21
ARTICLE V CAPITAL........................................................................... 23
5.1 Contributions to Capital............................................................. 23
5.2 Rights of Members to Capital......................................................... 24
5.3 Capital Accounts..................................................................... 24
5.4 Allocation of Net Profit and Net Loss................................................ 25
5.5 Allocation of Insurance Premiums and Proceeds........................................ 25
5.6 Allocation of Certain Expenditures................................................... 25
5.7 Reserves............................................................................. 26
5.8 Incentive Allocation................................................................. 27
5.9 Allocation of Organizational Expenses................................................ 27
5.10 Tax Allocations..................................................................... 27
5.11 Distributions....................................................................... 29
5.12 Withholding......................................................................... 29
ARTICLE VI DISSOLUTION AND LIQUIDATION...................................................... 30
6.1 Dissolution.......................................................................... 30
6.2 Liquidation of Assets................................................................ 30
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS.................................... 31
7.1 Accounting and Reports............................................................... 31
7.2 Determinations by the Board of Managers.............................................. 32
7.3 Valuation of Assets.................................................................. 32
ARTICLE VIII MISCELLANEOUS PROVISIONS....................................................... 33
8.1 Amendment of Limited Liability Company Agreement..................................... 33
8.2 Special Power of Attorney............................................................ 34
8.3 Notices.............................................................................. 35
8.4 Agreement Binding Upon Successors and Assigns........................................ 35
8.5 Applicability of 1940 Act and Form N-2............................................... 35
8.6 Choice of Law; Arbitration........................................................... 36
8.7 Not for Benefit of Creditors......................................................... 37
8.8 Consents............................................................................. 37
</TABLE>
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<TABLE>
<S> <C>
8.9 Merger and Consolidation............................................................. 37
8.10 Pronouns............................................................................ 37
8.11 Confidentiality..................................................................... 37
8.12 Certification of Non-Foreign Status................................................. 38
8.13 Severability........................................................................ 38
8.14 Filing of Returns................................................................... 38
8.15 Tax Matters Partner................................................................. 39
8.16 Section 754 Election................................................................ 39
</TABLE>
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(1) STRATIGOS FUND, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of Stratigos Fund,
L.L.C. (the "Company") is dated as of April 26, 2000 by and among Jesse H.
Ausubel, Charles F. Barber, Paul Belica, and Howard M. Singer as the Managers,
CIBC Oppenheimer Advisers, L.L.C., as the Special Advisory Member, Paul Belica
as the Organizational Member, and those persons hereinafter admitted as Members.
WHEREAS, the Company has heretofore been formed as a limited
liability company under the Delaware Limited Liability Company Act pursuant to
an initial Certificate of Formation (the "Certificate") dated and filed with the
Secretary of State of Delaware on April 14, 2000;
NOW, THEREFORE, for and in consideration of the foregoing and
the mutual covenants hereinafter set forth, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement:
ADMINISTRATOR The person who provides
administrative services to the
Company pursuant to an
administrative services agreement.
ADVISER CIBC Oppenheimer Advisers, L.L.C.,
a limited liability company
organized under Delaware law, or
any person who may hereinafter
serve as the investment adviser to
the Company pursuant to an
Investment Advisory Agreement.
ADVISERS ACT The Investment Advisers Act of
1940 and the rules, regulations
and orders thereunder, as amended
from time to time, or any
successor law.
AFFILIATE An affiliated person of a person
as such term is defined in the
1940 Act.
AGREEMENT This Limited Liability Company
Agreement, as amended from time to
time.
ALLOCATION CHANGE With respect to each Member
for each Allocation Period, the
difference between:
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(1) the sum of (a) the balance of
such Member's Capital Account
as of the close of the
Allocation Period (after
giving effect to all
allocations to be made to such
Member's Capital Account as of
such date other than any
Incentive Allocation to be
debited against such Member's
Capital Account), plus (b) any
debits to such Member's
Capital Account during the
Allocation Period to reflect
any actual or deemed
distributions or repurchases
with respect to such Member's
Interest, plus (c) any debits
to such Member's Capital
Account during the Allocation
Period to reflect any
Insurance premiums allocable
to such Member, plus (d) any
debits to such Member's
Capital Account during the
Allocation Period to reflect
any items allocable to such
Member's Capital Account
pursuant to Section 5.6
hereof; and
(2) the sum of (a) the balance of
such Member's Capital Account
as of the commencement of the
Allocation Period, plus (b)
any credits to such Member's
Capital Account during the
Allocation Period to reflect
any contributions by such
Member to the capital of the
Company, plus (c) any credits
to such Member's Capital
Account during the Allocation
Period to reflect any
Insurance proceeds allocable
to such Member.
If the amount specified in clause
(1) exceeds the amount specified
in clause (2), such difference
shall be a POSITIVE ALLOCATION
CHANGE, and if the amount
specified in clause (2) exceeds
the amount specified in clause
(1), such difference shall be a
NEGATIVE ALLOCATION CHANGE.
ALLOCATION PERIOD With respect to each Member, the
period commencing as of the date
of admission of such Member to the
Company, and thereafter each
period commencing as of the day
following the last day of the
preceding Allocation Period with
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respect to such Member, and ending
at the close of business on the
first to occur of the following:
(1) the last day of a Fiscal Year;
(2) the day as of which the
Company repurchases the entire
Interest of such Member;
(3) the day as of which the
Company admits as a
substituted Member a person to
whom the Interest of such
Member has been Transferred
(unless there is no change of
beneficial ownership); and
(4) the day as of which the
Adviser's status as the
Special Advisory Member is
terminated pursuant to Section
4.1 hereof.
BOARD OF MANAGERS The Board of Managers established
pursuant to Section 2.6.
CAPITAL ACCOUNT With respect to each Member, the
capital account established and
maintained on behalf of each
Member pursuant to Section 5.3
hereof.
CAPITAL PERCENTAGE A percentage established for each
Member on the Company's books as
of each Expense Allocation Date.
The Capital Percentage of a Member
on an Expense Allocation Date
shall be determined by dividing
the amount of capital contributed
to the Company by the Member
pursuant to Section 5.1 hereof by
the sum of the capital contributed
to the Company by each Member
pursuant to Section 5.1 hereof on
or prior to such Expense
Allocation Date. The sum of the
Capital Percentages of all Members
on each Expense Allocation Date
shall equal 100%.
CERTIFICATE The Certificate of Formation of
the Company and any amendments
thereto as filed with the office
of the Secretary of State of
Delaware.
CIBC WM CIBC World Markets Corp., or any
successor thereto.
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CIBC WM SERVICES Such administrative services as
CIBC WM shall provide to the
Company pursuant to a separate
written agreement with the Company
as contemplated by Section 3.8(a)
hereof.
CLOSING DATE The first date on or as of which a
Member other than the
Organizational Member is admitted
to the Company.
CODE The United States Internal Revenue
Code of 1986, as amended and as
hereafter amended from time to
time, or any successor law.
COMPANY The limited liability company
governed hereby, as such limited
liability company may from time to
time be constituted.
DELAWARE ACT The Delaware Limited Liability
Company Act as in effect on the
date hereof and as amended from
time to time, or any successor
law.
EXPENSE ALLOCATION DATE The Closing Date, and thereafter
each day on or before December 31,
2000, as of which a contribution
to the capital of the Company is
made pursuant to Section 5.1
hereof.
FISCAL PERIOD The period commencing on the
Closing Date, and thereafter each
period commencing on the day
immediately following the last day
of the preceding Fiscal Period,
and ending at the close of
business on the first to occur of
the following dates:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as
of which a contribution to the
capital of the Company is made
pursuant to Section 5.1; or
(3) any day on which the Company
repurchases any Interest or
portion of an Interest of any
Member;
(4) any day (other than one
specified in clause (2) above)
as of which this Agreement
provides for any amount to be
credited to or debited against
the Capital Account of
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any Member, other than an
amount to be credited to or
debited against the Capital
Accounts of all Members in
accordance with their
respective Investment
Percentages.
FISCAL YEAR The period commencing on the
Closing Date and ending on
December 31, 2000, and thereafter
each period commencing on January
1 of each year and ending on
December 31 of each year (or on
the date of a final distribution
pursuant to Section 6.2 hereof),
unless the Board of Managers shall
elect another fiscal year for the
Company that is a permissible
taxable year under the Code.
FORM N-2 The Company's Registration
Statement on Form N-2 filed with
the Securities and Exchange
Commission, as amended from time
to time.
INCENTIVE ALLOCATION With respect to each Member, 20%
of the amount, determined as of
the close of each Allocation
Period with respect to such
Member, by which such Member's
Positive Allocation Change for
such Allocation Period, if any,
exceeds any positive balance in
such Member's Loss Recovery
Account as of the most recent
prior date as of which any
adjustment has been made thereto.
INDEPENDENT MANAGERS Those Managers who are not
"interested persons" of the
Company as such term is defined in
the 1940 Act.
INSURANCE One or more "key man" insurance
policies on the life of any
principal of a member of the
Adviser, the benefits of which are
payable to the Company.
INTEREST The entire ownership interest in
the Company at any particular time
of a Member or the Special
Advisory Member, or other person
to whom an Interest of a Member or
portion thereof has been
transferred pursuant to Section
4.4 hereof, including the rights
and obligations of such
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Member or other person under this
Agreement and the Delaware Act.
INVESTMENT ADVISORY
AGREEMENT A separate written agreement
entered into by the Company
pursuant to which the Adviser
provides investment advisory
services to the Company.
INVESTMENT PERCENTAGE A percentage established for each
Member on the Company's books as
of the first day of each Fiscal
Period. The Investment Percentage
of a Member for a Fiscal Period
shall be determined by dividing
the balance of the Member's
Capital Account as of the
commencement of such Fiscal Period
by the sum of the Capital Accounts
of all of the Members as of the
commencement of such Fiscal
Period. The sum of the Investment
Percentages of all Members for
each Fiscal Period shall equal
100%.
LOSS RECOVERY ACCOUNT A memorandum account to be
recorded in the books and records
of the Company with respect to
each Member, which shall have an
initial balance of zero and which
shall be adjusted as follows:
(1) As of the first day after the
close of each Allocation
Period for such Member, the
balance 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
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<PAGE>
equal to the amount of the
repurchase or transfer, and
(ii) the denominator of which
is equal to the balance of
such Member's Capital Account
immediately before giving
effect to such repurchase or
transfer.
No transferee of any Interest
shall succeed to any Loss Recovery
Account balance or portion thereof
attributable to the transferor
unless the Transfer by which such
transferee received such Interest
did not involve a change of
beneficial ownership.
MANAGER An individual designated as a
manager of the Company pursuant to
the provisions of Section 2.6 of
the Agreement and who serves on
the Board of Managers of the
Company.
MEMBER Any person who shall have been
admitted to the Company as a
member (including any Manager in
such person's capacity as a member
of the Company but excluding any
Manager in such person's capacity
as a Manager of the Company) until
the Company repurchases the entire
Interest of such person as a
member pursuant to Section 4.6
hereof or a substituted member or
members are admitted with respect
to any such person's entire
Interest as a member pursuant to
Section 4.4 hereof; such term
includes the Adviser to the extent
the Adviser makes a capital
contribution to the Company and
shall have been admitted to the
Company as a member, and shall not
include the Special Advisory
Member.
NEGATIVE ALLOCATION
CHANGE The meaning given such term in the
definition of Allocation Change.
NET ASSETS The total value of all assets of
the Company, less an amount equal
to all accrued debts, liabilities
and obligations of the Company,
calculated before giving effect to
any repurchases of Interests.
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NET PROFIT OR NET LOSS The amount by which the Net Assets
as of the close of business on the
last day of a Fiscal Period exceed
(in the case of Net Profit) or are
less than (in the case of Net
Loss) the Net Assets as of the
commencement of the same Fiscal
Period (or, with respect to the
initial Fiscal Period of the
Company, at the close of business
on the Closing Date), such amount
to be adjusted to exclude:
(1) the amount of any Insurance
premiums or proceeds to be
allocated among the Capital
Accounts of the Members
pursuant to Section 5.5
hereof;
(2) any items to be allocated
among the Capital Accounts of
the Members on a basis that is
not in accordance with the
respective Investment
Percentages of all Members as
of the commencement of such
Fiscal Period pursuant to
Sections 5.6 and 5.7 hereof;
and
(3) Organizational Expenses
allocated among the Capital
Accounts of the Members
pursuant to Section 5.9
hereof.
1940 ACT The Investment Company Act of 1940
and the rules, regulations and
orders thereunder, as amended from
time to time, or any successor
law.
1934 ACT The Securities Exchange Act of
1934 and the rules, regulations
and orders thereunder, as amended
from time to time, or any
successor law.
ORGANIZATIONAL EXPENSES The expenses incurred by the
Company in connection with its
formation, its initial
registration as an investment
company under the 1940 Act, and
the initial offering of Interests.
ORGANIZATIONAL MEMBER Paul Belica
POSITIVE ALLOCATION CHANGE The meaning given such term in the
definition of Allocation Change.
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<PAGE>
SECURITIES Securities (including, without
limitation, equities, debt
obligations, options, and other
"securities" as that term is
defined in Section 2(a)(36) of the
1940 Act) and any contracts for
forward or future delivery of any
security, debt obligation or
currency, or commodity, all types
of derivative instruments and any
contracts based on any index or
group of securities, debt
obligations or currencies, or
commodities, and any options
thereon.
SPECIAL ADVISORY ACCOUNT A capital account established and
maintained on behalf of the
Special Advisory Member pursuant
to Section 5.3 hereof solely for
the purpose of receiving the
Incentive Allocation.
SPECIAL ADVISORY MEMBER The Adviser in its capacity as the
investment adviser to the Company.
TRANSFER The assignment, transfer, sale,
encumbrance, pledge or other
disposition of all or any portion
of an Interest, including any
right to receive any allocations
and distributions attributable to
an Interest.
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ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS
2.1 Formation of Limited Liability Company.
The Board of Managers shall execute and file in accordance
with the Delaware Act any amendment to the Certificate and shall execute and
file with applicable governmental authorities any other instruments, documents
and certificates that, in the opinion of the Company's legal counsel, may from
time to time be required by the laws of the United States of America, the State
of Delaware or any other jurisdiction in which the Company shall determine to do
business, or any political subdivision or agency thereof, or that such legal
counsel may deem necessary or appropriate to effectuate, implement and continue
the valid existence and business of the Company.
2.2 Name.
The name of the Company shall be "Stratigos Fund, L.L.C." or
such other name as the Board of Managers may hereafter adopt upon (i) causing an
appropriate amendment to the Certificate to be filed in accordance with the
Delaware Act and (ii) sending notice thereof to each Member.
2.3 Principal and Registered Office.
The Company shall have its principal office at One World
Financial Center, 31st Floor, 200 Liberty Street, New York, New York 10281, or
at such other place designated from time to time by the Board of Managers.
The Company shall have its registered office in Delaware at
1013 Center Road, Wilmington, Delaware 19805-1297, and shall have Corporation
Service Company as its registered agent for service of process in Delaware,
unless a different registered office or agent is designated from time to time by
the Board of Managers.
2.4 Duration.
The term of the Company commenced on the filing of the
Certificate with the Secretary of State of Delaware and shall continue until the
Company is dissolved pursuant to Section 6.1 hereof.
2.5 Objective and Business of the Company.
(a) The objective and business of the Company is to purchase,
sell (including short sales), invest and trade in Securities, on margin or
otherwise, and to engage in any financial or derivative transactions relating
thereto or otherwise. The Company may execute, deliver and perform all
contracts, agreements and other undertakings and engage in all activities and
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transactions as may in the opinion of the Board of Managers be necessary or
advisable to carry out its objective or business.
(b) The Company shall operate as a closed-end,
non-diversified, management investment company in accordance with the 1940 Act
and subject to any fundamental policies and investment restrictions set forth in
the Form N-2.
2.6 Board of Managers.
(a) Prior to the Closing Date, the Organizational Member may
designate such persons who shall agree to be bound by all of the terms of this
Agreement to serve as the initial Managers on the Board of Managers, subject to
the election of such persons prior to the Closing Date by the Organizational
Member. By signing this Agreement or the signature page of the Company's
subscription agreement, a Member admitted on the Closing Date shall be deemed to
have voted for the election of each of the initial Managers to the Board of
Managers. After the Closing Date, the Board of Managers may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Manager and the provisions of Section
3.3 hereof with respect to the election of Managers to the Board of Managers by
Members, designate any person who shall agree to be bound by all of the terms of
this Agreement as a Manager. The names and mailing addresses of the Managers
shall be set forth in the books and records of the Company. The number of
Managers shall be fixed from time to time by the Board of Managers.
(b) Each Manager shall serve on the Board of Managers for the
duration of the term of the Company, unless his or her status as a Manager shall
be sooner terminated pursuant to Section 4.2 hereof. In the event of any vacancy
in the position of Manager, the remaining Managers may appoint an individual to
serve in such capacity, so long as immediately after such appointment at least
two-thirds (2/3) of the Managers then serving would have been elected by the
Members. The Board of Managers may call a meeting of Members to fill any vacancy
in the position of Manager, and shall do so within 60 days after any date on
which Managers who were elected by the Members cease to constitute a majority of
the Managers then serving on the Board of Managers.
(c) In the event that no Manager remains to continue the
business of the Company, the Adviser shall promptly call a meeting of the
Members, to be held within 60 days after the date on which the last Manager
ceased to act in that capacity, for the purpose of determining whether to
continue the business of the Company and, if the business shall be continued, of
electing the required number of Managers to the Board of Managers. If the
Members shall determine at such meeting not to continue the business of the
Company or if the required number of Managers is not elected within 60 days
after the date on which the last Manager ceased to act in that capacity, then
the Company shall be dissolved pursuant to Section 6.1 hereof and the assets of
the Company shall be liquidated and distributed pursuant to Section 6.2 hereof.
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2.7 Members.
For the first twelve months from the date the Company
commences operations, the Board of Managers may admit new Members as of the
first day of each month. Thereafter, the Board of Managers may admit new Members
at such times as may be determined by the Board of Managers, but not more
frequently than as of the first day of each calendar quarter, unless the Board
of Managers has received a letter from counsel to the Adviser stating that,
under applicable banking laws, the Board of Managers may admit new Members on a
more frequent basis. Subject to the foregoing, Members may be admitted to the
Company subject to the condition that each such Member shall execute an
appropriate signature page of this Agreement or of the Company's subscription
agreement pursuant to which such Member agrees to be bound by all the terms and
provisions hereof. The Board of Managers may in its absolute discretion reject
any subscription for Interests. The Board of Managers may, in its sole
discretion, suspend subscriptions for Interests at any time. The admission of
any person as a Member shall be effective upon the revision of the books and
records of the Company to reflect the name and the contribution to the capital
of the Company of such additional Member.
2.8 Special Advisory Member.
Upon signing this Agreement, the Adviser shall be admitted to
the Company as the Special Advisory Member, subject to due approval, in
accordance with the requirements of the 1940 Act, of the Investment Advisory
Agreement. The Interest of the Special Advisory Member shall be non-voting. If
at anytime the Investment Advisory Agreement between the Company and the person
then serving as Adviser terminates, the Board of Managers shall admit as a
substitute Special Advisory Member, upon its signing this Agreement, such person
as may be retained by the Company to provide investment advisory services
pursuant to an Investment Advisory Agreement, subject to the due approval of
such Investment Advisory Agreement in accordance with the requirements of the
1940 Act.
2.9 Organizational Member.
Upon the admission of any Member, the Organizational Member
shall withdraw from the Company as the Organizational Member and shall be
entitled to the return of his or her Capital Contribution, if any, without
interest or deduction.
2.10 Both Managers and Members.
A Member may at the same time be a Manager and a Member, or a
Special Advisory Member and Member, in which event such Member's rights and
obligations in each capacity shall be determined separately in accordance with
the terms and provisions hereof or as provided in the Delaware Act.
2.11 Limited Liability.
Except as provided under applicable law, a Member and the
Special Advisory Member shall not be liable for the Company's debts, obligations
and liabilities in any amount in excess of the capital account balance of such
Member, plus such Member's share of undistributed
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profits and assets. Except as provided under applicable law, a Manager shall not
be liable for the Company's debts, obligations and liabilities.
ARTICLE III
MANAGEMENT
3.1 Management and Control.
(a) Management and control of the business of the Company
shall be vested in the Board of Managers, which shall have the right, power and
authority, on behalf of the Company and in its name, to exercise all rights,
powers and authority of Managers under the Delaware Act and to do all things
necessary and proper to carry out the objective and business of the Company and
their duties hereunder. No Manager shall have the authority individually to act
on behalf of or to bind the Company except within the scope of such Manager's
authority as delegated by the Board of Managers. The parties hereto intend that,
except to the extent otherwise expressly provided herein, (i) each Manager shall
be vested with the same powers, authority and responsibilities on behalf of the
Company as are customarily vested in each director of a Delaware corporation and
(ii) each Independent Manager shall be vested with the same powers, authority
and responsibilities on behalf of the Company as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Company shall have no Managers, the Adviser shall continue
to serve as the Adviser to the Company. During such time period, CIBC WM shall
continue to provide the CIBC WM Services to the Company.
(b) Members shall have no right to participate in and shall
take no part in the management or control of the Company's business and shall
have no right, power or authority to act for or bind the Company. Members shall
have the right to vote on any matters only as provided in this Agreement or on
any matters that require the approval of the holders of voting securities under
the 1940 Act or as otherwise required in the Delaware Act.
(c) The Board of Managers may delegate to any other person any
rights, power and authority vested by this Agreement in the Board of Managers to
the extent permissible under applicable law.
3.2 Actions by the Board of Managers.
(a) Unless provided otherwise in this Agreement, the Board of
Managers shall act only: (i) by the affirmative vote of a majority of the
Managers (including the vote of a majority of the Independent Managers if
required by the 1940 Act) present at a meeting duly called at which a quorum of
the Managers shall be present (in person or, if in person attendance is not
required by the 1940 Act, by telephone) or (ii) by unanimous written consent of
all of the Managers without a meeting, if permissible under the 1940 Act.
(b) The Board of Managers may designate from time to time a
Principal Manager who shall preside at all meetings. Meetings of the Board of
Managers may be called by
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the Principal Manager or by any two Managers, and may be held on such date and
at such time and place as the Board of Managers shall determine. Each Manager
shall be entitled to receive written notice of the date, time and place of such
meeting within a reasonable time in advance of the meeting. Notice need not be
given to any Manager who shall attend a meeting without objecting to the lack of
notice or who shall execute a written waiver of notice with respect to the
meeting. Managers may attend and participate in any meeting by telephone except
where in person attendance at a meeting is required by the 1940 Act. A majority
of the Managers shall constitute a quorum at any meeting.
3.3 Meetings of Members.
(a) Actions requiring the vote of the Members may be taken at
any duly constituted meeting of the Members at which a quorum is present.
Meetings of the Members may be called by the Board of Managers or by Members
holding 25% or more of the total number of votes eligible to be cast by all
Members, and may be held at such time, date and place as the Board of Managers
shall determine. The Board of Managers shall arrange to provide written notice
of the meeting, stating the date, time and place of the meeting and the record
date therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on the
part of any Member shall not affect the validity of any act or proceeding of the
meeting, so long as a quorum shall be present at the meeting, except as
otherwise required by applicable law. Only matters set forth in the notice of a
meeting may be voted on by the Members at a meeting. The presence in person or
by proxy of Members holding a majority of the total number of votes eligible to
be cast by all Members as of the record date shall constitute a quorum at any
meeting. In the absence of a quorum, a meeting of the Members may be adjourned
by action of a majority of the Members present in person or by proxy without
additional notice to the Members. Except as otherwise required by any provision
of this Agreement or of the 1940 Act, (i) those candidates receiving a plurality
of the votes cast at any meeting of Members shall be elected as Managers and
(ii) all other actions of the Members taken at a meeting shall require the
affirmative vote of Members holding a majority of the total number of votes
eligible to be cast by those Members who are present in person or by proxy at
such meeting.
(b) Each Member shall be entitled to cast at any meeting of
Members a number of votes equivalent to such Member's Investment Percentage as
of the record date for such meeting. The Board of Managers shall establish a
record date not less than 10 nor more than 60 days prior to the date of any
meeting of Members to determine eligibility to vote at such meeting and the
number of votes that each Member will be entitled to cast thereat, and shall
maintain for each such record date a list setting forth the name of each Member
and the number of votes that each Member will be entitled to cast at the
meeting.
(c) A Member may vote at any meeting of Members by a proxy
properly executed in writing by the Member and filed with the Company before or
at the time of the meeting. A proxy may be suspended or revoked, as the case may
be, by the Member executing the proxy by a later writing delivered to the
Company at any time prior to exercise of the proxy or if the Member executing
the proxy shall be present at the meeting and decide to vote in person. Any
action of the Members that is permitted to be taken at a meeting of the Members
may be
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taken without a meeting if consents in writing, setting forth the action
taken, are signed by Members holding a majority of the total number of votes
eligible to be cast or such greater percentage as may be required in order to
approve such action.
3.4 Custody of Assets of the Company.
The physical possession of all funds, Securities or other
properties of the Company shall at all times, be held, controlled and
administered by one or more custodians retained by the Company in accordance
with the requirements of the 1940 Act and the rules thereunder.
3.5 Other Activities of Members and Managers.
(a) The Managers shall not be required to devote full time to
the affairs of the Company, but shall devote such time as may reasonably be
required to perform their obligations under this Agreement.
(b) Any Member or Manager, and any Affiliate of any Member or
Manager, may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member or Manager shall
have any rights in or to such activities of any other Member or Manager, or any
profits derived therefrom.
3.6 Duty of Care.
(a) A Manager shall not be liable to the Company or to any of
its Members for any loss or damage occasioned by any act or omission in the
performance of his or her services under this Agreement, unless it shall be
determined by final judicial decision on the merits from which there is no
further right to appeal that such loss is due to an act or omission of such
Manager constituting willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Manager's
office.
(b) Members not in breach of any obligation hereunder or under
any agreement pursuant to which the Member subscribed for an Interest shall be
liable to the Company, any Member or third parties only as provided under the
Delaware Act.
3.7 Indemnification.
(a) To the fullest extent permitted by law, the Company shall,
subject to Section 3.7(b) hereof, indemnify each Manager (including for this
purpose his or her respective executors, heirs, assigns, successors or other
legal representatives), against all losses, claims, damages, liabilities, costs
and expenses, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and reasonable counsel fees,
incurred in connection with the defense or disposition of any action, suit,
investigation or other
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proceeding, whether civil or criminal, before any judicial, arbitral,
administrative or legislative body, in which such indemnitee may be or may have
been involved as a party or otherwise, or with which such indemnitee may be or
may have been threatened, while in office or thereafter, by reason of being or
having been a Manager of the Company or the past or present performance of
services to the Company by such indemnitee, except to the extent such loss,
claim, damage, liability, cost or expense shall have been finally determined in
a decision on the merits in any such action, suit, investigation or other
proceeding to have been incurred or suffered by such indemnitee by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office. The rights of
indemnification provided under this Section 3.7 shall not be construed so as to
provide for indemnification of a Manager for any liability (including liability
under federal securities laws which, under certain circumstances, impose
liability even on persons that act in good faith) to the extent (but only to the
extent) that such indemnification would be in violation of applicable law, but
shall be construed so as to effectuate the applicable provisions of this Section
3.7 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred
by any such indemnitee (but excluding amounts paid in satisfaction of judgments,
in compromise, or as fines or penalties), may be paid from time to time by the
Company in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Company amounts so paid if it shall ultimately
be determined that indemnification of such expenses is not authorized under
Section 3.7(a) hereof; provided, however, that (i) such indemnitee shall provide
security for such undertaking, (ii) the Company shall be insured by or on behalf
of such indemnitee against losses arising by reason of such indemnitee's failure
to fulfill such undertaking, or (iii) a majority of the Managers (excluding any
Manager who is either seeking advancement of expenses hereunder or is or has
been a party to any other action, suit, investigation or proceeding involving
claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for advancement of expenses hereunder) or
independent legal counsel in a written opinion shall determine based on a review
of readily available facts (as opposed to a full trial-type inquiry) that there
is reason to believe such indemnitee ultimately will be entitled to
indemnification.
(c) As to the disposition of any action, suit, investigation
or proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Company or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.7(a) hereof if (i) approved as in the best
interests of the Company by a majority of the Managers (excluding any Manager
who is either seeking indemnification hereunder or is or has been a party to any
other action, suit, investigation or proceeding involving claims similar to
those involved in the action, suit, investigation or proceeding giving rise to a
claim for indemnification hereunder) upon a determination based upon a review of
readily available facts (as opposed to a full trial-type inquiry) that such
indemnitee acted in good faith and in the reasonable belief that such actions
were in the best interests of the Company and that such indemnitee is not liable
to the Company or its Members by reason of willful misfeasance, bad
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faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such indemnitee's office, or (ii) the Board of Managers secures a
written opinion of independent legal counsel based upon a review of readily
available facts (as opposed to a full trial-type inquiry) to the effect that
such indemnification would not protect such indemnitee against any liability to
the Company or its Members to which such indemnitee would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made
pursuant to this Section 3.7 shall not prevent the recovery from any indemnitee
of any such amount if such indemnitee subsequently shall be determined in a
decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to such indemnification or
advancement of expenses to be liable to the Company or its Members by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office. In (i) any suit
brought by a Manager (or other person entitled to indemnification hereunder) to
enforce a right to indemnification under this Section 3.7 it shall be a defense
that, and (ii) in any suit in the name of the Company to recover any
indemnification or advancement of expenses made pursuant to this Section 3.7 the
Company shall be entitled to recover such expenses upon a final adjudication
that, the Manager or other person claiming a right to indemnification under this
Section 3.7 has not met the applicable standard of conduct set forth in this
Section 3.7. In any such suit brought to enforce a right to indemnification or
to recover any indemnification or advancement of expenses made pursuant to this
Section 3.7, the burden of proving that the Manager or other person claiming a
right to indemnification is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 3.7 shall be on
the Company (or any Member acting derivatively or otherwise on behalf of the
Company or its Members).
(e) An indemnitee may not satisfy any right of indemnification
or advancement of expenses granted in this Section 3.7 or to which such
indemnitee may otherwise be entitled except out of the assets of the Company,
and no Member shall be personally liable with respect to any such claim for
indemnification or advancement of expenses.
(f) The rights of indemnification provided hereunder shall not
be exclusive of or affect any other rights to which any person may be entitled
by contract or otherwise under law. Nothing contained in this Section 3.7 shall
affect the power of the Company to purchase and maintain liability insurance on
behalf of any Manager or other person.
3.8 Fees, Expenses and Reimbursement.
(a) So long as CIBC WM provides CIBC WM Services to the
Company, it shall be entitled to receive fees for such services as may be agreed
to by CIBC WM and the Company pursuant to a separate written agreement.
(b) The Board of Managers may cause the Company to compensate
each Manager for his or her services as such. In addition, the Managers shall be
reimbursed by the
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Company for reasonable out-of-pocket expenses incurred by them in performing
their duties under this Agreement.
(c) The Company shall bear all expenses incurred in its
business and operations, other than those specifically required to be borne by
the Adviser pursuant to the Investment Advisory Agreement or by CIBC WM pursuant
to the agreement referred to in Section 3.8(a) hereof. Expenses to be borne by
the Company include, but are not limited to, the following:
(1) all costs and expenses related to portfolio
transactions and positions for the Company's account,
including, but not limited to, brokerage commissions,
research fees, interest and commitment fees on loans
and debit balances, borrowing charges on Securities
sold short, dividends on Securities sold short but
not yet purchased, custodial fees, margin fees,
transfer taxes and premiums, taxes withheld on
foreign dividends and indirect expenses from
investments in investment funds;
(2) all costs and expenses associated with the
organization and registration of the Company, certain
offering costs and the costs of compliance with any
applicable federal or state laws;
(3) attorneys' fees and disbursements associated with
updating the Company's Confidential Memorandum and
subscription documents (the "Offering Materials");
the costs of printing the Offering Materials; the
costs of distributing the Offering Materials to
prospective investors; and attorneys' fees and
disbursements associated with the review of
subscription documents executed and delivered to the
Company in connection with offerings of Interests;
(4) the costs and expenses of holding meetings of the
Board of Managers and any meetings of Members;
(5) fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals
engaged on behalf of the Company or the Board of
Managers. In the event that consultants and
professionals are retained for the benefit of the
Company and one or more other accounts managed by the
Adviser, such fees will be allocated among all such
accounts based on relative net assets;
(6) any fees payable to CIBC WM for CIBC WM Services and
the fees of custodians and persons providing
administrative services to the Company;
(7) the costs of a fidelity bond and any liability
insurance obtained on behalf of the Company or its
Managers;
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(8) all expenses of computing the Company's net asset
value, including any equipment or services obtained
for such purposes;
(9) all charges for equipment or services used in
communicating information regarding the Company's
transactions among the Adviser and any custodian or
other agent engaged by the Company; and
(10) such other types of expenses as may be approved from
time to time by the Board of Managers, other than
those required to be borne by the Adviser or CIBC WM.
The Adviser shall be entitled to reimbursement from the
Company for any of the above expenses that it pays on behalf of the Company.
(d) Subject to procuring any required regulatory approvals,
from time to time the Company may, alone or in conjunction with other accounts
for which the Adviser, or any Affiliate of the Adviser, acts as general partner
or investment adviser, purchase Insurance in such amounts, from such insurers
and on such terms as the Board of Managers shall determine.
ARTICLE IV
TERMINATION OF STATUS OF ADVISER AND MANAGERS,
TRANSFERS AND REPURCHASES
4.1 Termination of Status of the Adviser.
The status of the Adviser as the Special Advisory Member shall
terminate if the Investment Advisory Agreement with the Adviser terminates and
the Company does not enter into a new Investment Advisory Agreement with the
Adviser, effective as of the date of such termination.
4.2 Termination of Status of a Manager.
The status of a Manager shall terminate if the Manager (i)
shall die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily
withdraw as a Manager (upon not less than 90 days' prior written notice to the
other Managers); (iv) shall be removed; (v) shall be certified by a physician to
be mentally or physically unable to perform his or her duties hereunder; (vi)
shall be declared bankrupt by a court with appropriate jurisdiction, file a
petition commencing a voluntary case under any bankruptcy law or make an
assignment for the benefit of creditors; (vii) shall have a receiver appointed
to administer the property or affairs of such Manager; or (viii) shall otherwise
cease to be a Manager of the Company under the Delaware Act.
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4.3 Removal of the Managers.
Any Manager may be removed either by (a) the vote or written
consent of at least two-thirds (2/3) of the Managers not subject to the removal
vote or (b) the vote or written consent of Members holding not less than
two-thirds (2/3) of the total number of votes eligible to be cast by all
Members.
4.4 Transfer of Interests of Members.
(a) An Interest of a Member may be Transferred only (i) by
operation of law pursuant to the death, divorce, bankruptcy, insolvency or
dissolution of such Member or (ii) with the written consent of the Board of
Managers (which may be withheld in its sole discretion); provided, however, that
the Board of Managers may not consent to any Transfer other than a Transfer (i)
in which the tax basis of the Interest in the hands of the transferee is
determined, in whole or in part, by reference to its tax basis in the hands of
the transferor (e.g., certain Transfers to affiliates, gifts and contributions
to family partnerships), (ii) to members of the Member's immediate family
(brothers, sisters, spouse, parents and children), or (iii) a distribution from
a qualified retirement plan or an individual retirement account, unless it
consults with counsel to the Company and counsel to the Company confirms that
such Transfer will not cause the Company to be treated as a "publicly traded
partnership" taxable as a corporation.
(b) The Board of Managers may not consent to a Transfer of an
Interest or a portion thereof of a Member unless: (i) the person to whom such
Interest is Transferred (or each of such person's beneficial owners if such a
person is a "private investment company" as defined in paragraph (d)(3) of Rule
205-3 under the Advisers Act) is a person whom the Board of Managers believes
meets the requirements of paragraph (d)(1) of Rule 205-3 under the Advisers Act
or any successor rule thereto; and (ii) the entire Interest of the Member is
Transferred to a single transferee or, after the Transfer of a portion of an
Interest, the balance of the Capital Account of each of the transferee and
transferor is not less than $150,000. Any transferee that acquires an Interest
by operation of law as the result of the death, divorce, bankruptcy, insolvency
or dissolution of a Member or otherwise, shall be entitled to the allocations
and distributions allocable to the Interest so acquired and to Transfer such
Interest in accordance with the terms of this Agreement, but shall not be
entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member transfers an Interest with the
approval of the Board of Managers, the Board of Managers shall promptly take all
necessary actions so that the transferee to whom such Interest is transferred is
admitted to the Company as a Member. Each Member effecting a Transfer and its
transferee agree to pay all expenses, including attorneys' and accountants'
fees, incurred by the Company in connection with such Transfer.
(c) Each Member shall indemnify and hold harmless the Company,
the Managers, the Adviser, each other Member and any Affiliate of the foregoing
against all losses, claims, damages, liabilities, costs and expenses (including
legal or other expenses incurred in investigating or defending against any such
losses, claims, damages, liabilities, costs and expenses or any judgments, fines
and amounts paid in settlement), joint or several, to which such persons may
become subject by reason of or arising from (i) any Transfer made by such Member
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in violation of this Section 4.4 and (ii) any misrepresentation by such Member
in connection with any such Transfer.
4.5 Transfer of Interests of Special Advisory Member.
The Adviser may not Transfer its Interest as the Special
Advisory Member.
4.6 Repurchase of Interests.
(a) Except as otherwise provided in this Agreement, no Member
or other person holding an Interest or portion thereof shall have the right to
withdraw or tender to the Company for repurchase that Interest or portion
thereof. The Board of Managers from time to time, in its complete and exclusive
discretion and on such terms and conditions as it may determine, may cause the
Company to repurchase Interests or portions thereof pursuant to written tenders.
However, the Company shall not offer to repurchase Interests on more than two
occasions during any one Fiscal Year unless it has received an opinion of
counsel to the effect that such more frequent offers would not cause any adverse
tax consequences to the Company or the Members. In determining whether to cause
the Company to repurchase Interests or portions thereof pursuant to written
tenders, the Board of Managers shall consider the recommendation of the Adviser,
and shall also consider the following factors, among others:
(1) whether any Members have requested to tender
Interests or portions thereof to the Company;
(2) the liquidity of the Company's assets;
(3) the investment plans and working capital
requirements of the Company;
(4) the relative economies of scale with respect to
the size of the Company;
(5) the history of the Company in repurchasing
Interests or portions thereof;
(6) the economic condition of the securities
markets; and
(7) the anticipated tax consequences of any
proposed repurchases of Interests or portions
thereof.
The Board of Managers shall cause the Company to repurchase
Interests or portions thereof pursuant to written tenders only on terms fair to
the Company and to all Members or one or more classes of Members (including
persons holding Interests acquired from Members), as applicable.
(b) A Member who tenders for repurchase only a portion of such
Member's Interest shall be required to maintain a capital account balance equal
to the greater of: (i)
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$150,000, net of the amount of the Incentive Allocation, if any, that is to be
debited from the capital account of the Member and credited to the Special
Advisory Member Account of the Adviser on the date of expiration of the tender
offer or would be so debited if such date of expiration were a day on which an
incentive allocation was made (the "Tentative Incentive Allocation") or such
lesser amount as may be permitted by the Board of Managers; or (ii) the amount
of the Tentative Incentive Allocation, if any. If a Member tenders an amount
that would cause the Member's capital account balance to fall below the required
minimum, the Company reserves the right to reduce the amount to be purchased
from such Member so that the required minimum balance is maintained.
(c) The Adviser may tender its Interest or a portion thereof
as a Member or Special Advisory Member of the Company under Section 4.6(a)
hereof.
(d) If the Adviser's status as Special Advisory Member is
terminated pursuant to Section 4.1 hereof, it (or its trustee or other legal
representative) may, by written notice to the Board of Managers within 60 days
of the effective date of such termination, tender to the Company for repurchase
all or any portion of its Special Advisory Account. Not later than thirty (30)
days after the receipt of such notice, the Board of Managers shall cause such
tendered portion of the Special Advisory Account to be repurchased by the
Company for cash.
(e) The Board of Managers may cause the Company to repurchase
an Interest or portion thereof of a Member or any person acquiring an Interest
or portion thereof from or through a Member in the event that the Board of
Managers determines or has reason to believe that:
(1) such an Interest or portion thereof has been
transferred in violation of Section 4.4 hereof,
or such an Interest or portion thereof has
vested in any person by operation of law as the
result of the death, divorce, dissolution,
bankruptcy or incompetence of a Member;
(2) ownership of such an Interest by a Member or
other person will cause the Company to be in
violation of, or require registration of any
Interest or portion thereof under, or subject
the Company to additional registration or
regulation under, the securities laws of the
United States or any other relevant
jurisdiction;
(3) continued ownership of such an Interest may be
harmful or injurious to the business or
reputation of the Company, the Managers or the
Adviser, or may subject the Company or any of
the Members to an undue risk of adverse tax or
other fiscal consequences;
(4) any of the representations and warranties made
by a Member in connection with the acquisition
of an Interest or portion thereof was not true
when made or has ceased to be true; or
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(5) it would be in the best interests of the
Company, as determined by the Board of Managers
in its absolute discretion, for the Company to
repurchase such an Interest or portion thereof.
(f) Repurchases of Interests or portions thereof by the
Company shall be payable promptly after the expiration date of such repurchase
in accordance with the terms of the Company's repurchase offer. Payment of the
purchase price shall consist of: (i) cash in an aggregate amount equal to such
percentage, as may be determined by the Board of Managers, of the estimated
unaudited net asset value of Interests repurchased by the Company determined as
of the expiration date of such repurchase (the "Cash Payment"); and, if
determined to be necessary or appropriate by the Board of Managers, (ii) a
promissory note entitling the holder thereof to a contingent payment equal to
the excess, of any, of (x) the net asset value of the Interests repurchased by
the Company as of the expiration date of such repurchases, determined based on
the audited financial statements of the Company for the Fiscal Year in which
such repurchases were effective, over (y) the Cash Payment. Notwithstanding
anything in the foregoing to the contrary, the Board of Managers, in its
discretion, may pay all or any portion of the purchase price in marketable
Securities (or any combination of marketable Securities and cash) having a
value, determined as of the date of repurchase, equal to the amount to be
repurchased. All repurchases of Interests shall be subject to any and all
conditions as the Board of Managers may impose in its sole discretion. The
amount due to any Member whose Interest or portion thereof is repurchased shall
be equal to the value of such Member's Capital Account or portion thereof, as
applicable, as of the effective date of repurchase, after giving effect to all
allocations to be made to such Member's Capital Account as of such date.
ARTICLE V
CAPITAL
5.1 Contributions to Capital.
(a) The minimum initial contribution of each Member to the
capital of the Company shall be such amount as the Board of Managers, in its
discretion, may determine from time to time, but in no event shall be less than
$150,000; provided, however, that the minimum initial contribution of each
Member that is a director, officer or employee (or a member of their families)
of CIBC WM or its affiliates may be less than $150,000, but in no event less
than $50,000. The amount of the initial contribution of each Member shall be
recorded on the books and records of the Company upon acceptance as a
contribution to the capital of the Company. The Managers shall not be entitled
to make voluntary contributions of capital to the Company as Managers of the
Company, but may make voluntary contributions to the capital of the Company as
Members. The Adviser may make voluntary contributions to the capital of the
Company as a Member.
(b) The Members and the Adviser, as a Member, may make
additional contributions to the capital of the Company of at least $25,000,
effective as of such times as the Board of Managers, in its discretion, may
permit, subject to Section 2.7 hereof, but no Member
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shall be obligated to make any additional contribution to the capital of the
Company except to the extent provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board of Managers,
(i) initial and any additional contributions to the capital of the Company by
any Member shall be payable in cash or in such Securities that the Board of
Managers, in its absolute discretion, may agree to accept on behalf of the
Company, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds at the date of the proposed acceptance of the
contribution. The Company shall charge each Member making a contribution in
Securities to the capital of the Company such amount as may be determined by the
Board of Managers not exceeding 2% of the value of such contribution in order to
reimburse the Company for any costs incurred by the Company by reason of
accepting such Securities, and any such charge shall be due and payable by the
contributing Member in full at the time the contribution to the capital of the
Company to which such charges relate is due. The value of contributed Securities
shall be determined in accordance with Section 7.3 hereof as of the date of
contribution.
(d) The minimum initial and additional contributions set forth
in (a) and (b) of this Section 5.1 may be reduced by the Board of Managers.
5.2 Rights of Members to Capital.
No Member shall be entitled to interest on any contribution to
the capital of the Company, nor shall any Member be entitled to the return of
any capital of the Company except (i) upon the repurchase by the Company of a
part or all of such Member's Interest pursuant to Section 4.6 hereof, (ii)
pursuant to the provisions of Section 5.7(c) hereof or (iii) upon the
liquidation of the Company's assets pursuant to Section 6.2 hereof. No Member
shall be liable for the return of any such amounts. No Member shall have the
right to require partition of the Company's property or to compel any sale or
appraisal of the Company's assets.
5.3 Capital Accounts.
(a) The Company shall maintain a separate Capital Account for
each Member.
(b) Each Member's Capital Account shall have an initial
balance equal to the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) (net of any liabilities secured by such
Securities that the Company is considered to assume or take subject to under
Section 752 of the Code) constituting such Member's initial contribution to the
capital of the Company.
(c) Each Member's Capital Account shall be increased by the
sum of (i) the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) (net of any liabilities secured by such
Securities that the Company is considered to assume or take subject to under
Section 752 of the Code) constituting additional contributions by such Member to
the capital of the Company permitted pursuant to Section 5.1 hereof, plus (ii)
all amounts credited to such Member's Capital Account pursuant to Sections 5.4
through 5.7 or 5.9 hereof.
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(d) Each Member's Capital Account shall be reduced by the sum
of (i) the amount of any repurchase of the Interest, or portion thereof, of such
Member or distributions to such Member pursuant to Sections 4.6, 5.11 or 6.2
hereof which are not reinvested (net of any liabilities secured by any asset
distributed that such Member is deemed to assume or take subject to under
Section 752 of the Code), plus (ii) any amounts debited against such Capital
Account pursuant to Sections 5.4 through 5.9 hereof.
(e) The Company shall maintain a Special Advisory Account for
the Adviser in its capacity as Special Advisory Member solely for purposes of
receiving the Incentive Allocation pursuant to Section 5.8 hereof. The Special
Advisory Account shall have an initial balance of zero.
5.4 Allocation of Net Profit and Net Loss.
As of the last day of each Fiscal Period, any Net Profit or
Net Loss for the Fiscal Period shall be allocated among and credited to or
debited against the Capital Accounts of the Members in accordance with their
respective Investment Percentages for such Fiscal Period.
5.5 Allocation of Insurance Premiums and Proceeds.
(a) Any premiums payable by the Company for Insurance
purchased pursuant to Section 3.8(d) hereof shall be apportioned evenly over
each Fiscal Period or portion thereof falling within the period to which such
premiums relate under the terms of such Insurance, and the portion of the
premiums so apportioned to any Fiscal Period shall be allocated among and
debited against the Capital Accounts of each Member who is a member of the
Company during such Fiscal Period in accordance with such Member's Investment
Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Company may become entitled
pursuant to such Insurance shall be allocated among and credited to the Capital
Accounts of each Member who is a member of the Company during the Fiscal Period
in which the event that gives rise to recovery of proceeds occurs in accordance
with such Member's Investment Percentage for such Fiscal Period.
5.6 Allocation of Certain Expenditures.
Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Company, to the
extent determined by the Board of Managers to have been paid or withheld on
behalf of, or by reason of particular circumstances applicable to, one or more
but fewer than all of the Members, shall be charged to only those Members on
whose behalf such payments are made or whose particular circumstances gave rise
to such payments. Such charges shall be debited from the Capital Accounts of
such Members as of the close of the Fiscal Period during which any such items
were paid or accrued by the Company.
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5.7 Reserves.
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportionately against the Capital Accounts of the
Members for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Adviser or the Board of Managers, such reserves
to be in the amounts that the Board of Managers, in its sole discretion, deems
necessary or appropriate. The Board of Managers may increase or reduce any such
reserves from time to time by such amounts as the Board of Managers, in its sole
discretion, deems necessary or appropriate. The amount of any such reserve, or
any increase or decrease therein, shall be proportionately charged or credited,
as appropriate, to the Capital Accounts of those parties who are Members at the
time when such reserve is created, increased or decreased, as the case may be;
provided, however, that if any such individual reserve item, adjusted by any
increase therein, exceeds the lesser of $500,000 or 1% of the aggregate value of
the Capital Accounts of all such Members, the amount of such reserve, increase,
or decrease shall instead be charged or credited to those parties who were
Members at the time, as determined by the Board of Managers, in its sole
discretion, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
Capital Accounts at that time.
(b) If at any time an amount is paid or received by the
Company (other than contributions to the capital of the Company, distributions
or repurchases of Interests or portions thereof) and such amount exceeds the
lesser of $500,000 or 1% of the aggregate value of the Capital Accounts of all
Members at the time of payment or receipt and such amount was not accrued or
reserved for but would nevertheless, in accordance with the Company's accounting
practices, be treated as applicable to one or more prior Fiscal Periods, then
such amount shall be proportionately charged or credited, as appropriate, to
those parties who were Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this
Section 5.7 to be charged or credited to a party who is no longer a Member, such
amount shall be paid by or to such party, as the case may be, in cash, with
interest from the date on which the Board of Managers determines that such
charge or credit is required. In the case of a charge, the former Member shall
be obligated to pay the amount of the charge, plus interest as provided above,
to the Company on demand; provided, however, that (i) in no event shall a former
Member be obligated to make a payment exceeding the amount of such Member's
Capital Account at the time to which the charge relates; and (ii) no such demand
shall be made after the expiration of three years since the date on which such
party ceased to be a Member. To the extent that a former Member fails to pay to
the Company, in full, any amount required to be charged to such former Member
pursuant to paragraph (a) or (b), whether due to the expiration of the
applicable limitation period or for any other reason whatsoever, the deficiency
shall be charged proportionately to the Capital Accounts of the Members at the
time of the act or omission giving rise to the charge to the extent feasible,
and otherwise proportionately to the Capital Accounts of the current Members.
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5.8 Incentive Allocation.
(a) So long as the Adviser serves as the Special Advisory
Member of the Company, the Incentive Allocation shall be debited against the
Capital Account of each Member as of the last day of each Allocation Period with
respect to such Member and the amount so debited shall simultaneously be
credited to the Special Advisory Account or, subject to compliance with the 1940
Act and the Advisers Act, to the Capital Accounts of such Members who are
directors, officers or employees of CIBC WM or its Affiliates, or with respect
to which such directors, officers or employees are the sole beneficial owners,
as have been designated in any written notice delivered by the Adviser to the
Board of Managers within 90 days after the close of such Allocation Period.
(b) By the last business day of the month following the date
on which an Incentive Allocation is made, the Special Advisory Member may
withdraw up to 100% of the Incentive Allocation (computed on the basis of
unaudited data) that was credited to the Special Advisory Account. Within 30
days after the completion of the audit of the books of the Company for the year
in which allocations to the Special Advisory Account are made, the Company shall
pay to the Special Advisory Member any additional amount of Incentive Allocation
determined to be owed to the Special Advisory Member based on the audit, and the
Special Advisory Member shall pay to the Company any excess amount of Incentive
Allocation determined to be owed to the Company.
5.9 Allocation of Organizational Expenses.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Members in accordance with their respective Capital Percentages on such
Expense Allocation Date.
(b) As of each Expense Allocation Date following the first
Expense Allocation Date, all amounts previously debited against the Capital
Account of a Member pursuant to this Section 5.9 on the preceding Expense
Allocation Date will be credited to the Capital Account of such Member, and
Organizational Expenses shall then be re-allocated among and debited against the
Capital Accounts of all Members in accordance with their respective Capital
Percentages on such Expense Allocation Date.
5.10 Tax Allocations.
For each fiscal year, items of income, deduction, gain, loss
or credit shall be allocated for income tax purposes among the Members in such
manner as to reflect equitably amounts credited or debited to each Member's
Capital Account for the current and prior fiscal years (or relevant portions
thereof). Allocations under this Section 5.10 shall be made pursuant to the
principles of Sections 704(b) and 704(c) of the Code, and in conformity with
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as applicable, or the successor provisions to such
Section and Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or
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income as shall be necessary to satisfy the "qualified income offset"
requirement of Treasury Regulation ss. 1.704-1(b)(2)(ii)(d).
If the Company realizes capital gains (including short-term
capital gains) for Federal income tax purposes ("gains") for any fiscal year
during or as of the end of which the Interests of one or more Positive Basis
Members (as hereinafter defined) are repurchased by the Company pursuant to
Article IV, the Board of Managers, unless otherwise determined by the Board of
Managers, in its sole discretion, shall allocate such gains as follows: (i) to
allocate such gains among such Positive Basis Members, pro rata in proportion to
the respective Positive Basis (as hereinafter defined) of each such Positive
Basis Member, until either the full amount of such gains shall have been so
allocated or the Positive Basis of each such Positive Basis Member shall have
been eliminated and (ii) to allocate any gains not so allocated to Positive
Basis Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.4.
If the Company realizes capital losses (including long-term
capital losses) for Federal income tax purposes ("losses") for any fiscal year
during or as of the end of which the Interests of one or more Negative Basis
Members (as hereinafter defined) are repurchased by the Company pursuant to
Article IV, the Board of Managers, unless otherwise determined by the Board of
Managers, in its sole discretion, shall allocate such losses as follows: (i) to
allocate such losses among such Negative Basis Members, pro rata in proportion
to the respective Negative Basis (as hereinafter defined) of each such Negative
Basis Member, until either the full amount of such losses shall have been so
allocated or the Negative Basis of each such Negative Basis Member shall have
been eliminated and (ii) to allocate any losses not so allocated to Negative
Basis Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.4.
As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
Interest 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 Company under Section 752 of the
Code), and (ii) the term "Positive Basis Member" shall mean any Member whose
Interest is repurchased by the Company and who has Positive Basis as of the
effective date of its withdrawal, but such Member shall cease to be a Positive
Basis Member at such time as it shall have received allocations pursuant to
clause (i) of the second paragraph of this Section 5.10 equal to its Positive
Basis as of the effective date of such repurchase.
As used herein, (i) the term "Negative Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
Interest as of such time is less than 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 Company under Section 752 of
the Code), and (ii) the term "Negative Basis Member" shall mean any Member whose
Interest is repurchased by the
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Company and who has Negative Basis as of the effective date of such repurchase,
but such Member shall cease to be a Negative Basis Member at such time as it
shall have received allocations pursuant to clause (i) of the third paragraph of
this Section. 5.10 equal to its Negative Basis as of the effective date of such
repurchase.
Notwithstanding anything to the contrary in the foregoing, if
the Company realizes taxable income and gains in any fiscal year with respect to
which the Special Advisory Member is entitled to an Incentive Allocation under
Section 5.8 hereof, the Board of Managers (at the request of the Special
Advisory Member) may specially allocate such gains to the Special Advisory
Member in an amount by which the Incentive Allocation exceeds the Special
Advisory Member's "adjusted tax basis" (determined without regard to any
allocation to be made pursuant to this paragraph) in its interest in the Company
as of the time it withdraws such Incentive Allocation. The Special Advisory
Member's "adjusted tax basis", for these purposes, shall be increased by any
amount of the Incentive Allocation withdrawal that it elects to contribute as a
Member to the Company as of the date of the withdrawal of the Incentive
Allocation.
5.11 Distributions.
The Board of Managers, in its sole discretion, may authorize
the Company to make distributions in cash at any time to all of the Members on a
pro rata basis in accordance with the Members' Investment Percentages.
5.12 Withholding.
(a) The Board of Managers may withhold and pay over to the
Internal Revenue Service (or any other relevant taxing authority) taxes from any
distribution to any Member to the extent required by the Code or any other
applicable law.
(b) For purposes of this Agreement, any taxes so withheld by
the Company with respect to any amount distributed by the Company to any Member
shall be deemed to be a distribution or payment to such Member, reducing the
amount otherwise distributable to such Member pursuant to this Agreement and
reducing the Capital Account of such Member. If the amount of such taxes is
greater than any such distributable amounts, then such Member and any successor
to such Member's Interest shall pay to the Company as a contribution to the
capital of the Company, upon demand of the Board of Managers, the amount of such
excess.
(c) The Board of Managers shall not be obligated to apply for
or obtain a reduction of or exemption from withholding tax on behalf of any
Member that may be eligible for such reduction or exemption. To the extent that
a Member claims to be entitled to a reduced rate of, or exemption from, a
withholding tax pursuant to an applicable income tax treaty, or otherwise, the
Member shall furnish the Board of Managers with such information and forms as
such Member may be required to complete where necessary to comply with any and
all laws and regulations governing the obligations of withholding tax agents.
Each Member represents and warrants that any such information and forms
furnished by such Member shall be true and accurate and agrees to indemnify the
Company and each of the Members from any and all
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damages, costs and expenses resulting from the filing of inaccurate or
incomplete information or forms relating to such withholding taxes.
ARTICLE VI
DISSOLUTION AND LIQUIDATION
6.1 Dissolution.
The Company shall be dissolved:
(1) upon the affirmative vote to dissolve the
Company by: (i) the Board of Managers or
(ii) Members holding at least two-thirds
(2/3) of the total number of votes eligible
to be cast by all Members;
(2) upon the failure of Members to elect a
successor Manager at a meeting called by the
Adviser in accordance with Section 2.6(c)
hereof when no Manager remains to continue
the business of the Company;
(3) upon the expiration of any two year period
that commences on the date on which any
Member has submitted a written notice to the
Company requesting to tender its entire
Interest for repurchase by the Company if
such Interest has not been repurchased by
the Company;
(4) as required by operation of law.
Dissolution of the Company shall be effective on the later of
the day on which the event giving rise to the dissolution shall occur or the
conclusion of any applicable 60 day period during which the Board of Managers
and Members may elect to continue the business of the Company as provided above,
but the Company shall not terminate until the assets of the Company have been
liquidated in accordance with Section 6.2 hereof and the Certificate has been
canceled.
6.2 Liquidation of Assets.
(a) Upon the dissolution of the Company as provided in Section
6.1 hereof, the Board of Managers shall promptly appoint the Administrator as
the liquidator and the Administrator shall liquidate the business and
administrative affairs of the Company, except that if the Board of Managers does
not appoint the Administrator as the liquidator or the Administrator is unable
to perform this function, a liquidator elected by Members holding a majority of
the total number of votes eligible to be cast by all Members shall promptly
liquidate the business and administrative affairs of the Company. Net Profit and
Net Loss during the period of liquidation shall be allocated pursuant to Section
5.4 hereof. The proceeds from liquidation (after establishment of appropriate
reserves for contingencies in such amount as the
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Board of Managers or liquidator shall deem appropriate in its sole discretion as
applicable) shall be distributed in the following manner:
(1) the debts of the Company, other than debts,
liabilities or obligations to Members, and
the expenses of liquidation (including legal
and accounting expenses incurred in
connection therewith), up to and including
the date that distribution of the Company's
assets to the Members has been completed,
shall first be paid on a pro rata basis;
(2) such debts, liabilities or obligations as
are owing to the Members shall next be paid
in their order of seniority and on a pro
rata basis;
(3) The Special Advisory Member shall next be
paid any balance in the Special Advisory
Account after giving effect to the Incentive
Allocation, if any, to be made pursuant to
Section 5.8 hereof; and
(4) the Members shall next be paid on a pro rata
basis the positive balances of their
respective Capital Accounts after giving
effect to all allocations to be made to such
Members' Capital Accounts for the Fiscal
Period ending on the date of the
distributions under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary
notwithstanding, upon dissolution of the Company, the Board of Managers or other
liquidator may distribute ratably in kind any assets of the Company; provided,
however, that if any in-kind distribution is to be made (i) the assets
distributed in kind shall be valued pursuant to Section 7.3 hereof as of the
actual date of their distribution and charged as so valued and distributed
against amounts to be paid under Section 6.2(a) above, and (ii) any profit or
loss attributable to property distributed in-kind shall be included in the Net
Profit or Net Loss for the Fiscal Period ending on the date of such
distribution.
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
7.1 Accounting and Reports.
(a) The Company shall adopt for tax accounting purposes any
accounting method that the Board of Managers shall decide in its sole discretion
is in the best interests of the Company. The Company's accounts shall be
maintained in U.S. currency.
(b) After the end of each taxable year, the Company shall
furnish to each Member such information regarding the operation of the Company
and such Member's Interest as is necessary for Members to complete federal,
state and local income tax or information returns and any other tax information
required by federal, state or local law.
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(c) Except as otherwise required by the 1940 Act, or as may
otherwise be permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section 7.1(c) is
being made, the Company shall furnish to each Member a semi-annual report and an
annual report containing the information required by such Act. The Company shall
cause financial statements contained in each annual report furnished hereunder
to be accompanied by a certificate of independent public accountants based upon
an audit performed in accordance with generally accepted accounting principles.
The Company may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
7.2 Determinations by the Board of Managers.
(a) All matters concerning the determination and allocation
among the Members of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting procedures
applicable thereto, shall be determined by the Board of Managers unless
specifically and expressly otherwise provided for by the provisions of this
Agreement or required by law, and such determinations and allocations shall be
final and binding on all the Members.
(b) The Board of Managers may make such adjustments to the
computation of Net Profit or Net Loss, the Allocation Change with respect to any
Member, or any components comprising any of the foregoing as it considers
appropriate to reflect fairly and accurately the financial results of the
Company and the intended allocation thereof among the Members.
7.3 Valuation of Assets.
(a) Except as may be required by the 1940 Act, the Board of
Managers shall value or have valued any Securities or other assets and
liabilities of the Company as of the close of business on the last day of each
Fiscal Period in accordance with such valuation procedures as shall be
established from time to time by the Board of Managers and which conform to the
requirements of the 1940 Act. In determining the value of the assets of the
Company, no value shall be placed on the goodwill or name of the Company, or the
office records, files, statistical data or any similar intangible assets of the
Company not normally reflected in the Company's accounting records, but there
shall be taken into consideration any items of income earned but not received,
expenses incurred but not yet paid, liabilities, fixed or contingent, and any
other prepaid expenses to the extent not otherwise reflected in the books of
account, and the value of options or commitments to purchase or sell Securities
or commodities pursuant to agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Company
and the net worth of the Company as a whole determined pursuant to this Section
7.3 shall be conclusive and binding on all of the Members and all parties
claiming through or under them.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment of Limited Liability Company Agreement.
(a) Except as otherwise provided in this Section 8.1, this
Agreement may be amended, in whole or in part, with: (i) the approval of the
Board of Managers (including the vote of a majority of the Independent Managers,
if required by the 1940 Act) and (ii) if required by the 1940 Act, the approval
of the Members by such vote as is required by the 1940 Act.
(b) Any amendment that would:
(1) increase the obligation of a Member to make any
contribution to the capital of the Company;
(2) reduce the Capital Account of a Member or
Special Advisory Account other than in
accordance with Article V; or
(3) modify the events causing the dissolution of
the Company;
may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board of Managers) to tender its entire Interest for repurchase by the
Company.
(c) The power of the Board of Managers to amend this Agreement
at any time without the consent of the other Members as set forth in paragraph
(a) of this Section 8.1 shall specifically include the power to:
(1) restate this Agreement together with any
amendments hereto that have been duly adopted
in accordance herewith to incorporate such
amendments in a single, integrated document;
(2) amend this Agreement (other than with respect
to the matters set forth in Section 8.1(b)
hereof) to effect compliance with any
applicable law or regulation, including but not
limited to, to satisfy the requirements, or to
reflect any relaxation of such requirements in
the future, of the Bank Holding Company Act of
1956, as amended, or other U.S. or Canadian
banking laws, or any regulations, guidelines or
policies or interpretations of the banking
regulatory agencies or the staff thereof, or to
cure any ambiguity or to correct or supplement
any provision hereof that may be inconsistent
with any other provision hereof; and
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(3) amend this Agreement to make such changes as
may be necessary or advisable to ensure that
the Company will not be treated as an
association taxable as a corporation or as a
publicly traded partnership as defined in
Section 7704(b) of the Code.
(d) The Board of Managers shall cause written notice to be
given of any amendment to this Agreement (other than any amendment of the type
contemplated by clause (1) of Section 8.1(c) hereof) to each Member, which
notice shall set forth (i) the text of the amendment or (ii) a summary thereof
and a statement that the text thereof will be furnished to any Member upon
request.
8.2 Special Power of Attorney.
(a) Each Member hereby irrevocably makes, constitutes and
appoints each Manager, acting severally, and any liquidator of the Company's
assets appointed pursuant to Section 6.2 hereof with full power of substitution,
the true and lawful representatives and attorneys-in-fact of, and in the name,
place and stead of, such Member, with the power from time to time to make,
execute, sign, acknowledge, swear to, verify, deliver, record, file and/or
publish:
(1) any amendment to this Agreement that complies
with the provisions of this Agreement
(including the provisions of Section 8.1
hereof);
(2) any amendment to the Certificate required
because this Agreement is amended, including,
without limitation, an amendment to effectuate
any change in the membership of the Company;
and
(3) all such other instruments, documents and
certificates that, in the opinion of legal
counsel to the Company, may from time to time
be required by the laws of the United States of
America, the State of Delaware or any other
jurisdiction in which the Company shall
determine to do business, or any political
subdivision or agency thereof, or that such
legal counsel may deem necessary or appropriate
to effectuate, implement and continue the valid
existence and business of the Company as a
limited liability company under the Delaware
Act.
(b) Each Member is aware that the terms of this Agreement
permit certain amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Company without such
Member's consent. If an amendment to the Certificate or this Agreement or any
action by or with respect to the Company is taken in the manner contemplated by
this Agreement, each Member agrees that, notwithstanding any objection that such
Member may assert with respect to such action, the attorneys-in-fact appointed
hereby are authorized and empowered, with full power of substitution, to
exercise the authority granted above in any manner that may be necessary or
appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that
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each Member will rely on the effectiveness of this special power-of-attorney
with a view to the orderly administration of the affairs of the Company.
(c) This power-of-attorney is a special power-of-attorney and
is coupled with an interest in favor of each of the Managers and as such:
(1) shall be irrevocable and continue in full force and effect
notwithstanding the subsequent death or incapacity of any party granting this
power-of-attorney, regardless of whether the Company or Board of Managers shall
have had notice thereof; and
(2) shall survive the delivery of a Transfer by a Member of
the whole or any portion of such Member's Interest, except that where the
transferee thereof has been approved by the Board of Managers for admission to
the Company as a substituted Member, this power-of-attorney given by the
transferor shall survive the delivery of such assignment for the sole purpose of
enabling the Board of Managers to execute, acknowledge and file any instrument
necessary to effect such substitution.
8.3 Notices.
Notices which may or are required to be provided under this
Agreement shall be made, if to a Member, by regular mail, or if to the Board of
Managers or the Adviser, by hand delivery, registered or certified mail return
receipt requested, commercial courier service, telex or telecopier, and shall be
addressed to the respective parties hereto at their addresses as set forth in
the books and records of the Company. Notices shall be deemed to have been
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier
service, telex or telecopier. A document that is not a notice and that is
required to be provided under this Agreement by any party to another party may
be delivered by any reasonable means.
8.4 Agreement Binding Upon Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, assigns,
executors, trustees or other legal representatives, but the rights and
obligations of the parties hereunder may not be Transferred or delegated except
as provided in this Agreement and any attempted Transfer or delegation thereof
that is not made pursuant to the terms of this Agreement shall be void.
8.5 Applicability of 1940 Act and Form N-2.
The parties hereto acknowledge that this Agreement is not
intended to, and does not, set forth the substantive provisions contained in the
1940 Act and the Form N-2 that affect numerous aspects of the conduct of the
Company's business and of the rights, privileges and obligations of the Members.
Each provision of this Agreement shall be subject to and interpreted in a manner
consistent with the applicable provisions of the 1940 Act and the Form N-2.
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8.6 Choice of Law; Arbitration.
(a) Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(b) Unless otherwise agreed in writing, each Member and the
Special Advisory Member agree to submit all controversies arising between
Members or one or more Members or the Special Advisory Member and the Company to
arbitration in accordance with the provisions set forth below and understands
that:
(1) arbitration is final and binding on the
parties;
(2) they are waiving their right to seek remedies
in court, including the right to a jury trial;
(3) pre-arbitration discovery is generally more
limited and different from court proceedings;
(4) the arbitrator's award is not required to
include factual findings or legal reasoning
and a party's right to appeal or to seek
modification of rulings by arbitrators is
strictly limited; and
(5) the panel of arbitrators will typically
include a minority of arbitrators who were or
are affiliated with the securities industry.
(c) All controversies that may arise among Members and one or
more Members or the Special Advisory Member and the Company concerning this
Agreement shall be determined by arbitration in New York City in accordance with
the Federal Arbitration Act, to the fullest extent permitted by law. Any
arbitration under this Agreement shall be determined before and in accordance
with the rules then obtaining of either the New York Stock Exchange, Inc. (the
"NYSE") or the National Association of Securities Dealers, Inc. (the "NASD"), as
the Member or Special Advisory Member or entity instituting the arbitration may
elect. If the NYSE or NASD does not accept the arbitration for consideration,
the arbitration shall be submitted to, and determined in accordance with the
rules then obtaining of, the Center for Public Resources, Inc. in New York City.
Judgment on any award of any such arbitration may be entered in the Supreme
Court of the State of New York or in any other court having jurisdiction of the
person or persons against whom such award is rendered. Any notice of such
arbitration or for the confirmation of any award in any arbitration shall be
sufficient if given in accordance with the provisions of this Agreement. Each
Member agrees that the determination of the arbitrators shall be binding and
conclusive upon them.
(d) No Member shall bring a putative or certified class action
to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against any person who has initiated in court a putative class action; or who is
a member of a putative class who has not opted out of the class with respect to
any claims encompassed by the putative class action until: (i) the class
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certification is denied; or (ii) the class is decertified; or (iii) the Member
is excluded from the class by the court. Such forbearance to enforce an
agreement to arbitrate shall not constitute a waiver of any rights under this
Agreement except to the extent stated herein.
8.7 Not for Benefit of Creditors.
The provisions of this Agreement are intended only for the
regulation of relations among past, present and future Members, Managers, the
Special Advisory Member and the Company. This Agreement is not intended for the
benefit of non-Member creditors and no rights are granted to non-Member
creditors under this Agreement.
8.8 Consents.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Company.
8.9 Merger and Consolidation.
(a) The Company may merge or consolidate with or into one or
more limited liability companies formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation that has been
approved in the manner contemplated by Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, an agreement of merger or consolidation approved in
accordance with Section 18-209(b) of the Delaware Act may, to the extent
permitted by Section 18-209(f) of the Delaware Act, (i) effect any amendment to
this Agreement, (ii) effect the adoption of a new limited liability company
agreement for the Company if it is the surviving or resulting limited liability
company in the merger or consolidation, or (iii) provide that the limited
liability company agreement of any other constituent limited liability company
to the merger or consolidation (including a limited liability company formed for
the purpose of consummating the merger or consolidation) shall be the limited
liability company agreement of the surviving or resulting limited liability
company.
8.10 Pronouns.
All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the person or persons,
firm or corporation may require in the context thereof.
8.11 Confidentiality.
(a) A Member may obtain from the Company such information
regarding the affairs of the Company as is just and reasonable under the
Delaware Act, subject to reasonable standards (including standards governing
what information and documents are to be furnished, at what time and location
and at whose expense) established by the Board of Managers.
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(b) Each Member covenants that, except as required by
applicable law or any regulatory body, it will not divulge, furnish or make
accessible to any other person the name and/or address (whether business,
residence or mailing) of any Member (collectively, "Confidential Information")
without the prior written consent of the Board of Managers, which consent may be
withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section
8.11 is breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates, including any
of such affiliates' principals, partners, members, directors, officers,
employees or agents, irreparable injury may result to the non-breaching Members
and the Company. Accordingly, in addition to any and all other remedies at law
or in equity to which the non-breaching Members and the Company may be entitled,
such Members shall also have the right to obtain equitable relief, including,
without limitation, injunctive relief, to prevent any disclosure of Confidential
Information, plus reasonable attorneys' fees and other litigation expenses
incurred in connection therewith. In the event that any non-breaching Member or
the Company determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any of its
affiliates, including any of such affiliates' principals, partners, members,
directors, officers, employees or agents should be enjoined from or required to
take any action to prevent the disclosure of Confidential Information, each of
the other non-breaching Members agrees to pursue in a court of appropriate
jurisdiction such injunctive relief.
8.12 Certification of Non-Foreign Status.
Each Member or transferee of an Interest from a Member shall
certify, upon admission to the Company and at such other times thereafter as the
Board of Managers may request, whether such Member is a "United States Person"
within the meaning of Section 7701(a)(30) of the Code on forms to be provided by
the Company, and shall notify the Company within 30 days of any change in such
Member's status. Any Member who shall fail to provide such certification when
requested to do so by the Board of Managers may be treated as a non-United
States Person for purposes of U.S. federal tax withholding.
8.13 Severability.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14 Filing of Returns.
The Board of Managers or its designated agent shall prepare
and file, or cause the accountants of the Company to prepare and file, a Federal
information tax return in compliance
A-38
<PAGE>
with Section 6031 of the Code and any required state and local income tax and
information returns for each tax year of the Company.
8.15 Tax Matters Partner.
(a) A Manager who is a Member shall be designated on the
Company's annual Federal income tax return, and have full powers and
responsibilities, as the Tax Matters Partner of the Company for purposes of
Section 6231(a)(7) of the Code. In the event that no Manager is a Member, a
Member shall be so designated. Should any Member be designated as the Tax
Matters Partner for the Company pursuant to Section 6231(a)(7) of the Code, it
shall, and each Member hereby does, to the fullest extent permitted by law,
delegate to a Manager selected by the Board of Managers all of its rights,
powers and authority to act as such Tax Matters Partner and hereby constitutes
and appoints such Manager as its true and lawful attorney-in-fact, with power to
act in its name and on its behalf, including the power to act through such
agents or attorneys as it shall elect or appoint, to receive notices, to make,
execute and deliver, swear to, acknowledge and file any and all reports,
responses and notices, and to do any and all things required or advisable, in
the Manager's judgment, to be done by such a Tax Matters Partner. Any Member
designated as the Tax Matters Partner for the Company under Section 6231(a)(7)
of the Code shall be indemnified and held harmless by the Company from any and
all liabilities and obligations that arise from or by reason of such
designation.
(b) Each person (for purposes of this Section 8.15, called a
"Pass-Thru Member") that holds or controls an interest as a Member on behalf of,
or for the benefit of, another person or persons, or which Pass-Thru Member is
beneficially owned (directly or indirectly) by another person or persons, shall,
within 30 days following receipt from the Tax Matters Partner of any notice,
demand, request for information or similar document, convey such notice or other
document in writing to all holders of beneficial interests in the Company
holding such interests through such Pass-Thru Member. In the event the Company
shall be the subject of an income tax audit by any Federal, state or local
authority, to the extent the Company is treated as an entity for purposes of
such audit, including administrative settlement and judicial review, the Tax
Matters Partner shall be authorized to act for, and its decision shall be final
and binding upon, the Company and each Member thereof. All expenses incurred in
connection with any such audit, investigation, settlement or review shall be
borne by the Company.
8.16 Section 754 Election.
In the event of a distribution of Company property to a Member
or an assignment or other transfer (including by reason of death) of all or part
of the interest of a Member in the Company, at the request of a Member, the
Board of Managers, in its discretion, may cause the Company to elect, pursuant
to Section 754 of the Code, or the corresponding provision of subsequent law, to
adjust the basis of the Company property as provided by Sections 734 and 743 of
the Code.
EACH OF THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS
AGREEMENT IN ITS ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE
A-39
<PAGE>
ARBITRATION CLAUSE SET FORTH IN SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET
FORTH IN SECTION 8.11.
A-40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MANAGERS:
/s/ /s/
- ---------------------------------- ----------------------------------
Jesse H. Ausubel Charles F. Barber
/s/ /s/
- ---------------------------------- ----------------------------------
Paul Belica Howard M. Singer
ORGANIZATIONAL MEMBER:
/s/
- ----------------------------------
Paul Belica
MEMBERS:
Each person who shall sign a Member Signature Page and who shall be accepted by
the Board of Managers to the Company as a Member.
SPECIAL ADVISORY MEMBER:
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC World Markets Corp.
Managing Member
By: /s/
------------------------------
Name: Howard M. Singer
Title: Managing Director
A-41
<PAGE>
C-5
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
As Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Formation of Limited
Liability Company.
(2) Certificate of Amendment of Certificate of
Formation of Limited Liability Company.
(3) Limited Liability Company Agreement. See
Appendix A of Registrant's Confidential
Memorandum, which is included in this
Registration Statement.
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(3).
(e) Not Applicable.
(f) Not Applicable.
(g) Investment Advisory Agreement.
(h) Placement Agency Agreement.
(i) Not Applicable.
(j) Form of Custody Agreement.
(k) (1) Administrative Services Agreement.
(2) Administration, Accounting and Investor
Services Agreement.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Code of Ethics.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
C-1
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All figures are estimates:
Blue Sky Fees and Expenses (including fees
of counsel)................................. 10,000
Transfer Agent fees............................. N/A
Accounting fees and expenses.................... 10,000
Legal fees and expenses......................... 125,000
Printing and engraving.......................... 25,000
Offering Expenses............................... 50,000
Miscellaneous................................... 5,000
---------
$ 225,000
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, Registrant
expects that no person will be directly or indirectly under common control with
Registrant.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Limited Liability Company Interests 1 (Registrant anticipates that
as a result of the initial
private offering of interests
there will be more than 100
record holders of such
interests.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.7 of Registrant's Form of Limited
Liability Company Agreement (the "Company Agreement") filed as Exhibit 2(a)(3)
hereto. Registrant hereby undertakes that it will apply the indemnification
provision of the Company Agreement in a manner consistent with Release 40-11330
of the Securities and Exchange Commission under the Investment Company Act of
1940, so long as the interpretation therein of Sections 17(h) and 17(i) of such
Act remains in effect.
Registrant, in conjunction with the CIBC Oppenheimer Advisers, L.L.C.
(the "Adviser") and Registrant's Managers, maintains insurance on behalf of any
person who is or was an Independent Manager, officer, employee, or agent of
Registrant, against certain liability asserted against him or her and incurred
by him or her or arising out of his or her position. However, in no event will
Registrant pay that portion of the premium, if any, for insurance to indemnify
any such person or any act for which Registrant itself is not permitted to
indemnify.
C-2
<PAGE>
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the Adviser, and each director,
executive officer, managing member or partner of the Adviser, is or has been, at
any time during the past two fiscal years, engaged in for his or her own account
or in the capacity of director, officer, employee, managing member, partner or
trustee, is set forth in Registrant's Confidential Memorandum in the section
entitled "THE ADVISER AND CIBC WM." Information as to the directors and officers
of the Adviser is included in its Form ADV as filed with the Commission (File
No. 801-55640), and is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of Registrant at PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Adviser at One World Financial Center, 200 Liberty Street, New York, New
York 10281.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
C-3
<PAGE>
FORM N-2
STRATIGOS 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 ___ day of May, 2000.
STRATIGOS FUND, L.L.C.
By: /s/
------------------------------
Name: Howard M. Singer
Title: Principal Manager
C-4
<PAGE>
FORM N-2
STRATIGOS FUND, L.L.C.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) (1) Certificate of Formation of Limited Liability
Company
(2) Certificate of Amendment of Certificate of
Formation of Limited Liability Company
(3) Limited Liability Company Agreement. See Appendix
A of Registrant's Confidential Memorandum, which
is included in this Registration Statement
(c) Not Applicable
(d) Limited Liability Company Agreement. See Appendix
A of Registrant's Confidential Memorandum, which
is included in this Registration Statement
(e) Not Applicable
(f) Not Applicable
(g) Investment Advisory Agreement
(h) Placement Agency Agreement
(i) Not Applicable
(j) Form of Custody Agreement
(k) (1) Administrative Services Agreement
(2) Administration, Accounting and Investor Services
Agreement
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Code of Ethics
C-5
EXHIBIT (a)(1)
CERTIFICATE OF FORMATION
OF
TAVROS FUND, L.L.C.
The undersigned, desiring to form a limited liability company pursuant to
the Delaware Limited Liability Company Act, 6 Delaware Code, Chapter 18, hereby
certifies as follows:
FIRST: The name of the limited liability company is: Tavros Fund, L.L.C.
SECOND: The address of its registered office in the State of Delaware is
c/o Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805-1297, County of New Castle.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation this 14th day of April, 2000.
TAVROS FUND, L.L.C.
By: /s/
---------------------------
Name: Steven M. Felsenthal
Title: Authorized Person
A-1-1
Exhibit (a)(2)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF FORMATION
OF
TAVROS FUND, L.L.C.
Pursuant To Section 18-202 Of The
Delaware Limited Liability Company Act
FIRST: The name of the Limited Liability Company is Tavros Fund, L.L.C.
SECOND: The Certificate of Formation is amended to change the name of the
limited liability company so that Article First shall be and read
as follows:
"FIRST: The name of the limited liability company is Stratigos Fund,
L.L.C."
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment this 3rd day of May, 2000.
/s/
------------------------
Name: Howard M. Singer
Title: Principal Manager
A-2-1
Exhibit (g)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made the 1st day of August, 2000, by
and between Stratigos Fund, L.L.C., a Delaware limited liability company (the
"Fund"), and CIBC Oppenheimer Advisers, L.L.C., a Delaware limited liability
company (the "Adviser").
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment adviser; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund in the manner and on the terms and conditions
hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform such services on
said terms and conditions:
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
contained, the Fund and the Adviser agree as follows:
1. The Fund hereby retains the Adviser to act as its investment adviser
and, subject to the supervision and control of the Board of Managers of the Fund
(the "Board"), to manage the investment activities of the Fund as hereinafter
set forth. Without limiting the generality of the foregoing, the Adviser shall:
obtain and evaluate such information and advice relating to the economy,
securities markets, and securities as it deems necessary or useful to discharge
its duties hereunder; continuously manage the assets of the Fund in a manner
consistent with the investment objective, policies and restrictions of the Fund,
as set forth in the Confidential Memorandum of the Fund and as may be adopted
from time to time by the Board, and applicable laws and regulations; determine
the securities to be purchased, sold or otherwise disposed of by the Fund and
the timing of such purchases, sales and dispositions; and take such further
action, including the placing of purchase and sale orders and the voting of
securities on behalf of the Fund, as the Adviser shall deem necessary or
appropriate. The Adviser shall furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Adviser in the discharge of its duties as the Fund may, from
time to time, reasonably request.
2. Without limiting the generality of paragraph 1 hereof, the Adviser shall
be authorized to open, maintain and close accounts in the name and on behalf of
the Fund with brokers and dealers as it determines are appropriate; to select
and place orders with brokers,
G-1
<PAGE>
dealers or other financial intermediaries for the execution, clearance or
settlement of any transactions on behalf of the Fund on such terms as the
Adviser considers appropriate and that are consistent with the policies of the
Fund; and, subject to any policies adopted by the Board and to the provisions of
applicable law, to agree to such commissions, fees and other charges on behalf
of the Fund as it shall deem reasonable in the circumstances taking into account
all such factors as it deems relevant (including the quality of research and
other services made available to it even if such services are not for the
exclusive benefit of the Fund and the cost of such services does not represent
the lowest cost available) and shall be under no obligation to combine or
arrange orders so as to obtain reduced charges unless otherwise required under
the federal securities laws. The Adviser may, subject to such procedures as may
be adopted by the Board, use affiliates of the Adviser as brokers to effect the
Fund's securities transactions and the Fund may pay such commissions to such
brokers in such amounts as are permissible under applicable law.
3. The Adviser shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as may be necessary to
render the services required to be provided by the Adviser or furnished to the
Fund under this Agreement. Without limiting the generality of the foregoing, the
staff and personnel of the Adviser shall be deemed to include persons employed
or otherwise retained by the Adviser or made available to the Adviser by its
members.
4. The Fund will, from time to time, furnish or otherwise make available to
the Adviser such financial reports, proxy statements, policies and procedures
and other information relating to the business and affairs of the Fund as the
Adviser may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Adviser shall bear the cost of rendering the services to be
performed by it under this Agreement.
6. The Fund assumes and shall pay or cause to be paid all expenses of the
Fund not expressly assumed by the Adviser under this Agreement, including
without limitation: all costs and expenses 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, taxes withheld on foreign dividends and indirect expenses from
investments in investment funds; all costs and expenses associated with the
organization and registration of the Fund, certain offering costs and the costs
of compliance with any applicable Federal or state laws; attorneys' fees and
disbursements associated with updating the Fund's Confidential Memorandum and
subscription documents (the "Offering Materials"); the costs of printing the
Offering Materials; the costs of distributing the Offering Materials to
prospective investors; and attorneys' fees and disbursements associated with the
review of subscription documents executed and delivered to the Fund in
connection with offerings of interests of the Fund; the costs and expenses of
holding meetings of the Board and any meetings of members of the Fund; fees and
disbursements of any attorneys, accountants, auditors and other consultants and
professionals engaged on behalf of the Fund or the Board; the administrative
services fee paid to CIBC World Markets Corp. pursuant to the
G-2
<PAGE>
Administrative Services Agreement and the fees of custodians and persons
providing administrative services to the Fund; the costs of a fidelity bond and
any liability insurance obtained on behalf of the Fund or the Board; all
expenses of computing the Fund's net asset value, including any equipment or
services obtained for these purposes; and all charges for equipment or services
used in communicating information regarding the Fund's transactions among the
Adviser and any custodian or other agent engaged by the Fund.
7. As full compensation for the services provided to the Fund and the
expenses assumed by the Adviser under this Agreement, the Adviser shall be
entitled to be the Special Advisory Member of the Fund pursuant to the terms of
the Limited Liability Company Agreement of the Fund (the "L.L.C. Agreement"). As
the Special Advisory Member, the Adviser shall be entitled to receive an
incentive allocation in accordance with the terms and conditions of Section 5.8
of the L.L.C. Agreement.
8. The Adviser will use its best efforts in the supervision and management
of the investment activities of the Fund and in providing services hereunder,
but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations hereunder, the Adviser, its members, their
respective directors, officers or employees and their respective affiliates,
executors, heirs, assigns, successors or other legal representatives
(collectively, the "Affiliates") shall not be liable to the Fund for any error
of judgment for any mistake of law or for any act or omission by the Adviser or
any of the Affiliates.
9. (a) The Fund shall indemnify the Adviser, its members, their respective
directors, officers or employees and their respective affiliates, executors,
heirs, assigns, successors or other legal representatives (each an "Indemnified
Person") against any and all costs, losses, claims, damages or liabilities,
joint or several, including, without limitation, reasonable attorneys' fees and
disbursements, resulting in any way from the performance or non-performance of
any Indemnified Person's duties with respect to the Fund, except those resulting
from the willful malfeasance, bad faith or gross negligence of an Indemnified
Person or the Indemnified Person's reckless disregard of such duties, and in the
case of criminal proceedings, unless such Indemnified Person had reasonable
cause to believe its actions unlawful (collectively, "disabling conduct").
Indemnification shall be made following: (i) a final decision on the merits by a
court or other body before which the proceeding was brought that the Indemnified
Person was not liable by reason of disabling conduct or (ii) a reasonable
determination, based upon a review of the facts and reached by (A) the vote of a
majority of the members of the Board (the "Managers") who are not parties to the
proceeding or (B) legal counsel selected by a vote of a majority of the Board in
a written advice, that the Indemnified Person is entitled to indemnification
hereunder. The Fund shall advance to an Indemnified Person (to the extent that
it has available assets and need not borrow to do so) reasonable attorneys' fees
and other costs and expenses incurred in connection with defense of any action
or proceeding arising out of such performance or non-performance. The Adviser
agrees, and each other Indemnified Person will agree as a condition to any such
advance, that in the event the Indemnified Person receives any such advance, the
Indemnified Person shall reimburse the Fund for such fees, costs and expenses to
the extent that it shall be determined that the Indemnified Person was not
entitled to indemnification under this paragraph 9.
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<PAGE>
(b) Notwithstanding any of the foregoing to the contrary, the provisions of
this paragraph 9 shall not be construed so as to relieve the Indemnified Person
of, or provide indemnification with respect to, any liability (including
liability under Federal Securities laws, which, under certain circumstances,
impose liability even on persons who act in good faith) to the extent (but only
to the extent) that such liability may not be waived, limited or modified under
applicable law or that such indemnification would be in violation of applicable
law, but shall be construed so as to effectuate the provisions of this paragraph
9 to the fullest extent permitted by law.
10. Nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser from acting as investment adviser or manager
for any other person, firm or corporation and, except as required by applicable
law (including Rule 17j-1 under the 1940 Act), shall not in any way bind or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities or commodities for their own accounts or for the account
of others for whom they may be acting. Nothing in this Agreement shall limit or
restrict the right of any member, officer or employee of the Adviser to engage
in any other business or to devote his or her time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
11. This Agreement shall remain in effect for an initial term expiring
August 1, 2002, and shall continue in effect from year to year thereafter
provided such continuance is approved at least annually by the vote of a
majority of the outstanding voting securities of the Fund, as defined by the
1940 Act and the rules thereunder, or by the Board; and provided that in either
event such continuance is also approved by a majority of the Managers who are
not parties to this Agreement or "interested persons" (as defined by the 1940
Act) of any such party (the "Independent Managers"), by vote cast in person at a
meeting called for the purpose of voting on such approval. The Fund may at any
time, without payment of any penalty, terminate this Agreement upon sixty days'
prior written notice to the Adviser, either by majority vote of the Board or by
the vote of a majority of the outstanding voting securities of the Fund (as
defined by the 1940 Act and the rules thereunder). The Adviser may at any time,
without payment of penalty, terminate this Agreement upon sixty days' prior
written notice to the Fund. This Agreement shall automatically terminate in the
event of its assignment (to the extent required by the 1940 Act and the rules
thereunder) unless such automatic termination shall be prevented by an exemptive
order of the Securities and Exchange Commission.
12. Any notice under this Agreement shall be given in writing and shall be
deemed to have been duly given when delivered by hand or facsimile or five days
after mailed by certified mail, post-paid, by return receipt requested to the
other party at the principal office of such party.
13. This Agreement may be amended only by the written agreement of the
parties. Any amendment shall be required to be approved by the Board and by a
majority of the Independent Managers in accordance with the provisions of
Section 15(c) of the 1940 Act and the rules thereunder. If required by the 1940
Act, any amendment shall also be required to be approved by such vote of members
of the Fund as is required by the 1940 Act and the rules thereunder.
G-4
<PAGE>
14. This Agreement shall be construed in accordance with the laws of the
state of New York and the applicable provisions of the 1940 Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
15. The Fund represents that this Agreement has been duly approved by the
Board, including a majority of the Independent Managers, and by the sole initial
member of the Fund, in accordance with the requirements of the 1940 Act and the
rules thereunder.
16. The parties to this Agreement agree that the obligations of the Fund
under this Agreement shall not be binding upon any of the Managers, members of
the Fund or any officers, employees or agents, whether past, present or future,
of the Fund, individually, but are binding only upon the assets and property of
the Fund.
{The remainder of this page has been intentionally left blank}
G-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
STRATIGOS FUND, L.L.C.
By: /s/
Attest: ---------------------------------
Name: Howard M. Singer
Title: Principal Manager
- ----------------
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC World Markets Corp.,
its Managing Member
By: /s/
Attest: ---------------------------------
Name:
Title:
- ----------------
G-6
Exhibit (h)
STRATIGOS FUND, L.L.C.
ONE WORLD FINANCIAL CENTER
31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
CIBC World Markets Corp.
One World Financial Center - 31st Floor
200 Liberty Street
New York, New York 10281
Re: Appointment as Placement Agent
Ladies and Gentlemen:
Stratigos Fund, L.L.C., a limited liability company organized under the
laws of the State of Delaware (the "Fund"), hereby agrees with you as follows:
1. Fund Offering.
The Fund proposes to issue and to sell its limited liability company
interests ("Interests") in accordance with a Confidential Memorandum issued by
the Fund dated April 2000, as amended or supplemented from time to time (the
"Memorandum").
2. Definitions.
All capitalized terms used in this Agreement which are not separately
defined herein shall have the respective meaning set forth in the Memorandum.
3. Placement of Interests.
(a) Subject to the terms and conditions set forth herein, the Fund hereby
appoints you as its placement agent in connection with the placement of
Interests. Subject to the performance in all material respects by the Fund of
its obligations hereunder, and to the completeness and accuracy in all material
respects of all of the representations and warranties of the Fund contained
herein, you hereby accept such agency and agree on the terms and conditions
herein set forth to use your best efforts to find qualified subscribers for
Interests and to use all reasonable efforts to assist the Fund in obtaining
performance by each subscriber. You shall not have any liability to the Fund in
the event that any subscriber fails to consummate the purchase of Interests for
any reason other than your willful misconduct or gross negligence.
(b) The offers and sales of Interests are to be effected pursuant to the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the
H-1
<PAGE>
"Securities Act"), pursuant to Section 4(2) thereof and Regulation D under the
Securities Act. Both you and the Fund have established the following procedures
in connection with the offer and sale of Interests and agree that neither of you
will make offers or sales of any Interests except in compliance with such
procedures:
(i) Offers and sales of Interests will be made only in compliance with
Regulation D under the Securities Act and only to investors that qualify as
"accredited investors," as defined in Rule 501(a) under the Securities Act.
(ii) No sale of Interests to any one Purchaser will be for less than
the minimum denominations as may be specified in the Memorandum.
(iii) No offer or sale of any Interest shall be made in any state or
jurisdiction, or to any prospective investor located in any state or
jurisdiction, where such Interests have not been registered or qualified for
offer and sale under applicable state securities laws unless such Interests are
exempt from the registration or qualification requirements of such laws.
(iv) Sales of Interests will be made only to investors that are
qualified clients under Rule 205-3 under the Investment Advisers Act of 1940, as
amended.
(c) For purposes of the offering of Interests, the Fund has furnished to
you copies of the Memorandum and subscription documentation which shall be
furnished to prospective investors. Additional copies will be furnished in such
numbers as you may reasonably request for purposes of the offering. You are
authorized to furnish to prospective purchasers only such information concerning
the Fund and the offering as may be contained in the Memorandum or any written
supplements thereto, and such other materials as you have prepared and which
comply with applicable laws and regulations, including to the extent applicable
the rules of the National Association of Securities Dealers, Inc. (the "NASD").
4. Subscriptions During the Initial Offering Period.
(a) The initial offering period for the Interests shall commence as soon as
practicable after the date as of which this Agreement is effective and be closed
on August 1, 2000 or such later date as may be specified by the Board of
Managers of the Fund (the "Board"), in its sole discretion, which date shall not
be more than 90 days thereafter (the "Initial Offering Period").
(b) All subscriptions for Interests and payments by subscribers of
subscription amounts for Interests shall be made pursuant to the terms and
conditions set forth in the Memorandum and subscription documentation.
Subscriptions shall be subject to acceptance by you as agent for the Fund, as
described in Section 6 below.
(c) All payments received by you hereunder for subscriptions in the name
and on behalf of the Fund shall be handled by you in accordance with the terms
of the subscription documentation.
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(d) If the offering is not completed in accordance with the conditions set
forth in the Memorandum, the Fund may terminate the offering. In such case, you
will instruct PFPC Inc. or any other escrow agent who may be serving in such
capacity for the time being to return all subscription payments to investors.
5. Subscriptions After the Initial Offering Period.
(a) After the Initial Offering Period, the Fund may from time to time, in
the sole discretion of the Board, offer Interests to investors for purchase
("Subsequent Offerings").
(b) In Subsequent Offerings, the minimum additional investment requirements
shall be such amounts as are specified in the Memorandum. All subscriptions for
Interests in Subsequent Offerings and payments therefor shall be made pursuant
to the terms and conditions set forth in the Memorandum, and subscriptions shall
be subject to acceptance by you as agent for the Fund, as described in Section 6
below. In Subsequent Offerings, the procedures set forth in Sections 4(c) and
(d) shall also be applicable.
6. Acceptance of Subscriptions.
You are appointed as agent of the Fund for purposes of determining whether
to accept or to reject subscriptions for Interests. Subscriptions shall be
accepted only if the investor: (a) has supplied, or in the case of an additional
subscription by an existing member, previously supplied, to you properly
completed subscription documentation; and (b) has made proper payment for
Interests. Subscriptions shall be rejected if it appears to you that any of the
terms or conditions applicable to subscriptions for Interests as set forth in
the Memorandum or subscription documentation have not been satisfied. The Board
reserves the right to reject any subscription for Interests in the Fund.
7. Representations and Warranties of the Fund.
The Fund represents and warrants to you that:
(a) The Fund has been duly formed and is validly existing as a limited
liability company in good standing under the laws of the State of Delaware with
all requisite power and authority, all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies, and all necessary rights, licenses and permits
from other parties, to conduct its business as described in the Memorandum.
(b) Interests to be or which may be issued by the Fund have been duly
authorized for issuance and sale and, when issued and delivered by the Fund,
Interests will conform to all statements relating thereto contained in the
Memorandum.
(c) The issue and sale of Interests and the execution, delivery and
performance of the Fund's obligations under the Memorandum will not result in
the violation of any applicable law.
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(d) The Fund will apply the proceeds from the sale of Interests for the
purposes set forth in the Memorandum.
(e) The Memorandum will not contain an untrue statement of any material
fact or omit to state any material fact necessary in order to make statements
therein in the light of the circumstances under which they were made, not
misleading.
(f) This Agreement has been duly authorized, executed and delivered by the
Fund and, assuming your execution hereof, will constitute a valid and binding
agreement of the Fund.
(g) Prior to and on the effective date of this Agreement, neither the Fund,
nor to the knowledge of the Fund any person acting on behalf of the Fund, has
directly or indirectly offered or sold, or attempted to offer or sell any
Interests to or solicited offers to buy any Interests from, or otherwise
approached or negotiated with respect thereto with, any prospective investor in
connection with the placement thereof.
8. Covenants of the Fund.
The Fund covenants and agrees with you as follows:
(a) You and your counsel shall be furnished with such documents and
opinions as you and they may require, from time to time, for the purpose of
enabling you or them to pass upon the issuance and sale of Interests as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations and warranties, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Fund and in
connection with the issuance and sale of Interests as herein contemplated shall
be satisfactory in form and substance to you and your counsel.
(b) If, at any time after the commencement of an offering of Interests and
prior to its termination, an event occurs which in the opinion of counsel to the
Fund materially affects the Fund and which should be set forth in an amendment
or supplement to the Memorandum in order to make the statements therein not
misleading in light of the circumstances under which they are made, the Fund
will notify you as promptly as practical of the occurrence of such event and
prepare and furnish to you copies of an amendment or supplement to the
Memorandum, in such reasonable quantities as you may request in order that the
Memorandum will not contain any untrue statement of any material fact or omit to
state a material fact which in the opinion of such counsel is necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
9. Representations and Warranties of the Placement Agent.
You represent and warrant that:
(a) You are duly authorized to enter into and perform, and have duly
executed and delivered, this Agreement.
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(b) You have and will maintain all licenses and registrations necessary
under applicable law and regulations (including the rules of the NASD) to
provide the services required to be provided by you hereunder.
(c) You have not and will not solicit any offer to buy or offer to sell
Interests in any manner which would be inconsistent with applicable laws and
regulations, or with the procedures for solicitations contemplated by the
Memorandum or by any form of general solicitation or advertising, including, but
not limited to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or conduct any seminar or meeting whose attendees have been
invited by any general solicitation or advertising.
(d) You will furnish each subscriber of Interests, identified either by you
or the Fund, a copy of the Memorandum and subscription documentation prior to
such person's admission as a member of the Fund.
10. Compensation of Placement Agent.
(a) You will receive no fee, payment or other remuneration from the Fund
for your services under this Agreement; provided, that as set forth in the
Memorandum, you are entitled to charge a sales commission on the purchase price
of Interests of up to 3%, or such other percentage as established by the Board;
and further provided, that you shall have the authority to waive or reduce the
sales commission in particular cases, at your sole discretion.
(b) Except as may otherwise be agreed to by the Fund, you shall be
responsible for the payment of all costs and expenses incurred by you in
connection with the performance of your obligations under this Agreement,
including the costs associated with the preparation, printing and distribution
of any sales materials.
(c) We acknowledge that you intend to compensate your account executives
for their ongoing servicing of clients with whom they have placed Interests in
the Fund. This compensation will be based upon a formula that takes into account
the amount of client assets being serviced as well as the investment results
attributable to clients' assets invested in the Fund.
11. Indemnification and Contribution.
The parties agree to indemnify one another as follows:
(a) The Fund agrees to indemnify and hold harmless you and each person, if
any, who controls you within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including, but not limited to, attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which you or they may become subject under the Securities Act, the Exchange Act
or any other law or statute in any jurisdiction otherwise, insofar as such
losses, liabilities, claims, damages or expense (or actions in respect
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thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum or the subscription
documentation or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Fund will not be liable in any such case
to the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the Fund
by you or through you expressly for the use therein; and further provided that
this indemnity shall not protect you or any other person who may otherwise be
entitled to indemnity hereunder from or against any liability to which you or
they would be subject by reason of your own or their own willful misfeasance,
bad faith, gross negligence or reckless disregard of your or their duties
hereunder. This indemnity will be in addition to any liability which the Fund
may otherwise have included under this Agreement.
(b) You agree to indemnify and hold harmless the Fund and each person who
controls the Fund within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which you or they may become subject under the
Securities Act, the Exchange Act or any other law or statute in any
jurisdiction, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Memorandum or Subscription Agreement, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Fund by you or on your behalf through you expressly
for use therein. This indemnity will be in addition to any liability which you
may otherwise have incurred under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the party against whom indemnification is to
be sought in writing of the commencement thereof (but the failure so to notify
an indemnifying party shall not relieve it from any other liability which it may
have under this Section 11 (except to the extent that it has been prejudiced in
any material respect by such failure) or from any liability which it may have
otherwise). In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel satisfactory to such indemnified party; provided,
however, that if, in the judgment of such
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<PAGE>
indemnified party, a conflict of interest exists where it is advisable for such
indemnified party to be represented by separate counsel, the indemnified party
shall have the right to employ separate counsel in any such action, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of counsel, the indemnifying party shall not
be liable to such indemnified party under such subsections for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party or
parties shall not be liable for the expenses of more than one such separate
counsel representing the indemnified parties under subparagraph (a) of this
Section 11 who are parties to such action), (ii) the indemnifying party or
parties shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party or parties have
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party or parties; and except that, if clause (i) or (iii) is
applicable, such liability shall be only in respect of the counsel referred to
in such clause (i) or (iii). No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
12. Representations and Indemnities to Survive Delivery.
The agreements, representations, warranties, indemnities and other
statements of the parties and their officers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
you, or the Fund, any Managers serving on the Board (the "Managers"), directors
or officers of any of the foregoing or any person controlling any of the
foregoing, and (iii) acceptance of any payment for Interests hereunder. The
provisions of this Section 12 shall survive the termination or cancellation of
this Agreement.
13. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of April 26, 2000
and shall remain in effect for an initial term of two years from such date.
Thereafter, this Agreement shall continue in effect from year to year, provided
that each such continuance is approved by the Board, including the vote of a
majority of the Managers who are not "interested persons," as defined by the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder, of the
Fund or of CIBC World Markets Corp.
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<PAGE>
14. Termination.
This Agreement may be terminated as follows:
(a) Either party may terminate this Agreement without cause by written
notice to the other on not less than thirty (30) days notice, or, if there has
been a material breach of any condition, warranty, representation or other term
of this Agreement by the other, by written notice to such other at any time.
(b) By written notice to the Fund, you may terminate this Agreement at any
time if (i) there has been, since the respective dates as of which information
is given in the Memorandum, any material adverse change in the condition,
financial or otherwise, of the Fund, which in your opinion, will make it
inadvisable to proceed with the delivery of Interests; (ii) there has occurred
any outbreak of hostilities or other domestic or international calamity or
crisis the effect of which on the financial markets is so substantial and
adverse as to make it, in your judgment, impracticable to market Interests or
enforce contracts for the sale of Interests; and (iii) any order suspending the
sale of Interests shall have been issued by any jurisdiction in which a sale or
sales of Interests shall have been made, or proceedings for that purpose shall
have been initiated or, to your best knowledge and belief, shall be
contemplated.
(c) This Agreement shall terminate automatically in the event of its
"assignment" as such term is defined by the 1940 Act and the rules thereunder.
15. Delegation of Powers.
You shall be entitled to delegate all or any of your duties, functions or
powers under this Agreement to another person as sub-agents subject to the
approval of the Fund. However, you shall be solely responsible for the acts and
omissions of any such sub-agent and for the payment of any remuneration to such
sub-agent.
16. Notices.
All communications under this Agreement shall be given in writing, sent by
(i) telecopier, (ii) telex confirmed by answerback, or (iii) registered mail to
the address set forth below or to such other address as such party shall have
specified in writing to the other party hereto, and shall be deemed to have been
delivered effective at the earlier of its receipt or within two (2) days after
dispatch.
If to CIBC World Markets Corp.:
CIBC World Markets Corp.
One World Financial Center
37th Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-7398
Attn.: Mark Kaplan, General Counsel
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If to Stratigos Fund, L.L.C.:
Stratigos Fund, L.L.C.
One World Financial Center
31st Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-4225
Attn.: Howard M. Singer
17. Miscellaneous.
(a) This Agreement may be executed in two or more counterparts, each of
which when so executed and delivered shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns and no other person
shall have any right or obligation hereunder.
(b) This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof, and neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated except by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
18. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to the conflicts of laws provisions
thereof, and with the provisions of the 1940 Act. In the event of any conflict
between the provisions of the laws of New York and those of the 1940 Act, the
1940 Act provisions shall control.
19. The parties to this Agreement agree that the obligations of the Fund
under this Agreement shall not be binding upon any Managers, members of the Fund
or any officers, employees or agents, whether past, present or future, of the
Fund, individually, but are binding only upon the assets and property of the
Fund.
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If the foregoing correctly sets forth our understanding with you, please
indicate your acceptance in the space provided below.
Very truly yours,
STRATIGOS FUND, L.L.C.
By: /s/
--------------------------
Name: Howard M. Singer
Title: Principal Manager
Date:
-------------------
Agreed to and accepted:
CIBC WORLD MARKETS CORP.
By: /s/
-----------------------------
Name:
Title:
Date:
------------------
H-10
Exhibit (j)
FORM OF CUSTODY AGREEMENT
THIS AGREEMENT is made as of April 26, 2000 by and between PFPC TRUST
COMPANY, a limited purpose trust company incorporated under the laws of Delaware
("PFPC Trust"), and STRATIGOS FUND, L.L.C. a Delaware limited liability company
(the "Company").
W I T N E S S E T H:
WHEREAS, the Company is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company wishes to retain PFPC Trust to provide custodian
services, and PFPC Trust wishes to furnish custodian services, either directly
or through an affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Company and any other
person duly authorized by the Company's Board of Managers to give Oral
Instructions and Written Instructions on behalf of the Company and
listed on the Authorized Persons Appendix attached hereto and made a
part hereof or any amendment
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thereto as may be received by PFPC Trust. An Authorized Person's scope
of authority may be limited by the Company by setting forth such
limitation in the Authorized Persons Appendix.
(d) "Board of Managers" and "Members" shall have the same meanings as set
forth in the Company's Limited Liability Company Agreement.
(e) "Book-Entry System" means Federal Reserve Treasury book-entry system
for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(f) "CEA" means the Commodities Exchange Act, as amended.
(g) "Interests" mean membership interests in the Company.
(h) "Oral Instructions" mean oral instructions received by PFPC Trust from
an Authorized Person or from a person reasonably believed by PFPC
Trust to be an Authorized Person.
(i) "PFPC Trust" means PFPC Trust Company, or a subsidiary or affiliate of
PFPC Trust Company.
(j) "SEC" means the Securities and Exchange Commission.
(k) "Securities" means Securities (including, without limitation,
equities, debt obligations, options, and other "securities" as that
term is defined in Section 2(a)(36) of the 1940 Act) and any contracts
for forward or future delivery of any security, debt
obligation or currency, or commodity, all manner of derivative
instruments and any contracts based on any index or group of
Securities, debt
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obligations or currencies, or commodities, and any options thereon, as
well as investments in registered investment companies and private
investment funds.
(m) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(n) "Property" means:
(i) any and all Securities and other investment items which the
Company may from time to time deposit, or cause to be deposited,
with PFPC Trust or which PFPC Trust may from time to time hold
for the Company;
(ii) all income in respect of any of such Securities or other
investment items;
(iii) all proceeds of the sale of any of such Securities or investment
items; and
(iv) all proceeds of the sale of securities issued by the Company,
which are received by PFPC Trust from time to time, from or on
behalf of the Company.
(o) "Written Instructions" mean written instructions signed by two Authorized
Persons, unless specified otherwise herein, and received by PFPC Trust. The
instructions may be delivered electronically or by hand, mail, tested
telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC Trust to provide custodian
services to the Company, in accordance with the terms set forth in this
Agreement. PFPC Trust accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where applicable, will
provide PFPC Trust with the following:
(a) certified or authenticated copies of the resolutions of the Company's
Board of Managers, approving the appointment of PFPC Trust or its
affiliates to provide services and approving this Agreement;
(b) a copy of the Company's current Form N-2 registration statement;
(c) a copy of the Limited Liability Company Agreement;
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(d) a copy of the Company's investment advisory agreement pursuant to
which CIBC Oppenheimer Advisers, L.L.C., as Investment Adviser,
provides investment advice to the Company;
(e) a copy of the placement agent agreement with respect to the Company;
(f) a copy of any administration agreements;
(g) copies of any investor servicing agreement; and
(h) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PFPC Trust undertakes to comply with the applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be performed
by PFPC Trust hereunder. Except as specifically set forth herein, PFPC
Trust assumes no responsibility for such compliance by the Company.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall act only
upon Oral Instructions and Written Instructions, including standing
Written Instructions related to ongoing instructions received
electronically.
(b) PFPC Trust shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC Trust to be an Authorized Person) pursuant
to this Agreement. PFPC Trust may assume that any Oral or Written
Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Company or of any
vote, resolution or proceeding of the Company's Board of
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Managers or the Company's members, unless and until PFPC Trust
receives Written Instructions to the contrary.
(c) The Company agrees to forward to PFPC Trust Written Instructions
confirming Oral Instructions given on behalf of the Company (except
where such Oral Instructions are given by PFPC Trust or its
affiliates) and shall endeavor to ensure that PFPC Trust receives the
Written Instructions by the close of business on the same day that
such Oral Instructions are received. The fact that such confirming
Written Instructions are not received by PFPC Trust shall in no way
invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an
Authorized Person, PFPC Trust shall incur no liability to the Company
in acting upon such Oral Instructions or Written Instructions provided
that PFPC Trust's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Company. If PFPC Trust is in doubt as to any action it
should or should not take, PFPC Trust may request directions or
advice, including Oral Instructions or Written Instructions, from the
Company.
(b) Advice of Counsel. If PFPC Trust shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC
Trust may request advice at its own cost from such counsel of its own
choosing.
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC Trust
receives from the Company, and
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the advice it receives from counsel, PFPC Trust shall be entitled to
rely upon and follow the advice of counsel. PFPC Trust shall promptly
inform the Company of such conflict and PFPC Trust shall refrain from
acting in the event of a conflict unless counsel advises PFPC Trust
that a failure to take action is likely to result in additional loss,
liability or expense. In the event PFPC Trust relies on the advice of
counsel, PFPC Trust remains liable for any action or omission on the
part of PFPC Trust which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC Trust of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC Trust. PFPC Trust shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Company or
(to the extent permitted under clause (c) above) from counsel and
which PFPC Trust believes, in good faith, to be consistent with those
directions, advice or Oral Instructions or Written Instructions.
Nothing in this section shall be construed so as to impose an
obligation upon PFPC Trust (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in accordance
with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this
Agreement, the same is a condition of PFPC Trust's properly taking or
not taking such action. Nothing in this subsection shall excuse PFPC
Trust when an action or omission on the part of PFPC Trust constitutes
willful misfeasance, bad faith, negligence or reckless disregard by
PFPC Trust of any duties, obligations or responsibilities set forth in
this Agreement.
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7. RECORDS; VISITS. The books and records pertaining to the Company, which are
in the possession or under the control of PFPC Trust shall be the property
of the Company. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Company and its duly authorized officers, employees and
agents and the staff of the Securities and Exchange Commission shall have
access to such books and records at all times during PFPC Trust's normal
business hours. Upon the reasonable request of the Company, copies of any
such books and records shall be provided by PFPC Trust to the Company or to
an Authorized Person, at the Company's expense. No records will be
destroyed without the Company's written consent.
8. CONFIDENTIALITY. PFPC Trust agrees to keep confidential all records of the
Company and information relating to the Company and its Members, unless the
release of such records or information is otherwise consented to, in
writing, by the Company. The Company agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC Trust 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 Company's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the
necessary information is made available to such auditors and accountants
for the expression of their opinion, as required by the Company.
10. DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable
provisions for emergency
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use of electronic data processing equipment. In the event of equipment
failures, PFPC Trust shall, at no additional expense to the Company, take
reasonable steps to minimize service interruptions. PFPC Trust shall have
no liability with respect to the loss of data or service interruptions
caused by equipment failure provided such loss or interruption is not
caused by PFPC Trust's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its business and
operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test the
remediation or replacement of computer applications/systems, in each case,
to address on a timely basis the risk that certain computer
applications/systems used by PFPC may be unable to recognize and perform
properly date sensitive functions involving dates prior to, including and
after December 31, 1999, including dates such as February 29, 2000 (the
"Year 2000 Challenge"). To the best of PFPC's knowledge and belief, the
reasonably foreseeable consequences of the Year 2000 Challenge will not
adversely effect PFPC's ability to perform its duties and obligations under
this Agreement.
12. COMPENSATION. As compensation for custody services rendered by PFPC Trust
during the term of this Agreement, the Company will pay to PFPC Trust a fee
or fees as may be agreed to in writing from time to time by the Company and
PFPC Trust.
13. INDEMNIFICATION. The Company, agrees to indemnify and hold harmless PFPC
Trust and its affiliates from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising
under the Securities Laws and any state
J-8
<PAGE>
and foreign Securities and blue sky laws, and amendments thereto), and
expenses, including (without limitation) reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to
act which PFPC Trust takes (i) at the request or on the direction of or in
reliance on the advice of the Company or (ii) upon Oral Instructions or
Written Instructions; provided, however, neither PFPC Trust, nor any of its
affiliates, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC Trust's or its affiliates'
own willful misfeasance, bad faith, negligence or reckless disregard of its
duties under this Agreement.
14. RESPONSIBILITY OF PFPC TRUST.
(a) PFPC Trust shall be under no duty to take any action on behalf of the
Company except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by
PFPC Trust in writing. PFPC Trust shall be obligated to exercise care
and diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PFPC Trust
shall be liable for any damages arising out of PFPC Trust's failure to
perform its duties under this Agreement to the extent such damages
arise out of PFPC Trust's willful misfeasance, bad faith, negligence
or reckless disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC Trust shall not be liable for
losses beyond its control, provided that PFPC Trust has acted in
accordance with the standard of care set forth above; and (ii) PFPC
Trust shall not be liable for (A) the validity or
J-9
<PAGE>
invalidity or authority or lack thereof of any Oral Instruction or
Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC Trust
reasonably believes to be genuine; or (B) subject to section 10,
delays or errors or loss of data occurring by reason of circumstances
beyond PFPC Trust's control, including acts of civil or military
authority, national emergencies, fire, flood, catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC Trust nor its affiliates shall be liable to the Company for any
consequential, special or indirect losses or damages which the Company
may incur or suffer by or as a consequence of PFPC Trust's or its
affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC Trust
or its affiliates.
(d) Notwithstanding anything in this Agreement to the contrary, the
Company shall not be liable to PFPC Trust for any consequential,
special or indirect losses or damages which PFPC Trust may incur or
suffer as a consequence of this Agreement, whether or not the
likelihood of such losses or damages was known by the Company.
15. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Company will deliver or arrange for
delivery to PFPC Trust, all the Property owned by the Company,
including cash received as a result of the purchase of Interests,
during the period that is set forth in this
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<PAGE>
Agreement. PFPC Trust will not be responsible for such property until
actual receipt.
(b) Receipt and Disbursement of Money. PFPC Trust, acting upon Written
Instructions, shall open and maintain separate accounts (each an
"Account") in the Company's name using all cash received from or for
the account of the Company, subject to the terms of this Agreement.
PFPC Trust shall make cash payments from or for the Accounts only for:
(i) purchases of Securities in the name of the Company, PFPC Trust or
PFPC Trust's nominee or a sub-custodian or nominee thereof as
provided in sub-section (j) and for which PFPC Trust has received
a copy of (A) the subscription document, or (B) the broker's or
dealer's confirmation, or (C) payee's invoice, as appropriate;
(ii) the repurchase of Interests of the Company;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory, management
fees or similar expenses which are to be borne by the Company;
(iv) payment to, subject to receipt of Written Instructions, the
Company's administrator, as agent for the Members, of an amount
equal to the amount of any distributions stated in the Written
Instructions to be distributed in cash by the administrator to
Members, or, in lieu of paying the Company's administrator, PFPC
Trust may arrange for the direct payment of cash dividends and
distributions to Members in accordance with procedures mutually
agreed upon from time to time by and among the Company, PFPC
Trust and the Company's administrator.
(v) payments, upon receipt of Written Instructions signed by one
Authorized Person, in connection with the conversion, exchange or
surrender of Securities owned or subscribed to by the Company and
held pursuant to this Agreement or delivered to PFPC Trust;
(vi) payments of, subject to receipt of Written Instructions signed by
one Authorized Person, the amounts of dividends received with
respect to Securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
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<PAGE>
(viii) other payments, upon Written Instructions.
PFPC Trust is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money
received as custodian for the Company.
(c) Receipt of Securities; Subcustodians.
(i) PFPC Trust shall hold all Securities received by it for the
Company in a separate account that physically segregates such
Securities from those of any other persons, firms or
corporations, except for Securities held in a Book-Entry System.
All such Securities shall be held or disposed of only upon
Written Instructions of the Company pursuant to the terms of this
Agreement. PFPC Trust shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such Securities
or investment, except upon the express terms of this Agreement or
upon Written Instructions authorizing the transaction. In no case
may any member of the Company's Board of Managers, or any
officer, employee or agent of the Company withdraw any
Securities.
At PFPC Trust's own expense and for its own convenience, PFPC
Trust may enter into sub-custodian agreements with other United
States banks or trust companies, which are banks as defined by
the 1940 Act, to perform duties described in this sub-section (c)
with respect to domestic assets. Such bank or trust company shall
have an aggregate capital, surplus and undivided profits,
according to its last published report, of at least one million
dollars ($1,000,000), if it is a subsidiary or affiliate of PFPC
Trust, or at least twenty million dollars ($20,000,000) if such
bank or trust company is not a subsidiary or affiliate of PFPC
Trust. In addition, such bank or trust company must be qualified
to act as custodian and agree to comply with the relevant
provisions of the 1940 Act and other applicable rules and
regulations, including but not limited to, if applicable,
standards relating to the custody of foreign Securities. Any such
arrangement will not be entered into without prior written notice
to the Company.
PFPC Trust shall remain responsible for the performance of all of its
duties as described in this Agreement and shall hold the Company
harmless from its own acts or omissions, under the standards of care
provided for herein and from the acts and omissions of any
sub-custodian chosen by PFPC Trust under the terms of this sub-section
(c).
J-12
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(d) Transactions Requiring Instructions. Upon receipt of Oral Instructions
or Written Instructions and not otherwise, PFPC Trust, directly or
through the use of a Book-Entry System, shall:
(i) deliver any Securities held for the Company against the receipt
of payment for the sale of such Securities;
(ii) execute and deliver to such persons as may be designated in such
Oral Instructions or Written Instructions, proxies, consents,
authorizations, and any other instruments received by PFPC Trust
as custodian whereby the authority of the Company as owner of any
Securities may be exercised;
(iii) deliver any Securities to the issuer thereof, or its agent, when
such Securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the cash or
other consideration is to be delivered to PFPC Trust;
(iv) deliver any Securities held for the Company against receipt of
other Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, tender offer, merger,
consolidation or recapitalization of any corporation, or the
exercise of any conversion privilege;
(v) deliver any Securities held for the Company to any protective
committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Company and
take such other steps as shall be stated in said Oral
Instructions or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Company;
(vii) release Securities belonging to the Company to any bank or
trust company for the purpose of a pledge or hypothecation to
secure any loan incurred by the Company; provided, however,
that Securities shall be released only upon payment to PFPC
Trust of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made subject to proper prior authorization, further
Securities may be released for that purpose; and repay such
loan upon redelivery to it of the Securities
J-13
<PAGE>
pledged or hypothecated therefor and upon surrender of the note
or notes evidencing the loan;
(viii) release and deliver Securities owned by the Company in
connection with any repurchase agreement entered into on
behalf of the Company, but only on receipt of payment
therefor; and pay out moneys of the Company in connection with
such repurchase agreements, but only upon the delivery of the
Securities;
(ix) release and deliver or exchange Securities owned by the
Company in connection with any conversion of such Securities,
pursuant to their terms, into other Securities;
(x) release and deliver Securities to a broker in connection with
the broker's custody of margin collateral relating to futures
and options transactions;
(xi) release and deliver Securities owned by the Company for the
purpose of redeeming in kind Interests of the Company upon
delivery thereof to PFPC Trust; and
(xii) release and deliver or exchange Securities owned by the
Company for other purposes.
(e) Use of Book-Entry System. PFPC Trust is authorized and instructed on
a continuous basis, to deposit in Book-Entry Systems all Securities
belonging to the Company eligible for deposit therein and to utilize
Book-Entry Systems to the extent possible in connection with
settlements of purchases and sales of Securities by the Company, and
deliveries and returns of Securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PFPC
Trust shall continue to perform such duties until it receives
Written Instructions or Oral Instructions authorizing contrary
actions.
PFPC Trust shall administer the Book-Entry System as follows:
(i) With respect to Securities of the Company which are maintained
in the Book-Entry System, the records of PFPC Trust shall
identify by book-entry or otherwise those Securities belonging
to the Company.
(ii) Assets of the Company deposited in the Book-Entry System will
at all times be segregated from any assets and cash controlled
by PFPC Trust in
J-14
<PAGE>
other than a fiduciary or custodian capacity but may be
commingled with other assets held in such capacities.
PFPC Trust will provide the Company with such reports on its own
system of internal control as the Company may reasonably request
from time to time.
(f) Registration of Securities. All Securities held for the Company
which are issued or issuable only in bearer form, except such
Securities held in the Book-Entry System, shall be held by PFPC
Trust in bearer form; all other Securities held for a Portfolio may
be registered in the name of the Company, PFPC Trust, a Book-Entry
System, a sub-custodian, or any duly appointed nominees of the
Company, PFPC Trust, Book-Entry System or sub-custodian. The Company
reserves the right to instruct PFPC Trust as to the method of
registration and safekeeping of the Securities of the Company. The
Company agrees to furnish to PFPC Trust appropriate instruments to
enable PFPC Trust to hold or deliver in proper form for transfer, or
to register in the name of its nominee or in the name of the
Book-Entry System or in the name of another appropriate entity, any
Securities which it may hold for the Company and which may from time
to time be registered in the name of the Company.
(g) Voting and Other Action. Neither PFPC Trust nor its nominee shall
vote any of the Securities held pursuant to this Agreement by or for
the account of the Company, except in accordance with Written
Instructions. PFPC Trust, directly or through the use of a
Book-Entry System, shall execute in blank and promptly deliver all
notices, proxies and proxy soliciting materials received by PFPC
Trust as custodian to the registered holder of such Securities. If
the registered holder is
J-15
<PAGE>
not the Company, then Written Instructions or Oral Instructions must
designate the person who owns such Securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, PFPC Trust is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Company, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise the Company of such receipt and credit
such income, as collected, to the Company's custodian
account;
(B) endorse and deposit for collection, in the name of the
Company, checks, drafts, or other orders for the payment
of money;
(C) receive and hold for the account of the Company all
Securities received as a distribution on the Company's
Securities as a result of a stock dividend, share
split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar Securities issued with respect to any
Securities belonging to the Company and held by PFPC
Trust hereunder;
(D) present for payment and collect the amount payable upon
all Securities which may mature or be called, redeemed,
or retired, or otherwise become payable on the date such
Securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PFPC Trust is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for
the account of the Company in accordance with
street delivery custom;
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<PAGE>
(2) for the exchange of interim receipts or temporary
Securities for definitive Securities; and
(3) for transfer of Securities into the name of the
Company or PFPC Trust or a sub-custodian or a
nominee of one of the foregoing, or for exchange
of Securities for a different number of bonds,
certificates, or other evidence, representing the
same aggregate face amount or number of units
bearing the same interest rate, maturity date and
call provisions, if any; provided that, in any
such case, the new Securities are to be delivered
to PFPC Trust.
(B) unless and until PFPC Trust receives Oral Instructions
or Written Instructions to the contrary, PFPC Trust
shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of the Company;
(2) collect interest and cash dividends received, with
notice to the Company, for the account of the
Company;
(3) hold for the account of the Company all stock
dividends, rights and similar Securities issued
with respect to any Securities held by PFPC Trust;
and
(4) execute as agent on behalf of the Company all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax
Regulations of the United States Treasury
Department or under the laws of any state now or
hereafter in effect, inserting the Company's name,
on such certificate as the owner of the Securities
covered thereby, to the extent it may lawfully do
so.
(i) Segregated Accounts.
PFPC Trust shall upon receipt of Written Instructions or Oral
Instructions establish and maintain segregated accounts on its
records for and on behalf of the Company. Such accounts may be
used to transfer cash and Securities, including Securities in
a Book-Entry System:
(A) for the purposes of compliance by the Company with the
procedures required by a securities, futures or option
exchange, providing such procedures comply with the 1940
Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) upon receipt of Written Instructions, for other
purposes.
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<PAGE>
(j) Purchases of Securities. PFPC Trust shall settle purchased
Securities upon receipt of Oral Instructions or Written
Instructions that specify:
(i) the name of the issuer and the title of the Securities,
including CUSIP number if applicable;
(ii) the number of Interests or the principal amount
purchased and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through
whom the purchase was made. PFPC Trust shall upon
receipt of Securities purchased by or for the Company
pay out of the moneys held for the account of the
Company the total amount payable to the person from whom
or the broker through whom the purchase was made,
provided that the same conforms to the total amount
payable as set forth in such Oral Instructions or
Written Instructions.
(k) Sales of Securities. PFPC Trust shall settle sold Securities
upon receipt of Oral Instructions or Written Instructions that
specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of Interests or principal amount sold, and
accrued interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Company upon such sale;
(vi) the name of the broker through whom or the person to
whom the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
J-18
<PAGE>
PFPC Trust shall deliver the Securities upon receipt of the total
amount payable to the Company upon such sale, provided that the
total amount payable is the same as was set forth in the Oral
Instructions or Written Instructions. Notwithstanding the other
provisions hereof, PFPC Trust may accept payment in such form which
is consistent with industry practice and may deliver Securities and
arrange for payment in accordance with the customs prevailing among
dealers in Securities.
(l) Reports; Proxy Materials.
(i) PFPC Trust shall furnish to the Company the following reports:
(A) such periodic and special reports as the Company may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Company, listing each
portfolio security belonging to the Company with the
adjusted average cost of each issue and the market value
at the end of such month and stating the cash account of
the Company including disbursements;
(C) the reports required to be furnished to the Company
pursuant to Rule 17f-4 of the 1940 Act; and
(D) such other information as may be agreed upon from time
to time between the Company and PFPC Trust.
(ii) PFPC Trust shall transmit promptly to the Company any
proxy statement, proxy material, notice of a call or
conversion, other corporate action or similar
communication received by it as custodian of the
Property. PFPC Trust shall be under no other obligation
to inform the Company as to such actions or events.
(m) Crediting of Accounts. If PFPC Trust in its sole discretion credits
an Account with respect to (a) income, dividends, distributions,
coupons, option premiums, other
J-19
<PAGE>
payments or similar items on a contractual payment date or otherwise
in advance of PFPC Trust's actual receipt of the amount due, (b) the
proceeds of any sale or other disposition of assets on the
contractual settlement date or otherwise in advance of PFPC Trust's
actual receipt of the amount due or (c) provisional crediting of any
amounts due, and (i) PFPC Trust is subsequently unable to collect
full and final payment for the amounts so credited within a
reasonable time period using reasonable efforts or (ii) pursuant to
standard industry practice, law or regulation PFPC Trust is required
to repay to a third party such amounts so credited, or if any
Property has been incorrectly credited, PFPC Trust shall have the
absolute right in its sole discretion without demand to reverse any
such credit or payment, to debit or deduct the amount of such credit
or payment from the Account, and to otherwise pursue recovery of any
such amounts so credited from the Company. Nothing herein or
otherwise shall require PFPC Trust to make any advances or to credit
any amounts until PFPC Trust's actual receipt thereof. The Company
hereby grants a first priority contractual possessory security
interest in and a right of setoff against the assets maintained
hereunder in the amount necessary to secure the return and payment
to PFPC Trust of any advance or credit made by PFPC Trust (including
reasonable charges related thereto).
(n) Collections. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by PFPC Trust) shall be at the sole
risk of the Company. If payment is not received by PFPC Trust within
a reasonable time after proper demands have been made, PFPC Trust
shall notify the Company in writing, including copies of all demand
J-20
<PAGE>
letters, any written responses and memoranda of all oral responses
and shall await instructions from the Company. PFPC Trust shall not
be obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PFPC Trust shall also
notify the Company as soon as reasonably practicable whenever income
due on Securities is not collected in due course and shall provide
the Company with periodic status reports of such income collected
after a reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until terminated
by either party upon ninety (90) days' prior written notice to the other
party by certified mail with confirmed receipt. In the event this
Agreement is terminated (pending appointment of a successor to PFPC Trust
or vote of the Members of the Company to dissolve or to function without a
custodian of its cash, Securities or other property), PFPC Trust shall not
deliver cash, Securities or other property of the Portfolios to the
Company. It may deliver them to a bank or trust company of PFPC Trust's
choice, having an aggregate capital, surplus and undivided profits, as
shown by its last published report, of not less than twenty million
dollars ($20,000,000), as a custodian for the Company to be held under
terms similar to those of this Agreement.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notices shall be addressed (a) if to PFPC
Trust at 8800 Tinicum Bolevard, 3rd Floor, Suite 200, Philadelphia,
Pennsylvania 19153, Attention: Sam Sparhawk; (b) if to the Company, at c/o
CIBC World Markets Corp., One World Financial Center, 200 Liberty Street,
31st Floor, New York, NY 10281, Attn: Howard M. Singer or (c) if to
neither of the
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<PAGE>
foregoing, at such other address as shall have been given by like notice
to the sender of any such notice or other communication by the other
party. If notice is sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by messenger, it
shall be deemed to have been given on the day it is delivered.
18. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19 DELEGATION; ASSIGNMENT. This Agreement and the rights and duties of the
parties herein may not be assigned; provided, however, that PFPC Trust may
assign its rights and delegate its duties hereunder at no additional cost
to the Company to any affiliate of or any majority-owned direct or
indirect subsidiary of PFPC Inc. or of PNC Bank Corp., provided that (i)
PFPC Trust gives the Company sixty (60) days' prior written notice of such
assignment or delegation; (ii) the assignee or delegate agrees to comply
with the relevant provisions of the Securities Laws; and (iii) PFPC Trust
and such assignee or delegate promptly provide such information as the
Company may request, and respond to such questions as the Company may ask,
relative to the assignment or delegation, (including, without limitation)
the capabilities of the assignee or delegate. Except as stated above, this
Agreement may not be assigned or delegated by any party without the
written consent of each party.
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<PAGE>
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 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.
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<PAGE>
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC TRUST COMPANY
By:
-----------------------------
Title:
--------------------------
STRATIGOS FUND, L.L.C.
By:
-----------------------------
Howard M. Singer
Title: Principal Manager
--------------------------
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<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Howard Singer
- ----------------------- ---------------------------
Judith Gross
- ----------------------- ---------------------------
Barbara Pires
- ----------------------- ---------------------------
Veronica Marsicano
- ----------------------- ---------------------------
William Fink
- ----------------------- ---------------------------
Michael O'Donnell
- ----------------------- ---------------------------
Bryan McKigney
- ----------------------- ---------------------------
J-25
Exhibit (k)(1)
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as of this
26th day of April, 2000, by and between CIBC World Markets Corp. ("CIBC WM") and
Stratigos Fund, L.L.C. (the "Fund").
WHEREAS, CIBC WM is in the business of providing administrative services to
investment partnerships and limited liability companies; and
WHEREAS, the Fund wishes to retain CIBC WM to provide certain
administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. Appointment of CIBC WM.
(a) The Fund hereby retains CIBC WM to provide and CIBC WM hereby
agrees to provide certain administrative services to the Fund. These services
shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial, clerical and
other personnel as necessary to provide the services required to
be provided under this Agreement;
(iii) the general supervision of the entities that are retained by the
Fund to provide administrative services and custody services to
the Fund;
(iv) the handling of investor inquiries regarding the Fund and
providing investors with information concerning their investment
in the Fund and capital account balances;
(v) monitoring relations and communications between investors and the
Fund;
(vi) assisting in the drafting and updating of disclosure documents
relating to the Fund and assisting in the preparation of offering
materials;
K-1-1
<PAGE>
(vii) maintaining and updating investor information, such as change of
address and employment;
(viii) assisting in the preparation and mailing of investor
subscription documents and confirming the receipt of such
documents and investor funds;
(ix) assisting in the preparation of regulatory filings with the
Securities and Exchange Commission, state securities regulators
and other Federal and state regulatory authorities;
(x) preparing reports to and other informational materials for
members and assisting in the preparation of proxy statements and
other member communications;
(xi) monitoring compliance with regulatory requirements and with the
Fund's investment objective, policies and restrictions as
established by the Board of Managers of the Fund (the "Board");
(xii) reviewing accounting records and financial reports of the Fund,
assisting with the preparation of the financial reports of the
Fund and acting as liaison with the Fund's accounting agent and
independent auditors;
(xiii) assisting in preparation and filing of tax returns;
(xiv) coordinating and organizing meetings of the Board and meetings
of the members of the Fund, in each case when called by such
persons;
(xv) preparing materials and reports for use in connection with
meetings of the Board;
(xvi) maintaining and preserving those books and records of the Fund
not maintained by CIBC Oppenheimer Advisers, L.L.C., the Fund's
investment adviser (the "Adviser") or the Fund's accounting
agent or custodian;
(xvii) reviewing and arranging for payment of the expenses of the
Fund;
(xviii) assisting the Fund in conducting offers to members of the Fund
to repurchase member interests; and
(xix) reviewing and approving all regulatory filings of the Fund
required under applicable law.
K-1-2
<PAGE>
(b) Notwithstanding the appointment of CIBC WM to provide
administrative services hereunder, the Board shall remain
responsible for supervising and controlling the management,
business and affairs of the Fund.
2. CIBC WM Fee; Expenses.
(a) In consideration for the provision by CIBC WM of its services
hereunder, the Fund will pay CIBC WM a monthly management fee of
0.08333% (1% on annualized basis) of the Fund's "net assets" (the
"CIBC WM Fee"). "Net assets" shall equal the total value of all
assets of the Fund, less an amount equal to all accrued debts,
liabilities, and obligations of the Fund calculated before giving
effect to any repurchases of interests.
(b) The CIBC WM Fee will be computed based on the net assets of the
Fund as of the start of business on the first business day of
each month, after adjustment for any subscriptions effective on
such date, and will be due and payable in arrears within five
business days after the end of such month. In the event that the
CIBC WM Fee is payable in respect of a partial month, such fee
will be appropriately pro-rated.
(c) CIBC WM is responsible for all costs and expenses associated with
the provision of its services hereunder. The Fund shall pay all
other expenses associated with the conduct of its business.
3. Liability. CIBC WM will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund, the Managers serving on the
Board ("Managers") or the Fund's members in connection with the performance of
its duties under this Agreement, except a loss (as to which it will be liable
and will indemnify and hold harmless the Fund) resulting from willful
misfeasance, bad faith or gross negligence on CIBC WM's part (or on the part of
an officer or employee of CIBC WM) in the performance of its duties hereunder or
reckless disregard by it of its duties under this Agreement.
4. Effective Date and Termination. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year after its initial term provided that
such continuance is approved annually by the Board, including the vote of a
majority of the Managers who are not "interested persons" of the Fund, as
defined by the Investment Company Act of 1940 and the rules thereunder (the
"1940 Act"). This Agreement may be terminated by CIBC WM, by the Board or by
vote of a majority of the outstanding voting securities of the Fund at any time,
in each case upon not less than 60 days' prior written notice. This Agreement
shall also terminate automatically in the event of its "assignment," as such
term is defined by the 1940 Act.
5. Entire Agreement. This Agreement embodies the entire understanding
of the parties. This Agreement cannot be altered, amended, supplemented, or
abridged, or any provisions waived except by written agreement of the parties.
K-1-3
<PAGE>
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.
{The remainder of this page has been intentionally left blank}
K-1-4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CIBC WORLD MARKETS CORP.
By: /s/
--------------------------------
Name:
Title:
STRATIGOS FUND, L.L.C.
By: /s/
--------------------------------
Name: Howard M. Singer
Title: Principal Manager
K-1-5
Exhibit (k)(2)
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of April 26, 2000 by and between STRATIGOS FUND,
L.L.C., a Delaware limited liability company, (the "Company"), and PFPC INC., a
Massachusetts corporation ("PFPC"), which is an indirect subsidiary of PNC Bank
Corp.
W I T N E S S E T H :
WHEREAS, the Company is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company wishes to retain PFPC to provide certain
administration and accounting services and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Company and any
other person duly authorized by the Company's Board of Managers to give Oral
Instructions and Written Instructions on behalf of the Company and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Company by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Board of Managers" and "Members" shall have the same meanings as
set forth in the Company's Limited Liability Agreement.
(f) "Oral Instructions" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
K-2-1
<PAGE>
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC to provide
administration, accounting and investor services, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Company's Board of Managers, approving the appointment of PFPC or its affiliates
to provide services and approving this Agreement;
(b) a copy of the Company's most recent effective registration
statement;
(c) a copy of the limited liability company agreement;
(d) a copy of the investment advisory agreement (pursuant to which
CIBC Oppenheimer Advisers, L.L.C., as Investment Adviser, provides investment
advice to the Company);
(e) a copy of any distribution agreement with respect to the Company;
(f) a copy of any additional administration agreements;
(g) a copy of any other investor servicing agreement; and
(h) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Company.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions including standing Written
Instructions related to ongoing instructions received electronically.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written
K-2-2
<PAGE>
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 Company's Board of Managers or of the Company's
Members, unless and until PFPC receives Written Instructions to the contrary.
(c) The Company agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) and shall endeavor to ensure that PFPC receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Company
in acting upon such Oral or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Company. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Company.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing.
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Company and the advice PFPC receives from counsel, PFPC may rely upon
and follow the advice of counsel. PFPC shall promptly inform the Company of such
conflict and PFPC shall refrain from acting in the event of a conflict unless
counsel advises PFPC that a failure to take action is likely to result in
additional loss, liability or expense. In the event PFPC relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Company or (to the extent permitted
under clause (c) above) from counsel and which PFPC believes, in good faith, to
be consistent with those directions, advice and Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral Instructions or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PFPC's properly taking
or not taking such action. Nothing in this subsection shall excuse PFPC when an
action or omission on the part of PFPC constitutes willful misfeasance, bad
faith, gross
K-2-3
<PAGE>
negligence or reckless disregard by PFPC of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Company which are in the
possession or under the control of PFPC shall be the property of the Company.
Such books and records shall be prepared and maintained as required by the 1940
Act and other applicable securities laws, rules and regulations. The Company and
Authorized Persons shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Company,
copies of any such books and records shall be provided by PFPC to the Company or
to an Authorized Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the Company's books
of account;
(ii) records of the Company's securities transactions; and
(iii) all other books and records as the Company is required to
maintain pursuant to Rule 31a-1 of the 1940 Act in connection with the services
provided by PFPC hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of
the Company and information relating to the Company and its Members, unless the
release of such records or information is otherwise consented to, in writing, by
the Company. The Company agrees that such consent shall not be unreasonably
withheld and may not be withheld where PFPC may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Company's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules. PFPC shall take all
reasonable action in the performance of its duties under this Agreement to
assure that the necessary information is made available to such auditors and
accountants in a timely fashion for the expression of their opinion, as required
by the Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Company, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure, provided such
loss or interruption is not caused by PFPC's own willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties or obligations under this
Agreement.
K-2-4
<PAGE>
11. YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its
business and operations as they relate to the services provided hereunder, (b)
has developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test the
remediation or replacement of computer applications/systems, in each case, to
address on a timely basis the risk that certain computer applications/systems
used by PFPC may be unable to recognize and perform properly date sensitive
functions involving dates prior to, including and after December 31, 1999,
including dates such as February 29, 2000 (the "Year 2000 Challenge"). To the
best of PFPC's knowledge and belief, the reasonably foreseeable consequences of
the Year 2000 Challenge will not adversely effect PFPC's ability to perform its
duties and obligations under this Agreement.
12. COMPENSATION. As compensation for services rendered by PFPC
during the term of this Agreement, the Company will pay to PFPC a fee or fees as
may be agreed to in writing by the Company and PFPC.
13. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising under
the Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC takes (i) at the request or on the direction of or
in reliance on the advice of the Company or (ii) upon Oral Instructions or
Written Instructions; Provided, however, neither PFPC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PFPC's or its affiliates own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Company except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood,
K-2-5
<PAGE>
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Company for any
consequential, special or indirect losses or damages which the Company or any
Portfolio may incur or suffer by or as a consequence of PFPC's or any
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PFPC or its affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following accounting services:
(i) Journalize investment, income and expense activities;
(ii) Verify investment buy/sell trade tickets when received from
the investment adviser for a Portfolio in accordance with
PFPC's written procedures;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Record and reconcile corporate action activity and all other
capital changes with the Company's Adviser;
(vi) Reconcile cash and investment balances of the Company with
the Custodian, and provide the Adviser with the beginning
cash balance available for investment purposes;
(vii) Update the cash availability throughout the day as required
by the Adviser, the Portfolio Manager or the custodian (as
necessary) including details of cash movements related to
securities and payment of Company expenses;
(viii) Calculate contractual expenses (e.g., advisory and custody
fees) in accordance with the Company's Confidential
Memorandum;
(ix) Prepare quarterly the Statement of Assets and Liabilities,
the Statement of Operations, Statement of Changes in
Partner's Capital, and the Statement of Changes in Net
Assets, Listing of Investment and Quarterly Reports, as
required for reporting to the Members of the Board;
(x) Maintain detailed line item expense budget for the Company
and notify an officer of the Company of any proposed
adjustments;
(xi) Control all disbursements and authorize such disbursements
from the Company's account at PNC Bank, Delaware upon
Written Instructions;
(xii) Calculate capital gains and losses;
K-2-6
<PAGE>
(xiii) Determine net income;
(xiv) Determine applicable foreign exchange gains and losses on
payables and receivables;
(xv) Interface with global custodian to monitor collection of
tax reclaims;
(xvi) Calculate daily asset coverage ratio;
(xvii) Obtain daily security market quotes from independent
pricing services approved by the Adviser, or if such quotes
are unavailable, then obtain such prices from the Adviser,
and in either case calculate the market value of and the
appreciation/depreciation on the Company's Investments;
(xviii) Transmit or otherwise send a copy of the daily portfolio
valuation to the Adviser;
(xix) Compute net asset value with frequency to conform to the
terms of the Company;
(xx) Research portfolio accounting tax treatment for unique
security types; and
(xxi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required, portfolio
average dollar-weighted maturity in accordance with
applicable regulations.
(xxii) Assist with the annual audit of the Company's financial
statements; and
(xxiii) Such other services as the parties agree in writing.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following administration services:
(i) Prepare quarterly broker security transactions summaries
including principal and agency transactions and related
commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary portfolio and Company
statistical data as requested on an ongoing basis;
(iv) Provide to the extent contained in accounting records
materials required for board reporting as may be requested
from time to time;
(v) Prepare for execution and file the Company's Federal Form
1065
K-2-7
<PAGE>
and state tax returns;
(vi) Prepare and file the Company's Annual and Semi-Annual
Reports with the SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate printing of and filing with the SEC
via EDGAR the Company's annual and semi-annual reports;
(viii) Transmit or otherwise send, to the extent practicable and
feasible, requested detailed information related to the
Members, including admission details, income, capital gains
and losses, and performance detail;
(ix) Mail Company offering materials to prospective investors;
and
(x) Mail quarterly reports of the Adviser and Semi-Annual
Financial Statements to investors as well as any other
necessary correspondence;
(xi) Copy the Board of Managers on routine correspondence sent to
Members;
(xii) Coordinate contractual relationships and communications
between the Company and its contractual service providers;
and
(xiii) Maintain certain bank accounts of the Company for
authorized purposes.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Members of the Company and enter on
such register all issues, transfers and repurchases of
interests in the Company;
(ii) Arrange for the calculation of the issue and repurchase
prices of interests in the Company in accordance with the
limited liability company agreement and private offering
memorandum; and
(iii) Allocate income, expenses, gains and losses to individual
Members' capital accounts in accordance with applicable tax
laws and with the private offering memorandum;
(iv) Calculate the Incentive Allocation in accordance with the
Confidential Memorandum and reallocate corresponding amounts
from the applicable Members' accounts to the Special
Advisory Account;
(v) Mail to Members annual Form K-1's in accordance with
applicable tax regulations;
K-2-8
<PAGE>
(vi) Mail tender offers to Members for purposes of executing
repurchases;
(vii) Retain in a safe place Share Registers and transfer forms
for a period of at least six years from the time of
execution;
(viii) Maintain and tabulate information regarding Company votes;
(ix) Transmit to the Board of Managers the investor data for
inclusion in monthly investor brokerage statements, as
agreed upon by the Company and PFPC;
(x) Mail, as applicable, quarterly reports of the Portfolio
Manager as requested by the Board of Managers to investors,
as well as any other correspondence requested by the Board
of Managers;
(xi) Transmit or otherwise send, to the extent practical and
feasible, requested detailed information related to the
Members, including admission details, income, capital gains
and losses, and performance detail; and
(xii) Mail Company offering materials to prospective investors in
accordance with instructions from an Authorized Person.
18. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; Attn: Rene
Paradis (b) if to the Company, at c/o CIBC World Markets Corp., One World
Financial Center, 200 Liberty Street, 31st Floor, New York, NY 10281, Attn:
Howard M. Singer; or (c) if to neither of the foregoing, at such other address
as shall have been provided by like notice to the sender of any such notice or
other communication by the other party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed
or waived only by written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
21. DELEGATION; ASSIGNMENT. This Agreement and the rights and duties
of the parties herein may not be assigned; provided, however, that PFPC may
assign its rights and delegate its duties hereunder, at no additional cost to
the Company, to any affiliate of or any majority-owned direct or indirect
subsidiary of PFPC or PNC Bank Corp., provided that (i) PFPC gives the Company
sixty (60) days' prior written notice of such assignment or delegation; (ii) the
assignee or delegate agrees to comply with all relevant provisions of the
Securities Laws; and
K-2-9
<PAGE>
(iii) PFPC and such assignee or delegate promptly provide such information as
the Company may request, and respond to such questions as the Company may ask,
relative to the assignment or delegation, (including, without limitation) the
capabilities of the assignee or delegate. Except as stated above, this Agreement
may not be assigned or delegated by any party without the written consent of
each party.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
24. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall 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.
K-2-10
<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: /s/
------------------------
Title:
---------------------
STRATIGOS FUND, L.L.C.
By: /s/
------------------------
Howard M. Singer
Title: Principal Manager
---------------------
K-2-11
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Howard Singer /s/
- -------------------------- ----------------------------
Judith Gross /s/
- -------------------------- ----------------------------
Barbara Pires /s/
- -------------------------- ----------------------------
Veronica Marsicano /s/
- -------------------------- ----------------------------
William Fink /s/
- -------------------------- ----------------------------
Michael O'Donnell /s/
- -------------------------- ----------------------------
Bryan McKigney /s/
- -------------------------- ----------------------------
K-2-12
Exhibit (r)
CODE OF ETHICS
CIBC OPPENHEIMER ADVISERS, L.L.C.
AUGUSTA MANAGEMENT, L.L.C.
TROON MANAGEMENT, L.L.C.
CIBC WORLD MARKETS CORP.
AND
CERTAIN AFFILIATED REGISTERED INVESTMENT COMPANIES
APRIL 26, 2000
SECTION I STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics (the "Code") has been adopted by CIBC Oppenheimer
Advisers, L.L.C. ("CIBC Oppenheimer"), Augusta Management, L.L.C. ("Augusta"),
and Troon Management, L.L.C. ("Troon") (each, an "Adviser" and collectively, the
"Advisers"), registered investment advisers, in order to satisfy the
requirements of Section 204A of the Investment Advisers Act of 1940 (the
"Advisers Act") and Rule 17j-1 under the Investment Company Act of 1940 (the
"1940 Act") as applicable to the Advisers. CIBC World Markets Corp. ("CIBC WM"),
a registered broker-dealer and investment adviser, is the managing member of
each of the Advisers. Each Adviser also has one or more non-managing members
(each, a "Non-Managing Member" and collectively, the "Non-Managing Members"), as
indicated on Schedule A.
This Code has also been adopted by the registered investment companies
listed on Schedule B, as such Schedule may be amended (each, a "Fund" and
collectively, the "Funds"), each of which has retained one of the Advisers to
serve as investment adviser, in order to satisfy the requirements of Rule 17j-1
as applicable to the Funds.
The Code has also been adopted by CIBC WM in its capacity as principal
underwriter to the Funds, in order to satisfy the requirements of Rule 17j-1 as
applicable to principal underwriters.
As it relates to Rule 17j-1 of the 1940 Act, the purpose of the Code is to
establish standards and procedures that are reasonably designed for the
detection and prevention of activities by which persons having knowledge of the
investments and investment intentions of a Fund may abuse their fiduciary duties
to the Fund and otherwise to deal with the types of conflict of interest
situations to which Rule 17j-1 is addressed. As it relates to Section 204A of
the Advisers Act, the purpose of this Code is to establish procedures that,
taking into consideration the nature of each Adviser's business, are reasonably
designed to prevent the misuse of material
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non-public information in violation of the federal securities laws by persons
associated with the Advisers.
The Code is based on the principle that the persons serving as individual
general partners or managers of the Funds, who comprise the boards of the Funds
(the "Board Members"), and persons who are directors, partners, officers and
employees of CIBC WM and the Non-Managing Members who provide services to any
Fund or who in the course of their duties obtain information regarding
investment recommendations made to any Fund or any Fund's investment
transactions, each owe a fiduciary duty to the Fund to conduct personal
securities transactions in a manner that does not interfere with the Fund's
transactions or otherwise take unfair advantage of his or her position. All
Board Members and such other persons (collectively, "Fund Employees") are
expected to adhere to this general principle as well as to comply with all of
the specific provisions of this Code that are applicable to them; provided,
however, that Fund Employees who are associated with a Non-Managing Member
shall, in addition, be expected to comply with the provisions of the code of
ethics governing personal trading that has been adopted by that Non-Managing
Member, as such Code may be amended (a "Non-Managing Member Code").
All Fund Employees shall place the interests of each Fund before their own
personal interests. Technical compliance with the Code will not automatically
insulate any Fund Employee from scrutiny of transactions that show a pattern of
compromise or abuse of the individual's fiduciary duties to any Fund.
Accordingly, all Fund Employees must seek to avoid any actual or potential
conflicts between their personal interests and the interests of each Fund and
its investors.
The provisions of this Code reflect the facts that: (1) each Non-Managing
Member Code governs any proprietary transactions by such Non-Managing Member and
the personal securities transactions of their associated persons; (2) the Funds
and the Advisers themselves have no employees; (3) the Advisers do not engage in
any proprietary trading; (4) recommendations and decisions by the Advisers
regarding the purchase or sale of investments for certain Funds are made by
persons who are directors, partners, officers or employees of a Non-Managing
Member; (5) CIBC WM, a registered broker-dealer, is the Managing Member of each
of the Advisers; and (6) CIBC WM Access Persons (as defined below), as employees
of a registered broker-dealer, are subject to additional regulations regarding
their personal trading.
Every Fund Employee must read and retain this Code of Ethics, and should
recognize that he or she is subject to its provisions.
SECTION II DEFINITIONS
"Access Person" means: (i) each of the Advisers; (ii) any Board
Member or Advisory Person (as defined below); (iii) any director,
partner or officer of a Fund or Adviser who, with respect to any
Fund, makes any recommendation, participates in the determination of
which recommendation will be made, or whose principal functions or
duties relate to the determination of which recommendation will be
made, or who, in connection with his or her duties, obtains any
information concerning recommendations of Securities being
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made by any Adviser to any Fund; and (iv) any director, officer
or general partner of CIBC WM who in the ordinary course of
business makes, participates in, or obtains information regarding
the purchase or sale of Securities for any Fund or whose
functions or duties in the ordinary course of business relate to
the making of recommendations with respect to such purchases and
sales.
An "Advisory Person" means: (i) any employee of a Fund, Adviser,
Non-Managing Member or CIBC WM who in connection with his or her
regular functions or duties makes, participates in, or obtains
current information regarding the purchase or sale of any Security by
a Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a Control relationship to a Fund, Adviser,
Non-Managing Member or CIBC WM who obtains current information
concerning recommendations made to a Fund with regard to the purchase
or sale of any Security. "Current information" regarding investment
transactions means information regarding the purchase or sale of
investments that is received within 15 days before or after the
transactions.
"AM" means the Asset Management group of CIBC WM.
"AM Procedures" means the AM Personal Trading Guidelines and
Procedures established, administered and enforced by CIBC WM with
respect to employees associated with the Oppenheimer Investment
Advisers group within AM, as in effect from time to time. A current
copy of the AM Procedures is attached as Exhibit A.
"Annual Certification" means an Annual Certification of Compliance
with Code of Ethics, in the form attached as Schedule F.
"Beneficial Ownership" has the meaning set forth in paragraph (a)(2)
of Rule 16a-1 under the Securities Exchange Act of 1934, and for
purposes of this Code should be deemed to include, but not be limited
to, any interest by which an Access Person or any Immediate Family
Member of an Access Person can directly or indirectly derive a
monetary or other economic benefit from the purchase, sale (or other
acquisition or disposition) or ownership of a Security, including for
this purpose any such interest that arises as a result of: a general
partnership interest in a general or limited partnership; an interest
in a trust; a right to dividends that is separated or separable from
the underlying Security; a right to acquire equity Securities through
the exercise or conversion of any derivative Security (whether or not
presently exercisable); and a performance related advisory fee (other
than an asset based fee) unless (i) the performance related fee,
regardless of when payable, is calculated based upon net capital
gains and/or net capital appreciation generated from the portfolio or
from the fiduciary's overall performance over a period of one year or
more and (ii) equity securities of the issuer do not account for more
than 10% of the market value of the portfolio.(1)
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(1) Beneficial Ownership will not be deemed to exist solely as a result
of any indirect interest an Access Person may have in the investment
performance of an account or investment fund managed by such person,
or over which such person has supervisory responsibility, that arises
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"Board Member" means each individual who serves as an individual
general partner or manager of any Fund.
"CIBC WM Access Person" means an Access Person who is a director,
officer or employee of CIBC WM.
"Compliance Officer" means the person designated by CIBC WM to serve
as the chief compliance officer of the Advisers.
"Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act, and includes the power to exercise a
controlling influence over the management or policies of a company,
unless such power is solely the result of an official position with
the company. Control shall be presumed to exist where a person owns
beneficially, either directly or through one or more companies, more
than 25% of the voting Securities of a company.
"Fund Employee" means any person who: (i) is an Access Person; or
(ii) is a director, partner, officer or employee of CIBC WM or a
Non-Managing Member and provides services to a Fund or in the course
of his or her duties obtains information regarding investment
recommendations made to any Fund or any Fund's investment
transactions.
"Immediate Family Member of an Access Person" means a person who
shares the same household as the Access Person and is related to the
Access Person by blood, marriage or adoption.
"Independent Board Member" means a Board Member who is not an
"interested person", as defined by Section 2(a)(19) of the 1940 Act,
of a Fund.
"Initial Certification" means an Initial Certification of Compliance
with Code of Ethics, in the form attached as Schedule E.
"Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934.
"Investment Personnel" means any Fund Employee who, in connection with
his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase and sale of Securities
by a Fund.
"Limited Offering" means an offering that is exempt from registration
pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933
or Rule 504, 505 or 506 thereunder.
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solely from such person's compensation arrangement with CIBC WM or a
Non-Managing Member pursuant to which the performance of the account
or investment fund, or the profits or revenues derived from its
management or supervision, is a factor in the determination of such
person's compensation from CIBC WM or a Non-Managing Member.
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"Non-Managing Member Access Person" means an Access Person who is a
director, partner, officer or employee of a Non-Managing Member.
"Non-Managing Member Code" means a code of ethics governing personal
trading that has been adopted by a Non-Managing Member, as such code
may be amended. Copies of the Non-Managing Member Codes are attached
as Exhibit B.
"Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act and should be deemed to include any and all stock, debt
obligations, and similar instruments of whatever kind, including any
right or warrant to purchase a security, or option to acquire or sell
a security, a group or index of securities or a foreign currency.
References to a Security in this Code (e.g., a prohibition or
requirement applicable to the purchase or sale of a Security) shall be
deemed to refer to and to include any warrant for, option in, or
Security immediately convertible into that Security, and shall also
include any financial instrument which has an investment return or
value that is based, in whole or part, on that Security (collectively,
"Derivatives"). Therefore, except as otherwise specifically provided
by this Code: (i) any prohibition or requirement of this Code
applicable to the purchase or sale of a Security shall also be
applicable to the purchase or sale of a Derivative relating to that
Security; and (ii) any prohibition or requirement of this Code
applicable to the purchase or sale of a Derivative shall also be
applicable to the purchase or sale of a Security relating to that
Derivative.
A Security is "being considered for purchase or sale" when a
recommendation to purchase or sell that Security has been made or
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
SECTION III OBJECTIVE AND GENERAL PROHIBITIONS
Although certain provisions of this Code apply only to Access Persons, all
Fund Employees must recognize that they are expected to conduct their personal
activities in accordance with the standards set forth in Section I, III, IV and
XI of this Code. Therefore, a Fund Employee may not engage in any personal
investment transaction under circumstances where the Fund Employee benefits from
or interferes with the purchase or sale of investments by a Fund. In addition,
Fund Employees may not use information concerning the investments or investment
intentions of a Fund, or their ability to influence such investment intentions,
for personal gain or in a manner detrimental to the interests of any Fund.
Disclosure by a Fund Employee of such information to any person outside of the
course of the responsibilities of the Fund Employee to a Fund, an Adviser or
CIBC WM will be deemed to be a violation of this prohibition. All Fund Employees
must also comply with the policies regarding the misuse of material, non-public
information, which are set forth in Section IV.
Fund Employees may not engage in conduct that is deceitful, fraudulent, or
manipulative, or which involves false or misleading statements, in connection
with the purchase or sale of investments by a Fund. In this regard, Fund
Employees should recognize that Rule 17j-1 makes it unlawful for any affiliated
person or principal underwriter of a Fund, or any affiliated
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person of such a person, directly or indirectly, in connection with the purchase
or sale of a Security held or to be acquired by a Fund to:
(i) employ any device, scheme or artifice to defraud the Fund;
(ii) make any untrue statement of a material fact to the Fund or omit
to state to the Fund a material fact necessary in order to make
the statements made, in light of the circumstances under which
they are made, not misleading;
(iii) engage in any act, practice, or course of business that operates
or would operate as a fraud or deceit upon the Fund; or
(iv) engage in any manipulative practice with respect to the Fund.
Fund Employees should also recognize that a violation of this Code or of
Rule 17j-1 may result in the imposition of: (1) sanctions as provided by Section
XIII below; or (2) administrative, civil and, in certain cases, criminal fines,
sanctions or penalties.
SECTION IV PROHIBITION AGAINST INSIDER TRADING
(A) INTRODUCTION
This Section IV of the Code is intended to satisfy the requirements of
Section 204A of the Advisers Act, which is applicable to the Advisers and
requires that the Advisers establish and enforce procedures designed to prevent
the misuse of material, non-public information by their associated persons. It
applies to all Fund Employees.
Trading Securities while in possession of material, non-public information,
or improperly communicating that information to others, may expose a Fund
Employee to severe penalties. Criminal sanctions may include a fine of up to
$1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission
(the "SEC") can recover the profits gained or losses avoided through the
violative trading, a penalty of up to three times the illicit windfall, and an
order permanently barring a Fund Employee from the securities industry. Finally,
a Fund Employee may be sued by investors seeking to recover damages for insider
trading violations.
(B) POLICY ON INSIDER TRADING
No Fund Employee may trade a Security, either personally or on behalf of
any other person or account (including any Fund), while in possession of
material, non-public information concerning that Security or the issuer thereof,
nor may any Fund Employee communicate material, non-public information to others
in violation of the law.
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(1) DEFINITION OF MATERIAL INFORMATION
Information is material where there is a substantial likelihood that a
reasonable investor would consider it important in making his or her investment
decisions. Generally, this includes any information the disclosure of which will
have a substantial effect on the price of a Security. No simple test exists to
determine when information is material; assessments of materiality involve a
highly fact specific inquiry. For this reason, Fund Employees should direct any
questions about whether information is material to the Compliance Officer.
Material information often relates to a company's results and operations,
including, for example, dividend changes, earnings results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments. Material information may also relate to
the market for a company's Securities. Information about a significant order to
purchase or sell Securities may, in some contexts, be material. Pre-publication
information regarding reports in the financial press may also be material.
(2) DEFINITION OF NON-PUBLIC INFORMATION
Information is "public" when it has been disseminated broadly to investors
in the marketplace. For example, information is public after it has become
available to the general public through a public filing with the SEC or some
other government agency, the Dow Jones "tape" or The Wall Street Journal or some
other publication of general circulation, and after sufficient time has passed
so that the information has been disseminated widely.
(3) APPLICABLE PROCEDURES
A Fund Employee, before executing any trade for himself or herself, or
others, including a Fund or other accounts managed by an Adviser or by a member
of an Adviser, or any affiliate of the member ("Client Accounts"), must
determine whether he or she has material, non-public information. A Fund
Employee who believes he or she is in possession of material, non-public
information must take the following steps:
o Report the information and proposed trade immediately to the
Compliance Officer.
o Do not purchase or sell the securities on behalf of anyone,
including Client Accounts.
o Do not communicate the information to any person, other than to
the Compliance Officer.
After the Compliance Officer has reviewed the issue, the affected Adviser
will determine whether the information is material and non-public and, if so,
what action such Adviser and the Fund Employee should take.
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Fund Employees must consult with the Compliance Officer before taking any
action. This degree of caution will protect Fund Employees, clients and the
Advisers.
In lieu of following the foregoing procedures, Fund Employees who are
Non-Managing Member Access Persons may follow the procedures of the applicable
Non-Managing Member that would apply in similar circumstances.
(4) CONTACTS WITH PUBLIC COMPANIES
Contacts with public companies will sometimes be a part of an Adviser's
research efforts. Persons providing investment advisory services to a Fund may
make investment decisions on the basis of conclusions formed through such
contacts and analysis of publicly available information. Difficult legal issues
arise, however, when, in the course of these contacts, a Fund Employee becomes
aware of material, non-public information. This could happen, for example, if a
company's chief financial officer prematurely discloses quarterly results to an
analyst, or an investor relations representative makes selective disclosure of
adverse news to a handful of investors. In such situations, the affected Adviser
must make a judgment as to its further conduct. To protect yourself, clients and
the Advisers, you should contact the Compliance Officer immediately if you
believe that you may have received material, non-public information.
(5) TENDER OFFERS
Tender offers represent a particular concern in the law of insider trading
for two reasons. First, tender offer activity often produces extraordinary
gyrations in the price of the target company's Securities. Trading during this
time period is more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Second, the SEC has
adopted a rule that expressly forbids trading and "tipping" while in possession
of material, non-public information regarding a tender offer received from the
tender offeror, the target company or anyone acting on behalf of either. Fund
Employees should exercise particular caution any time they become aware of
non-public information relating to a tender offer.
SECTION V PRE-CLEARANCE OF INVESTMENTS IN INITIAL PUBLIC OFFERINGS AND LIMITED
OFFERINGS
Investment Personnel are required to obtain pre-clearance prior to
investing in an Initial Public Offering ("IPO") or in a Limited Offering (see
Section II - Definitions).
Investment Personnel who are CIBC WM Access Persons, as associated persons
of a member firm of the National Association of Securities Dealers ("NASD"), are
prohibited by the rules of the NASD from investing in any IPO that qualifies as
a "hot issue" under NASD rules. In addition, in accordance with NASD rules and
CIBC WM policy, CIBC WM Access Persons must obtain written approval of the
appropriate signatory at CIBC WM, as determined by CIBC WM, prior to investing
in a Limited Offering. In the event that CIBC WM Access Persons are not
prohibited by the foregoing from investing in an IPO or are permitted by the
foregoing to invest in a Limited Offering, CIBC WM Access Persons are required
to obtain pre-
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clearance for any such transaction in accordance with the applicable procedures
specified by Section VII.
Investment Personnel who are Non-Managing Member Access Persons are
required to obtain pre-clearance for investments in IPOs and Limited Offerings
in accordance with the procedures in the applicable Non-Managing Member Code.
SECTION VI PROHIBITED TRANSACTIONS
(A) THE FOLLOWING PROHIBITIONS APPLY TO BOARD MEMBERS WHO ARE NOT CIBC
WM ACCESS PERSONS:
A Board Member of a Fund may not purchase or otherwise acquire direct or
indirect Beneficial Ownership of any Security, and may not sell or otherwise
dispose of any Security in which he or she has direct or indirect Beneficial
Ownership, if he or she knows or should know at the time of entering into the
transaction that: (i) the Fund has purchased or sold the Security within the
last 15 calendar days, or is purchasing or selling or is going to purchase or
sell the Security in the next 15 calendar days; or (ii) any person, on behalf of
an Adviser, has within the last 15 calendar days considered purchasing or
selling the Security for the Fund or is considering purchasing or selling the
Security for the Fund or within the next 15 calendar days is going to consider
purchasing or selling the Security for the Fund, unless the Board Member:
(1) obtains pre-clearance of such transaction in accordance with
the procedures outlined in Section VII; and
(2) reports to the Compliance Officer the information described
in Section VIII of this Code.(2)
BECAUSE THE INDEPENDENT BOARD MEMBERS ARE NOT INVOLVED IN THE
DAY-TO-DAY INVESTMENT ACTIVITIES OF ANY FUND, INDEPENDENT BOARD
MEMBERS WILL, IN THE ABSENCE OF EVIDENCE TO THE CONTRARY, BE
PRESUMED NOT TO HAVE THE REQUISITE KNOWLEDGE OF THE FUNDS'
TRANSACTIONS SO AS TO REQUIRE PRE-CLEARANCE OF TRANSACTIONS.
ACCORDINGLY, INDEPENDENT BOARD MEMBERS SHALL NOT BE REQUIRED TO
OBTAIN PRE-CLEARANCE OF A TRANSACTION UNLESS AT THE TIME OF THE
TRANSACTION THEY HAVE ACTUAL KNOWLEDGE OF THE MATTERS DESCRIBED
ABOVE.
HOWEVER, THOSE BOARD MEMBERS WHO ARE NOT INDEPENDENT BOARD
MEMBERS SHALL BE PRESUMED TO HAVE SUCH KNOWLEDGE AS IS DESCRIBED
ABOVE AND MUST THEREFORE OBTAIN PRE-CLEARANCE OF TRANSACTIONS IN
SECURITIES IN ACCORDANCE WITH SECTION VII EXCEPT IN THE CASE OF A
TRANSACTION AS TO WHICH ONE OF THE EXCEPTIONS FROM PRE-CLEARANCE
SET FORTH IN SECTION VI(D) BELOW APPLIES.
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(2) The prohibitions of this Section VI apply to Securities acquired or
disposed of in any type of tracsation, include non-brokered transactions,
such as purchases and sales or privately placed Securities and Securities
acquired directly from an issuer, except to the extent that one of the
exceptions from the prohibitions set forth in Section VI(D) is applicable.
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Any transaction that is (i) effected without pre-clearance where the Board
Member of a Fund had actual knowledge that the Fund had purchased or sold the
Security with the 15 calendar day period described above, or (ii) effected (with
or without pre-clearance) where the Board Member had actual knowledge that the
Security was at the time being considered for purchase or sale by the Fund and
without disclosure of such knowledge by the Board Member in seeking
pre-clearance, is prohibited by this Code.
(B) THE FOLLOWING PROHIBITIONS APPLY TO CIBC WM ACCESS PERSONS:
As determined by the Compliance Officer, CIBC WM Access Persons are subject
either to the prohibitions of this Section VI(B) of this Code or to the
prohibitions contained in the AM Procedures with regard to their personal
investment transactions. CIBC WM Access Persons will be informed by the
Compliance Officer regarding which prohibitions they are required to comply
with.
If subject to this Section VI(B), a CIBC WM Access Person may not purchase
or otherwise acquire direct or indirect Beneficial Ownership of any Security,
and may not sell or otherwise dispose of any Security in which he or she has
direct or indirect Beneficial Ownership, if he or she knows or should know at
the time of entering into the transaction that: (i) a Fund has purchased or sold
the Security within the last seven (7) calendar days, or is purchasing or
selling or is going to purchase or sell the Security in the next seven (7)
calendar days; or (ii) any person, on behalf of any of the Advisers, has within
the last seven (7) calendar days considered purchasing or selling the Security
for a Fund or is considering purchasing or selling the Security for a Fund or
within the next seven (7) calendar days is going to consider purchasing or
selling the Security for a Fund, unless the CIBC WM Access Person:
(1) obtains pre-clearance of such transaction pursuant to Section VII
and
(2) reports to the Compliance Officer the information described in
Section IX of this Code.(3)
(C) THE FOLLOWING PROHIBITIONS APPLY TO NON-MANAGING MEMBER ACCESS PERSONS:
Non-Managing Member Access Persons are subject to the prohibitions
contained in the Non-Managing Member Code adopted by their organization with
regard to their personal investment transactions. Non-Managing Member Access
Persons shall comply with the policies and procedures set forth in the
applicable Non-Managing Member Code.
Non-Managing Member Access Persons shall not discuss the current investment
transactions of a Fund with any other Fund Employees (including personnel of
CIBC WM), or provide other Fund Employees with information as to Securities
being considered for purchase or sale by a Fund, except as may be required in
connection with providing services to the Fund.
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(3) The prohibitions of this Section VI apply to Securities acquired or
disposed of in any type of transaction, including non-brokered
transactions, such as purchases and sales of privately placed Securities
and Securities acquired directly from an issuer, except to the extent that
one of the exceptions from the prohibitions set forth in Section VI(D) is
applicable.
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(D) THE PROHIBITIONS OF THIS SECTION VI DO NOT APPLY TO:
(1) Purchases that are made by reinvesting cash dividends pursuant to
an automatic dividend reinvestment program ("DRIP") (however,
this exception does not apply to optional cash purchases pursuant
to a DRIP);
(2) Purchases and redemptions of shares of registered, open-end
mutual funds (but not shares of or interests in closed-end funds,
including interests in any Fund);
(3) Bank certificates of deposit and bankers' acceptances;
(4) Commercial paper and high quality debt instruments (including
repurchase agreements) with a stated maturity of 12 months or
less;
(5) U.S. Treasury obligations;
(6) Purchases of rights issued by an issuer pro rata to all holders
of a class of its Securities, if such rights are acquired from
such issuer, and the exercise of any such rights;
(7) Involuntary (i.e., non-volitional) purchases and sales of
Securities;
(8) Transactions in an account over which the Access Person does not
exercise, directly or indirectly, any influence or control;
provided, however, that such influence or control shall be
presumed to exist in the case of the account of an Immediate
Family Member of the Access Person, absent an advance written
determination by the Compliance Officer to the contrary; and
(9) Transactions in a Security (which shall for the purpose of this
exemption be deemed to include a series of related transactions
in a Security) involving 500 shares or less of the stock of an
issuer that has a market capitalization (i.e., outstanding shares
multiplied by the current price per share) of $1 billion or more,
unless the Access Person has actual knowledge at the time of the
transaction or transactions that: (i) a Fund purchased or sold
the Security within the past 15 calendar days; or (ii) the
Security is being considered for purchase or sale by a Fund.
SECTION VII PRE-CLEARANCE PROCEDURES
The procedures in this Section VII apply where pre-clearance is required by
Section V, Section VI(A) or Section VI(B). CIBC WM Access Persons who are
subject to the AM Procedures must adhere to the policies and procedures related
to pre-clearance of personal transactions set forth in the AM Procedures. All
personal transactions by any Non-Managing Member Access Persons are subject to
the provisions of the applicable Non-Managing Member Code, including provisions
related to pre-clearance.
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(A) OBTAINING PRE-CLEARANCE
Pre-clearance of a personal transaction in a Security may be obtained
only from the Compliance Officer or a person who has been designated
by the Compliance Officer to pre-clear transactions. The Compliance
Officer and these designated persons are each referred to as a
"Clearing Officer." A Clearing Officer seeking pre-clearance with
respect to his or her own transaction shall obtain such clearance from
another Clearing Officer.
(B) TIME OF CLEARANCE
(1) An Access Person may pre-clear a trade only where such person has
a present intention to effect a transaction in the Security for
which pre-clearance is sought. It is not appropriate for an
Access Person to obtain a general or open-ended pre-clearance to
cover the eventuality that he or she may buy or sell a Security
at some future time depending upon market developments.
Consistent with the foregoing, Access Persons may not
simultaneously request pre-clearance to buy and sell the same
Security.
(2) Pre-clearance of a trade shall be valid and in effect only for a
period of two trading days, including the day pre-clearance is
given; provided, however, that a pre-clearance expires upon the
Access Person receiving pre-clearance becoming aware of facts or
circumstances that would prevent a proposed trade from being
pre-cleared were such facts or circumstances made known to a
Clearing Officer. Accordingly, if an Access Person becomes aware
of new or changed facts or circumstances that give rise to a
question as to whether pre-clearance could be obtained if a
Clearing Officer was aware of such facts or circumstances, the
Access Person shall be required to so advise a Clearing Officer
and obtain a new pre-clearance before proceeding with such
transaction.
(C) FORM
Pre-clearance must be obtained in writing by completing and signing
the form provided for that purpose, which form shall set forth the
details of the proposed transaction, and by obtaining the signature of
a Clearing Officer. The form to be used in seeking pre-clearance is
attached as Schedule C.
(D) FILING
Copies of all completed pre-clearance forms, with the required
signatures, shall be retained by the Compliance Officer.
(E) FACTORS CONSIDERED IN PRE-CLEARANCE OF PERSONAL TRANSACTIONS
A Clearing Officer may refuse to grant pre-clearance of a personal
transaction in his or her sole discretion without being required to
specify any reason for the
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refusal. Generally, a Clearing Officer will consider the following
factors in determining whether or not to pre-clear a proposed
transaction:
(1) Whether the amount or nature of the transaction or person making
it is likely to affect the price or market for the Security;
(2) Whether the person making the proposed purchase or sale is likely
to benefit from purchases or sales being made or being considered
on behalf of a Fund;
(3) Whether the chance of a conflict of interest is remote; and
(4) Whether the transaction is likely to affect a Fund adversely.
SECTION VIII REPORTS BY BOARD MEMBERS
Board Members shall file the reports set forth in this Section VIII;
provided, however, that Independent Board Members are not required to file
Initial Holdings Reports or Annual Holdings Reports.
(A) INITIAL CERTIFICATIONS AND INITIAL HOLDINGS REPORTS
Within ten (10) days after a person becomes a Board Member, such
person shall complete and submit to the Compliance Officer an Initial
Certification in the form attached as Schedule E, and except as
otherwise provided above, an Initial Holdings Report (as defined by
Rule 17j-1) containing such information as is required by Rule 17j-1.
(B) QUARTERLY TRANSACTION REPORTS
(1) Within ten (10) days after the end of each calendar quarter, each
Board Member shall make a written report to the Compliance
Officer of all transactions occurring in the quarter by which he
or she acquired or disposed of Beneficial Ownership of any
Security, except that the report need not set forth information
regarding the following types of transactions:
(a) Purchases and redemptions of shares of registered, open-end
mutual funds (but not shares of or interests in closed-end
funds, including interests in any Fund);
(b) Bank certificates of deposit and bankers acceptances;
(c) Commercial paper and high quality debt instruments
(including repurchase agreements) with a stated maturity of
12 months or less;
(d) U.S. Treasury obligations; and
R-13
<PAGE>
(e) Transactions in an account over which the Board Member does
not exercise, directly or indirectly, any influence or
control.(4)
Such report is hereinafter called a "Quarterly Transaction Report."
(2) A Quarterly Transaction Report shall be on the form attached as
Schedule D and must contain the following information with
respect to each reportable transaction:
(a) Date and nature of the transaction (purchase, sale or any
other type of acquisition or disposition);
(b) Title, number of shares or principal amount of each Security
and the price at which the transaction was effected; and
(c) Name of the broker, dealer or bank with or through whom the
transaction was effected. Transactions effected in accounts
as to which the Compliance Officer is being furnished with
confirmations and statements need not be included in the
Quarterly Transaction Report, provided that the report
includes a certification that there are not reportable
transactions other than those set forth in the Quarterly
Transaction Report and in confirmations and statements for
such accounts.
(3) A Quarterly Transaction Report may contain a statement that the
report is not to be construed as an admission that the person
making it has or had any direct or indirect Beneficial Ownership
in any Security to which the report relates.
(4) An Independent Board Member is not required to file a Quarterly
Transaction Report unless he or she knew or, in the ordinary
course of fulfilling his or her official duties as a Board
Member, should have known that, during the 15 day period
immediately before or after the Board Member's transaction in a
Security, a Fund purchased or sold that Security or a Fund or
Adviser considered purchasing or selling that Security.
(C) ANNUAL CERTIFICATIONS AND ANNUAL HOLDINGS REPORTS
Annually, each Board Member shall complete and submit to the
Compliance Officer an Annual Certification in the form attached as
Schedule F, and except as otherwise provided above, an Annual Holdings
Report (as defined by Rule 17j-1) containing such information as is
required by Rule 17j-1.
- -------------------
(4) The reporting requirements of this Section VIII apply to Securities
acquired or disposed of in all types of transactions, including
non-brokered transactions, such as purchases and sales of privately based
Securities and Securities acquired directly from an issuer, except to the
extent that one of the exemptions from the reporting requirement applies.
R-14
<PAGE>
SECTION IX REPORTS BY CIBC WM ACCESS PERSONS
It is the responsibility of each CIBC WM Access Person to take the
initiative to comply with the requirements of this Section IX. Any effort by a
Fund, by an Adviser or by CIBC WM to facilitate the reporting process does not
change or alter that responsibility.
(A) INITIAL CERTIFICATIONS AND INITIAL HOLDINGS REPORTS
Within ten (10) days of becoming an Access Person, CIBC WM Access
Persons are required to complete and submit to the Compliance Officer
an Initial Certification in the form attached as Schedule E and an
Initial Holdings Report.
The Initial Certification includes a list of all brokerage accounts
through which Securities in which an Access Person has Beneficial
Ownership are held, purchased or sold ("Personal Securities
Accounts"), along with a listing of any such Securities that are not
held in a Personal Securities Account.
Any Personal Securities Account not held at CIBC WM must be
transferred to CIBC WM, unless an exemption from this requirement is
granted in writing by the Compliance Officer and other appropriate
signatory of CIBC WM, as determined by CIBC WM. Further, CIBC WM
Access Persons must make arrangements so that duplicate confirmations
and statements relating to all Personal Securities Accounts are sent
to the Compliance Officer, unless an exemption from this requirement
is granted in writing by the Compliance Officer.
Timely submission of the Initial Certification, along with a copy of
the most recent monthly statement for each Personal Securities Account
and copies of all confirmations of transactions effected after the
date of such statement, shall satisfy the requirements of this Section
IX(A) regarding submission of an Initial Holdings Report.
(B) QUARTERLY TRANSACTION REPORTS
(1) Within ten (10) days after the end of each calendar quarter, each
CIBC WM Access Person shall make a written report to the
Compliance Officer of all transactions occurring in the quarter
by which he or she acquired or disposed of Beneficial Ownership
of any Security, except that the report need not set forth
information regarding the following types of transactions:
(a) Purchases and redemptions of shares of registered, open-end
mutual funds (but not shares of or interests in closed-end
funds, including interests in any Fund);
(b) Bank certificates of deposit and bankers' acceptances;
R-15
<PAGE>
(c) Commercial paper and high quality debt instruments
(including repurchase agreements) with a stated maturity of
12 months or less;
(d) U.S. Treasury obligations; and
(e) Transactions in an account over which the Access Person does
not exercise, directly or indirectly, any influence or
control.(5)
Such report is hereinafter called a "Quarterly Transaction Report."
(2) A Quarterly Transaction Report shall be on the form attached as
Schedule D and must contain the following information with
respect to each reportable transaction:
(a) Date and nature of the transaction (purchase, sale or any
other type of acquisition or disposition);
(b) Title, number of shares or principal amount of each Security
and the price at which the transaction was effected; and
(c) Name of the broker, dealer or bank with or through whom the
transaction was effected.
(3) An Access Person shall not be required to file a Quarterly
Transaction Report for a calendar quarter if the Compliance
Officer is being furnished with confirmations and statements for
all Personal Securities Accounts of such Access Person, provided
that the Access Person has no reportable transactions other than
those reflected in the confirmations and statements for such
accounts.
(4) A Quarterly Transaction Report may contain a statement that the
report is not to be construed as an admission that the person
making it has or had any direct or indirect Beneficial Ownership
in any Security to which the report relates.
(5) Notwithstanding the quarterly reporting requirement set forth in
this Section IX(B), compliance by CIBC WM Access Persons with the
reporting requirements of the AM Procedures or any comparable
procedures to which such CIBC WM Access Persons are subject shall
be deemed to satisfy the requirements of this Section and the
requirements of Rule 17j-1 regarding Quarterly Transaction
Reports (as defined in the Rule).
- --------------------
(5) The reporting requirement of this Section IX apply to Securities acquired
or disposed of in all types of transactions, including non-brokered
transactions, such as purchases and sales of privately placed Securities
and Securities acquired from an issuer, except to the extent that one of
the exemptions from the reporting requirements applies.
R-16
<PAGE>
(C) ANNUAL CERTIFICATIONS AND ANNUAL HOLDINGS REPORTS
Annually, each CIBC WM Access Person is required to complete and
submit to the Compliance Officer an Annual Certification in the form
attached as Schedule F and an Annual Holdings Report. The Annual
Certification includes a list of all Personal Securities Accounts,
along with a listing of any Securities in which the CIBC WM Access
Person has Beneficial Ownership that are not held in a Personal
Securities Account.
Submission of the Annual Certification, along with copies of the most
recent monthly statement for each Personal Securities Account, shall
satisfy the requirements of this Section IX(A) regarding submission of
an Annual Holdings Report.
SECTION X REPORTS BY NON-MANAGING MEMBERS AND NON-MANAGING MEMBER ACCESS
PERSONS
(A) REPORTS BY NON-MANAGING MEMBERS
To enable the Advisers to monitor compliance with Rule 17j-1 under the
1940 Act, Section 204A of the Advisers Act, and the provisions of this
Code and the Non-Managing Member Codes, the Compliance Officer shall
obtain from each Non-Managing Member, on a quarterly basis: (i) a
certification executed and delivered by an appropriate officer of the
Non-Managing Member certifying that the Non-Managing Member Code of
such Non-Managing Member satisfies the requirements of Rule 17j-1 as
applicable to Non-Managing Member Access Persons of such Non-Managing
Member and that all such Non-Managing Member Access Persons have
complied with such Non-Managing Member Code (or, if any violations of
such Non-Managing Member Code have occurred during the relevant
quarter, a statement describing such violations); (ii) such other
information as the Compliance Officer may reasonably deem necessary to
confirm whether Non-Managing Member Access Persons have complied with
the provisions of this Code as applicable to them and with the
provisions of the applicable Non-Managing Member Code; and (iii) such
other information regarding any detected violations by Non-Managing
Member Access Persons of this Code or the applicable Non-Managing
Member Code.
(B) REPORTS BY NON-MANAGING MEMBER ACCESS PERSONS
Non-Managing Member Access Persons shall comply with the certification
and reporting requirements of the applicable Non-Managing Member Code.
R-17
<PAGE>
SECTION XI ADDITIONAL PROHIBITIONS
(A) CONFIDENTIALITY OF FUND TRANSACTIONS
Until disclosed in a public report to investors of a Fund or in a
report filed with the SEC in the normal course, all information
concerning the Securities being considered for purchase or sale by the
Funds shall be kept confidential by all Fund Employees and disclosed
by them only on a "need to know" basis. It shall be the responsibility
of the Compliance Officer to report any inadequacy found in this
regard to the boards of the Funds.
(B) OUTSIDE BUSINESS ACTIVITIES, RELATIONSHIPS AND DIRECTORSHIPS
(1) Access Persons may not: (i) engage in any outside business
activities or maintain a business relationship with any person or
company that may give rise to conflicts of interest or jeopardize
the integrity or reputation of each Fund or Adviser with which
they are associated; or (ii) engage in outside business
activities or maintain relationships with any person or company
that may be inconsistent with the interests of any such Fund or
Adviser.
(2) Access Persons shall promptly notify the Compliance Officer after
becoming a member of the board of a public or private company.
CIBC WM Access Persons are required to obtain the written
approval of the appropriate signatory of CIBC WM, as determined
by CIBC WM, prior to accepting any such board membership.
(3) Notwithstanding the foregoing, nothing in this paragraph (B)
shall preclude Non-Managing Members or Non-Managing Member Access
Persons from acting as investment advisers to various investment
funds and managed accounts.
(C) GRATUITIES
Fund Employees shall not, directly or indirectly, take, accept or
receive gifts or other consideration in merchandise, services or
otherwise, except: (i) customary business gratuities such as meals,
refreshments, beverages and entertainment that are associated with a
legitimate business purpose, reasonable in cost, appropriate as to
time and place, do not influence or give the appearance of influencing
the recipient and cannot be viewed as a bribe, kickback or payoff; and
(ii) business related gifts of nominal value.
SECTION XII CERTIFICATION BY ACCESS PERSONS
The certifications of each Access Person required to be made pursuant to
Section VIII and Section IX of this Code shall include certifications that the
Access Person has read and understands this Code and recognizes that he or she
is subject to it. Access Persons shall also be
R-18
<PAGE>
required to certify annually that they have complied with the requirements of
this Code. The form of Initial Certification is attached as Schedule E, and the
form of Annual Certification is attached as Schedule F.
SECTION XIII SANCTIONS
Any violation of this Code shall be subject to the imposition of such
sanctions by the affected Fund and Adviser as may be deemed appropriate under
the circumstances to achieve the purposes of Rule 17j-1 and this Code. Any
sanctions to be imposed by a Fund shall be determined by the Board Members of
such Fund, including a majority of the Independent Board Members. Any sanction
to be imposed by an Adviser shall be determined by such Adviser. Sanctions may
include, but are not limited to, suspension or termination of employment, a
letter of censure and/or restitution of an amount equal to the difference
between the price paid or received by the Fund and the more advantageous price
paid or received by the offending person.
SECTION XIV ADMINISTRATION AND CONSTRUCTION
(A) The administration of this Code shall be the responsibility of the
Compliance Officer.
(B) The duties of the Compliance Officer are as follows:
(1) Continuous maintenance of current lists of the names of all Fund
Employees and Access Persons, with an appropriate description in
each case of the titles or employments of such persons, including
a notation of any directorships held by Access Persons, and the
date each such person became an Access Person;
(2) On an annual basis, providing each Fund Employee with a copy of
this Code and informing such persons of their duties and
obligations hereunder;
(3) Obtaining Initial and Annual Certifications and Initial and
Annual Holdings Reports from Access Persons and reviewing Initial
and Annual Holdings Reports of Access Persons;
(4) Maintaining or supervising the maintenance of all records and
reports required to be kept by any Fund or Adviser pursuant to
this Code;
(5) Preparing listings of all transactions effected by Access Persons
who are subject to the requirement to file Quarterly Transaction
Reports and reviewing such transactions against a listing of all
transactions effected by the Funds;
(6) Issuance, either personally or with the assistance of counsel as
may be appropriate, of any interpretation of this Code which may
appear
R-19
<PAGE>
consistent with the objectives of Rule 17j-1 or Section 204A and
this Code;
(7) Conduct of such inspections or investigations as shall reasonably
be required to detect and report, with recommendations, any
apparent violations of this Code to the Board Members of the
affected Fund;
(8) Submission of a quarterly report to the Board Members of each
Fund containing a description of: any violation of this Code by a
Fund Employee, noting in each case any sanction imposed; any
transactions that suggest the possibility of a violation of
interpretations issued by the Compliance Officer; and any other
significant information concerning the appropriateness of and
actions taken under this Code;
(9) Submission of a quarterly report to the Board Members of each
Fund regarding the reports, if any, made by Non-Managing Members
of the Adviser of such Fund pursuant to Section X of the Code and
the presentation of such other information as such Board Members
may deem necessary in reviewing compliance with the provisions of
this Code or of Rule 17j-1 by Fund Employees who are associated
with Non-Managing Members;
(10) Submission of an annual issues and certification report, as
described in paragraph (c)(2)(ii) of Rule 17j-1 (the "Annual
Issues and Certification Report"), to the Board Members of each
Fund; and
(11) Such other duties as are set forth in this Code.
(C) The Compliance Officer shall maintain and cause to be maintained in an
easily accessible place, the following records:
(1) Copies of all codes of ethics of the Funds and of all
Non-Managing Member Codes that have been in effect at any time
during the past five (5) years (however, this requirement shall
not apply to any Non-Managing Member Code that was not in effect
at any time subsequent to its becoming a Non-Managing Member);
(2) A record of each violation of each code described in (C)(1),
above, and of any action taken as a result of such violation for
a period of not less than five (5) years following the end of the
year in which the violation occurred;
(3) A copy of each report made by an Access Person, the Compliance
Officer or a Non-Managing Member pursuant to this each code
described in (C)(1), above, for a period of not less than five
(5) years from the end of the year in which such report or
interpretation was made or issued, the last three (3) years in a
place that need not be easily accessible;
R-20
<PAGE>
(4) A list of all persons, currently or within the past five (5)
years, who are or were required to make reports pursuant to Rule
17j-1 and each code described in (C)(1), above, or who are or
were responsible for reviewing such reports; and
(5) A record of any decision, and the reasons supporting the
decision, to approve any investment in IPOs or Limited Offerings
by Investment Personnel, for at least five (5) years after the
end of the year in which such approval is granted.
(D) Review and Approval of Code by Fund Boards
(1) Prior to initial approval of this Code with respect to a Fund,
the Board Members of that Fund must receive a certification from
the Compliance Officer certifying that procedures reasonably
necessary to prevent Access Persons from violating the Code have
been adopted.
(2) On an annual basis, and at such other times deemed to be
necessary or appropriate by the Board Members of each Fund, the
Board Members shall review the operation of this Code, and shall
adopt such amendments to this Code as may be necessary to assure
that the provisions of this Code establish standards and
procedures that are reasonably designed to detect and prevent
activities that would constitute violations of Rule 17j-1.
(3) In connection with the annual review of the Code by the Board
Members of each Fund, the Board Members shall consider the Annual
Issues and Certifications Report submitted by the Compliance
Officer.
(E) Amendments to Code
This Code may not be amended or modified except in a written form that
is specifically approved by the Board Members of each Fund, including
a majority of the Independent Board Members, within six months after
such amendment or modification.
In connection with any such amendment or modification, the Board
Members must receive a certification from the Compliance Officer
certifying that procedures reasonably necessary to prevent Access
Persons from violating the Code, as proposed to be amended or
modified, have been adopted.
(F) The Compliance Officer may delegate to one or more other officers or
employees of CIBC WM such responsibilities of the Compliance Officer
as he or she may deem appropriate; provided, that: (i) any such
delegation shall be set forth in writing and retained as part of the
records of the applicable Fund and Adviser; and (ii) it shall be the
responsibility of the Compliance Officer to supervise the performance
by such persons of the responsibilities that have been delegated to
them.
R-21
<PAGE>
SECTION XV COORDINATION WITH OTHER CODES OF ETHICS
Certain of the Board Members and CIBC WM Access Persons are also subject to
similar codes of ethics adopted by other registered investment companies
organized as limited partnerships or limited liability companies, which other
companies have as their adviser a limited liability company in which CIBC WM is
the managing member ("Affiliated Funds"). The use by such persons of any form
prescribed under the code of ethics of an Affiliated Fund, in lieu of the
corresponding form specified herein, shall be deemed to satisfy the requirements
of this Code.
R-22
<PAGE>
SCHEDULE A
NON-MANAGING MEMBERS OF THE ADVISERS
Adviser Non-Managing Member
- ------- -------------------
Augusta Management, L.L.C. Ardsley Advisory Partners
Troon Management, L.L.C. Mark Asset Management Corporation
CIBC Oppenheimer Advisers, L.L.C.
-- Series A None
-- Series B KBW Asset Management, Inc.
-- Series C None
-- Series D None
-- Series E CWH Associates, Inc.
-- Series F None
<PAGE>
SRZNY\725191v1
SCHEDULE B
INVESTMENT COMPANIES ADOPTING THIS CODE OF ETHICS
Investment Company Effective Date
- ------------------ --------------
Augusta Partners, L.P. April 26, 2000
Sawgrass Fund, L.L.C. April 26, 2000
Troon Partners, L.P. April 26, 2000
Wynstone Fund, L.L.C. April 26, 2000
Xanthus Fund, L.L.C. April 26, 2000
Stratigos Fund, L.L.C. April 26, 2000
<PAGE>
SCHEDULE C
REQUEST FOR PERMISSION TO ENGAGE IN PERSONAL TRANSACTION
I hereby request permission to effect the following transaction(s) in
Securities in which I have or will acquire Beneficial Ownership:
PURCHASES AND ACQUISITIONS
- --------------------------------------------------------------------------------
|No. of Shares or | |Current Market Price |
|Principal Amount | |Per Share or Unit |
Date | |Name of Security | |Account
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- --------------------------------------------------------------------------------
SALES AND OTHER DISPOSITIONS
- --------------------------------------------------------------------------------
|No. of Shares or | |Current Market Price |
|Principal Amount | |Per Share or Unit |
Date | |Name of Security | |Account
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- ---------|------------------|-----------------|----------------------|----------
| | | |
- --------------------------------------------------------------------------------
Date: Signature:
---------------------- -----------------------------
Print Name:
----------------------------
Permission Granted Permission Denied
-------- -----------
Date and Time: Signature:
------------- -----------------------------
(Clearing Officer)
<PAGE>
SCHEDULE D
QUARTERLY TRANSACTION REPORT
I certify that this report, together with the confirmations and statements
for any Personal Securities Account(s) as to which I have arranged for the
Compliance Officer to receive duplicate confirmations and statements, identifies
all transactions during the calendar quarter in which I acquired or disposed of
any Security in which I had or have any direct or indirect Beneficial Ownership
that are required to be reported by me pursuant to the Code. (If no such
transactions took place write "NONE".) Please sign and date this report and
return it to the Compliance Officer no later than the 10th day of the month
following the end of each quarter. Use reverse side if additional space is
needed.
PURCHASES AND ACQUISITIONS
- -----------------------------------------------------------------------------
|No. of | |Purchase | |
|Shares or | |Price Per | |
|Principal | |Share or | |Executing
Date |Amount |Name of Security |Unit |Account |Broker
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -----------------------------------------------------------------------------
SALES AND OTHER DISPOSITIONS
- -----------------------------------------------------------------------------
|No. of | | | |
|Shares or | |Sale Price | |
|Principal | |Per Share | |Executing
Date |Amount |Name of Security |or Unit |Account |Broker
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -------|--------------|-----------------|----------------|--------|----------
| | | | |
- -----------------------------------------------------------------------------
Date Completed: Signature:
----------------- ------------------------
Print Name:
-----------------------
<PAGE>
SCHEDULE E
INITIAL CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS
I have read and understand the Code of Ethics of CIBC Oppenheimer Advisers,
L.L.C., and certain of its affiliates (the "Code"), a copy of which has been
provided to me. I recognize that the provisions of the Code apply to me and
agree to comply in all respects with the procedures described therein.
I certify that all my Personal Securities Accounts are listed below, and
that if such Accounts are not held by CIBC WM, that the most recent monthly
statement for each Account, along with confirmations of any transactions
effected since the date of such statements, are attached.* I further certify
that, other than those Securities listed below, I hold no Securities in which I
may be deemed to have Beneficial Ownership other than in my Personal Securities
Accounts.*
Title of Account Name of Broker Account Number
I hold the following securities in addition to those in my Personal
Securities Accounts (If none, write NONE):*
I am a director of the following public and private companies:
Date Completed: Signature:
--------------------- ------------------------
Print Name:
-----------------------
* Does not apply to Independent Board Members.
<PAGE>
SCHEDULE F
ANNUAL CERTIFICATION OF COMPLIANCE WITH CODE OF ETHICS
I have read and understand the Code of Ethics of CIBC Oppenheimer Advisers,
L.L.C., and certain of its affiliates (the "Code"), a copy of which has been
provided to me. I recognize that the provisions of the Code apply to me and
agree to comply in all respects with the procedures described therein.
I certify that I have complied in all respects with the requirements of the
Code as in effect during the past year. I also certify that all transactions
during the past year that were required to be reported by me pursuant to the
Code have been reported in Quarterly Transactions Reports that I have filed or
in confirmations and statements for my Personal Securities Accounts that have
been sent to you.
I certify that all my Personal Securities Accounts are listed below, and
that if such Accounts are not held by CIBC WM, that the most recent monthly
statement for each Account is attached.* I further certify that, other than
those Securities listed below, I hold no Securities in which I may be deemed to
have Beneficial Ownership other than in my Personal Securities Accounts.*
Title of Account Name of Broker Account Number
I hold the following securities in addition to those in my Personal
Securities Accounts (If none, write NONE):*
I am a director of the following public and private companies:
Date Completed: Signature:
--------------------- ------------------------
Print Name:
-----------------------
* Does not apply to Independent Board Members.
<PAGE>
EXHIBIT A
AM PERSONAL TRADING GUIDELINES AND PROCEDURES
<PAGE>
EXHIBIT B
NON-MANAGING MEMBER CODES OF ETHICS
-----------------------------------------------------------------
|
EXHIBIT B-1 | ARDSLEY ADVISORY PARTNERS
---------------------|-------------------------------------------
|
EXHIBIT B-2 | MARK ASSET MANAGEMENT CORPORATION
---------------------|-------------------------------------------
|
EXHIBIT B-3 | KBW ASSET MANAGEMENT, INC.
---------------------|-------------------------------------------
|
EXHIBIT B-4 | CWH ASSOCIATES, INC.
-----------------------------------------------------------------
* Does not apply to Independent Board Members.
