As filed with the Securities and Exchange Commission on November 8, 2000
Registration No. 333-38550
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[x] Pre-Effective Amendment No. 3
and/or
[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] Amendment No. 3
EXCELSIOR VENTURE INVESTORS III, LLC
(Exact name of registrant as specified in charter)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 852-3125
DAVID I. FANN
DOUGLAS A. LINDGREN
EXCELSIOR VENTURE INVESTORS III, LLC
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Name and Address of Agents for Service)
COPIES TO:
THOMAS A. DECAPO, ESQ. IRENE S. GREENBERG, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP UNITED STATES TRUST COMPANY
ONE BEACON STREET OF NEW YORK
BOSTON, MA 02108-3194 114 WEST 47TH STREET
PHONE NO.: (617) 573-4814 NEW YORK, NEW YORK 10036-1532
FAX NO.: (617) 573-4822 PHONE NO.: (212) 852-1367
FAX NO.: (212) 852-1310
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection with a
dividend reinvestment plan, check the following
box.............................................................[x]
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Amount Proposed Maximum Amount of
Title of Securities being Offering Price Maximum Aggregate Registration
Being Registered Registered Per Unit* Offering Price* Fee*
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Membership Interests (without par 400,000 units $500 $200,000,000 $52,800
value)
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*Estimated solely for the purpose of calculating the registration fee,
$13,200 in registration fees previously paid.
The registrant hereby amends this registration statement under the Securities Act of 1933 on such date or dates
as may be necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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CROSS REFERENCE SHEET
PART A
ITEM NUMBER LOCATION IN PROSPECTUS
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Item 1. Outside Front Cover........................... Outside Front Cover
Item 2. Cover Pages; Other Offering Information....... Inside Front and Outside Back Cover Page
Item 3. Fee Table and Synopsis........................ Fee Table; Prospectus Summary
Item 4. Financial Highlights.......................... Not applicable
Item 5. Plan Of Distribution.......................... The Offering; Selling Arrangements
Item 6. Selling Shareholders.......................... Not applicable
Item 7. Use of Proceeds............................... Use Of Proceeds
Item 8. General Description of the Registrant......... Outside Front Cover; The Fund; Investment
Objective and Policies; Risk Factors
Item 9. Management.................................... Management
Item 10. Capital Stock, Long-Term Debt, and Other
Securities........................... Description of Units
Item 11. Defaults and Arrears on Senior Securities..... Not applicable
Item 12. Legal Proceedings............................. Not applicable
Item 13. Table of Contents of the Statement of Table of Contents of the Statement
Additional Information............... of Additional Information
PART B
ITEM NUMBER
Item 14. Cover Page.................................... Outside Front Cover
Item 15. Table of Contents............................. Outside Front Cover
Item 16. General Information and History............... The Fund
Item 17. Investment Objectives and Policies............ Investment Objective and Policies
Item 18. Management.................................... Management
Item 19. Control Persons and Principal Holders of
Securities........................... Management
Item 20. Investment Advisory and Other Services........ Management
Item 21. Brokerage Allocation and Other Practices...... Brokerage Allocation and Other Practices
Item 22. Tax Status.................................... Certain Federal Income Tax Considerations
Item 23. Financial Statements.......................... Financial Statements
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PRELIMINARY PROSPECTUS
Subject to completion, dated November 8, 2000
EXCELSIOR VENTURE INVESTORS III, LLC
$ 200,000,000
Units of Membership Interest
Minimum Subscription -- $25,000
Excelsior Venture Investors III, LLC, or the "Fund," is a newly
organized, non-diversified, closed-end management investment company. Our
investment objective is to achieve long-term capital appreciation. We will
pursue our objective by investing in Excelsior Venture Partners III, LLC
(the "Portfolio"), a business development company that invests in a
portfolio of domestic venture capital and other private companies and, to a
lesser extent, domestic and international private funds, negotiated private
investments in public companies and international direct investments. See
"The Fund" and "Investment Objective and Policies."
This prospectus contains information you should know before investing,
including risk information. Please read it before you invest and keep it
for future reference. Additional information about the registrant including
the statement of additional information dated November , 2000, incorporated
by reference into this prospectus, has been filed with the Securities
and Exchange Commission (the "Commission") and is available upon written or
oral request without charge. You can review the table of contents of the
statement of additional information on page 77 of this prospectus. In
addition, the Commission maintains a Web site (http://www.sec.gov) that
contains material incorporated by reference, the statement of additional
information and other information regarding registrants that file
electronically with the Commission. You may also request a free copy by
writing or calling the Fund at c/o United States Trust Company of New York,
114 West 47th Street, New York, New York 10036-1532, (212) 852-3125. You
may request a copy of the statement of additional information at no charge,
by calling PFPC Inc. at 1-877-238-1968.
AN INVESTMENT IN THE FUND WILL BE ILLIQUID UNTIL ITS UNDERLYING
INVESTMENTS ARE LIQUIDATED. INVESTORS MUST BE WILLING AND ABLE TO BEAR THE
RISKS OF AN INVESTMENT IN THE FUND UNTIL THAT TIME.
THESE ARE SPECULATIVE SECURITIES. YOU SHOULD INVEST ONLY IF YOU CAN
AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 18.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE FUND IS NOT AVAILABLE FOR
INVESTMENT BY RESIDENTS IN THE STATES OF ALABAMA, ARKANSAS, KANSAS, MAINE,
MASSACHUSETTS, MISSISSIPPI AND MISSOURI. SEE APPENDIX A FOR ADDITIONAL
INFORMATION FOR RESIDENTS OF CERTAIN STATES.
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PRICE TO PROCEEDS
PUBLIC SALES LOAD(2) TO FUND1
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Per Unit (50 Unit Minimum) $500 None $500
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Total Total Minimum (100,000 Units) $50,000,000 None $50,000,000
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Total Total Maximum (400,000 Units) $200,000,000 None $200,000,000
===================================================================================================================================
(1) The Fund expects to incur organizational and offering expenses of approximately $307,800. Charles Schwab
& Co., Inc. the Fund's principal distributor, has agreed to pay the Fund's organizational costs estimated to be
$10,000 in the event that the Fund receives subscriptions totaling less than $75,000,000. If the Fund receives
subscriptions totaling $75,000,000 or more, the Fund will pay its own organizational expenses. Your share of
organizational and offering costs will be deducted from your capital contribution.
(2) The Investment Adviser or an affiliate has agreed to compensate the principal distributor from its own
assets, not the assets of the Fund, in an amount equal to 0.02% of the price to the public of all Units subscribed
for, and has agreed to compensate the principal distributor for the sale of the Fund's Units and the provision of
ongoing investor services in an amount equal to the annual rate of 0.45% of the average quarterly net asset value of
all Units held by investors introduced to the Fund by the principal distributor, subject to reduction after five
years and elimination upon all such fees totaling 6.5% of the gross proceeds received by the Fund from this
offering.
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The date of this prospectus is November ___, 2000.
Units are made available through Charles Schwab & Co., Inc., the
Fund's principal distributor (the "Distributor"). The first subscription
closing will be held on or about the fifth business day after receipt by
the Fund of subscriptions totaling $50,000,000. The Fund may continue to
offer Units and accept subscriptions for such Units from time to time at
subsequent subscription closings until December 31, 2000, subject to
extension. If the minimum subscription of $50,000,000 has not been reached
by such date, or extension, the offering will terminate. See "The
Offering." The Fund reserves the right to withdraw, cancel or modify the
offering and to reject any subscription in whole or in part. The Fund will
not accept proceeds until the minimum subscription of $50,000,000 has been
obtained. Payments transmitted by subscribers to the Fund, or to the
selling agents, for investment in the Fund prior to the applicable closing
date will be deposited in an interest-bearing bank escrow account with PNC
Bank, Delaware pending closing.
The Fund expects to invest substantially all of the proceeds of this
offering in the Portfolio within 30 days of the Termination Date (expected
to be December 31, 2000, subject to extension). See "The Offering." Pending
investment in the Portfolio and for short-term cash management purposes,
the Fund may invest in short-term U.S. Government securities. U.S. Trust
Company serves as investment adviser to the Fund (the "Fund's Adviser") and
will be responsible for investing assets not invested in the Portfolio.
Units may be purchased only by persons who represent to the Fund
that the value of their total assets (exclusive of their personal
residence) less their total liabilities is at least $500,000 and
that the amount that they are subscribing for does not exceed 10%
of their total assets less their total liabilities, and who make
the other representations included in the Subscription Agreement
(attached hereto as Appendix C) to be entered into by each investor.
TABLE OF CONTENTS
Page
FEE TABLE.................................................................4
PROSPECTUS SUMMARY........................................................6
THE FUND.................................................................14
INVESTMENT OBJECTIVE AND POLICIES........................................14
RISK FACTORS.............................................................18
THE OFFERING.............................................................25
USE OF PROCEEDS..........................................................26
MANAGEMENT...............................................................27
BROKERAGE ALLOCATION AND OTHER PRACTICES.................................49
REGULATION...............................................................50
VALUATION OF PORTFOLIO SECURITIES........................................52
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS..........................53
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................55
ERISA CONSIDERATIONS.....................................................61
DESCRIPTION OF UNITS.....................................................62
SELLING ARRANGEMENTS.....................................................66
LEGAL MATTERS............................................................67
INDEPENDENT AUDITORS.....................................................67
AVAILABLE INFORMATION....................................................67
REPORTS TO MEMBERS.......................................................67
FINANCIAL STATEMENTS.....................................................67
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.............77
FEE TABLE
UNITHOLDER TRANSACTION EXPENSES
SALES LOAD (as a percentage of offering price).................... None*
ANNUAL EXPENSES (as a percentage of net
assets attributable to Units)
Management Fees.......................................... 2.00%**
Other Expenses........................................... 0.05%***
Total Annual Expenses.................................... 2.05%
*A distribution fee equal to 0.02% of the total of all subscriptions
received in this offering will be paid by the Fund's Adviser or an
affiliate. The Fund's Adviser or an affiliate will also pay the Distributor
an ongoing fee, to the extent that investors are introduced to the Fund by
the Distributor, for the sale of Units and the provision of ongoing
investor services in an amount equal to the annual rate, through the fifth
anniversary of the final subscription closing date of 0.45% of the average
quarterly net asset value of all outstanding Units held by investors
introduced to the Fund by the Distributor and at the annual rate of 0.22%
thereafter, subject to elimination upon all such fees totaling 6.5% of the
gross proceeds received by the Fund from this offering.
**The Fund invests in the Portfolio. The Fund pays no advisory fee on
assets invested in the Portfolio. Pending investment of its assets in the
Portfolio, the Fund will invest in U.S. Government securities. The Fund
will pay the Fund's Adviser a fee of 0.1% of the Fund's net assets that are
not represented by the Fund's investment in the Portfolio. The Portfolio's
management fee through the fifth anniversary of the Portfolio's final
subscription closing date (not later than December 31, 2000, subject to
extension), will be payable at the annual rate of 2.00% of the Portfolio's
average quarterly net assets, determined as of the end of each fiscal
quarter. Thereafter, the Portfolio's management fee will be payable at the
annual rate of 1.00% of the Portfolio's average quarterly net assets,
determined at the end of each fiscal quarter. The Portfolio's Investment
Adviser has agreed to waive this fee during the subscription period, which
will end on the final subscription closing date (not later than December
31, 2000, subject to extension). The Investment Adviser is also entitled to
an "Incentive Carried Interest" from the Portfolio in an amount equal to
20% of the Portfolio's cumulative realized net capital gains on investments
other than private funds (determined net of cumulative realized capital
losses and current net unrealized capital depreciation on all of the
Portfolio's investments). See "Management" and "Capital Accounts,
Allocations and Distributions."
***"Other Expenses" are based on estimated amounts for the current fiscal
year, and include among other things, administration fees, legal fees, the
independent auditor's fees, printing costs and fees payable to the
independent managers.
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return:
Example (1)........................... $22 $67 $116 $189
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLES.
The Fee Table summarizes the aggregate expenses of the Fund and the
Portfolio in order to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. To the extent that the Portfolio invests in private funds, you
will also indirectly through the Fund bear your pro rata share of the fees,
expenses and any carried interest or incentive compensation paid by such
funds. For a more complete description of the various costs and expenses,
see "Management" and "Capital Accounts, Allocations and Distributions."
------------------
(1) Assumes Portfolio management fee of 2.00% of the Portfolio's net assets
in years 1-5 and 1.00% thereafter and other expenses of 0.15% of the Fund's
and the Portfolio's net assets and does not include the Incentive Carried
Interest paid by the Portfolio. These expense estimates are based on the
assumption that the entire 5% annual return is the result of realized
capital gains on investments other than private funds.
(2) EXAMPLE 2
---------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return:
Example................................ $32 $97 $165 $291
Assumes Portfolio management fee of 2.00% of the Portfolio's net assets in
years 1-5 and 1.00% thereafter and other expenses of 0.15% of the Fund's
and the Portfolio's net assets and includes the Incentive Carried Interest
paid by the Portfolio. These expense estimates are based on the assumption
that the entire 5% annual return is the result of realized capital gains on
investments other than private funds.
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the more
detailed information included in this prospectus, the statement of
additional information and to the Fund's operating agreement (the
"Operating Agreement") attached hereto as Appendix B.
THE FUND
The Fund is a Delaware limited liability company formed on June 1,
2000. We are registered as a closed-end, non-diversified management
investment company. We provide investors with the opportunity to
participate, with a minimum investment of $25,000, in a portfolio of direct
private equity investments and privately offered investment funds managed
by third parties. These investment opportunities are generally not
available to the public and typically require substantially larger
commitments than the minimum investment in the Fund. Other advantages that
may otherwise be unavailable to investors if they were to invest directly
in private equity investments include professional management, portfolio
diversification and administrative convenience. See "The Fund," "Risk
Factors," "The Offering" and "Description of Units."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve long-term capital
appreciation. Current income is not an objective. The Fund currently
intends to achieve its objective by investing its assets in Excelsior
Venture Partners III, LLC (the "Portfolio"), a separate, closed-end,
non-diversified investment company that has elected to be treated as a
business development company, or "BDC," under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Fund and the Portfolio
share substantially the same investment objective and policies. The
Portfolio will pursue long-term capital appreciation primarily by investing
in private domestic venture capital companies and other private companies
(collectively, "Venture Capital Investments"). Venture Capital Investments
are domestic companies in which the equity is closely held by company
founders, management and/or a limited number of institutional investors.
The Portfolio also intends to invest to a lesser extent in domestic and
international venture capital, buyout and other private equity funds
managed by third parties ("Private Funds"), negotiated private investments
in public companies ("Private Placements in Public Companies") and foreign
companies in which the equity is closely held by company founders,
management and/or a limited number of institutional investors
("International Venture Capital Investments"). We refer to Venture Capital
Investments, Private Placements in Public Companies and International
Venture Capital Investments as "Direct Investments." A company in which a
Direct Investment is made is considered a "Portfolio Company." Pending
investment, for operating purposes and for temporary or emergency purposes,
the Portfolio will make liquid investments in short-term securities.
The Portfolio currently expects to make investments in companies
engaged in businesses that are consistent with the general investment
philosophy used by U.S. Trust Corporation and its affiliated banks ("U.S.
Trust") in its investment management advisory business. With the approval
of its board of managers, the Portfolio may change this policy. U.S. Trust
follows a long-term investment philosophy and uses a growth strategy and a
transaction value strategy to guide investment decision making. The growth
strategy seeks to identify industries and companies that can provide
solutions to or otherwise benefit from markets that are growing in response
to underlying trends. The transaction value strategy involves a comparison
of a company's real underlying asset value with similar assets changing
ownership in the market. It is based on a belief that differences between a
company's real asset value and the price of its shares correct over time.
U.S. Trust applies these strategies together with a focus on longer-term
investment themes that U.S. Trust believes represent long-term trends. U.S.
Trust currently believes that the following themes represent strong and
inexorable trends:
o Communications and Information
o Productivity Enhancers
o Infrastructure Development
o Early Life Cycle Companies
o Demographics/Rising Living Standards
o Globalization Forces
o Business and Industrial Restructuring
Each of these is described in greater detail under the caption "Investment
Objective and Policies - Investment Strategies." Under current market
conditions, the Investment Adviser expects to emphasize the technological
innovations that are driving the new economy, with specific focus on
information technology, communications, life sciences and information
services.
We do not intend to borrow to invest in the Portfolio. The
Portfolio may from time to time borrow funds in an amount up to 25% of its
total assets (after giving effect to the borrowing) in order to make
additional investments in existing Portfolio Companies (referred to as
"follow-on investments"), to maintain various regulatory qualifications, to
pay contingencies and expenses or in anticipation of the receipt of funds
from capital contributions or the disposition of investments. The Portfolio
does not intend to borrow in order to make the initial investment in a
company. The Portfolio will not borrow to pay the management fee payable to
the Investment Adviser.
There can be no assurance that we will achieve our investment
objective. See "Investment Objective and Policies" and "Risk Factors."
MANAGEMENT AND COMPENSATION
U.S. Trust Company serves as investment adviser to the Fund (the
"Fund's Adviser"). The Fund's Adviser will be responsible for investing
assets not invested in the Portfolio. Such investments will be in
short-term U.S. Government securities. The Fund's Adviser will also be
responsible for disposing of any assets received in kind from the
Portfolio.
U.S. Trust Company and United States Trust Company of New York
serve as "Investment Adviser" and "Investment Sub-Adviser" to the
Portfolio, respectively. The Investment Adviser and Investment Sub-Adviser
are responsible pursuant to the Investment Advisory and Investment
Sub-Advisory agreements for identifying, evaluating, structuring,
monitoring and disposing of the Portfolio's investments and providing, or
arranging for third parties to provide, any and all management and
administrative services reasonably necessary for the operation of the
Portfolio and the conduct of its business.
The Investment Adviser or its affiliates have served as the
investment advisers to UST Private Equity Investors Fund, Inc. ("Fund I")
and Excelsior Private Equity Fund II, Inc. ("Fund II"), each a registered
business development company, since their inceptions in September 1994 and
March 1997, respectively. The investment management personnel of the
Investment Adviser and Investment Sub-Adviser consist of the same persons
that perform the investment management functions for Fund I and Fund II.
The Portfolio's investment objective and policies are similar to those of
Fund I and Fund II, although the Investment Adviser and Investment
Sub-Adviser expect to employ an investment strategy more similar to that of
Fund II. As of October 31, 2000, Fund I had made investments in 12
Portfolio Companies and 6 Private Funds with an aggregate of approximately
$40 million of invested and/or committed capital. As of October 31, 2000,
Fund II had made investments in 20 Portfolio Companies and 13 Private Funds
with an aggregate of approximately $178 million of invested and/or
committed capital.
The Fund will not pay the Fund's Adviser an investment advisory
fee on assets invested in the Portfolio. The Fund will pay the Fund's
Adviser a fee equal to 0.1% of the Fund's net assets that are not
represented by the Portfolio. Through the fifth anniversary of the
Portfolio's final subscription closing date, the Portfolio will pay the
Investment Adviser a management fee at an annual rate equal to 2.00% of the
Portfolio's average quarterly net assets, determined as of the end of each
fiscal quarter. Thereafter, the management fee paid by the Portfolio will
be at an annual rate of 1.00% of the Portfolio's average quarterly net
assets, determined as of the end of each fiscal quarter. From this fee the
Investment Adviser will pay the investment advisory fee of the Investment
Sub-Adviser. The Investment Adviser has agreed to waive its management fee
for the Portfolio during the subscription period, which will end on the
final subscription closing date (not later than December 31, 2000, subject
to extension).
The Investment Adviser also will be entitled to allocations and
distributions from the Portfolio equal to the Incentive Carried Interest.
The Incentive Carried Interest is an amount equal to 20% of the Portfolio's
cumulative realized capital gains on all Direct Investments determined net
of:
o cumulative realized capital losses on all investments of any
type; and
o current net unrealized capital depreciation on all
investments of any type.
The Incentive Carried Interest will be determined annually as of the end of
each calendar year. The Investment Adviser's allocations and distributions
from the Portfolio will be made net of, respectively, all prior allocations
and all prior distributions made of the Incentive Carried Interest to the
Investment Adviser.
Investors in the Fund will indirectly bear their pro rata portion
of the fees payable by the Portfolio to the Investment Adviser.
PFPC Inc. (the "Administrator"), performs certain administration,
accounting and investor services for the Portfolio and the Fund. In
consideration for these services, the Portfolio and the Fund pay the
Administrator annual fees based upon their aggregate net assets, subject to
a minimum monthly fee, and will reimburse the Administrator for certain of
the Administrator's expenses.
THE OFFERING
The Fund is offering investors the opportunity to subscribe to
make capital contributions to the Fund in exchange for membership interests
in the Fund. The Fund is offering up to 400,000 units of membership
interests at a price per unit of $500 (the "Units"). Units are made
available through Charles Schwab & Co., Inc. as principal distributor (the
"Distributor"). The Fund's Adviser or an affiliate will pay the Distributor
from its own assets an amount equal to 0.02% of the total of all
subscriptions received in this offering. Units may be sold by the
Distributor to investors through financial intermediaries acting as broker
or agent ("Selling Agent") for their customers. The Fund's Adviser or an
affiliate may compensate from its own assets Selling Agents who sell Units
of the Fund to investors. The Fund's Adviser or an affiliate will, to the
extent that investors are introduced to the Fund through the Distributor,
pay the Distributor an ongoing fee for the sale of Units and the provision
of ongoing investor services in an amount equal to the annual rate through
the fifth anniversary of the final subscription closing date of 0.45% of
the average quarterly net asset value of all outstanding Units held by
investors introduced to the Fund by the Distributor and at the annual rate
of 0.22% thereafter, subject to elimination upon all such fees totaling
6.5% of the gross proceeds received by the Fund from this offering. The
offering will terminate on December 31, 2000, subject to extension by the
Board of Managers to a date not later than May 11, 2001 (the "Termination
Date"). If a minimum of $50,000,000 has not been subscribed for by the
Termination Date, the offering will terminate and all proceeds from the
offering will be refunded to investors with any interest earned thereon.
We expect to have our first closing (the "first subscription
closing") approximately five business days after we have received
subscriptions totaling at least $50,000,000. The Fund may continue to
accept subscriptions for Units from time to time at subsequent closings
(each a "subsequent subscription closing") until the Termination Date.
Each subscriber will be required to complete, execute and deliver
to the Fund an executed copy of a subscription agreement attached hereto as
Appendix C (the "Subscription Agreement"), which will form a binding
contract of the investor. Units may be purchased only by persons who
represent to the Portfolio that the value of their total assets (exclusive
of their principal residence) less their total liabilities is at least
$500,000, that the amount they are subscribing for does not exceed 10% of
their total assets less their total liabilities and who make the other
representations included in the Subscription Agreement to be entered into
by each investor. Amounts paid by subscribers to the Fund, or to the
Selling Agents, for investment in the Fund, prior to the applicable closing
date will be deposited in an interest-bearing bank escrow account with PNC
Bank, Delaware pending each closing. Any checks should be made payable to
PNC Bank, Delaware, as "Escrow Agent," and must be transmitted by Selling
Agents directly to PFPC Inc. as Escrow Administrator by noon of the next
business day after receipt. The Fund will not accept proceeds until the
minimum subscription of $50,000,000 has been obtained. Organizational and
offering costs of approximately $307,800, have been or will be incurred by
the Fund. All or a portion of such costs have been or may be advanced by
the Fund's Adviser or an affiliate and will be reimbursed by the Fund. The
Distributor has agreed to pay the Fund's organizational costs, estimated to
be $10,000, in the event that the Fund receives subscriptions totaling less
than $75,000,000. If the Fund receives subscriptions totaling $75,000,000
or more, the Fund will pay its own organizational expenses. Each investor's
share of organizational and offering costs will be deducted from his or her
capital account. See "The Offering."
The Fund will not commence accepting subscriptions until the
Portfolio has set a date for its first closing. The Fund intends to notify
you of the date upon which it will begin accepting subscriptions. Any
subscriptions received before such date will be returned promptly. Pursuant
to the Subscription Agreement, your subscription amount is required to be
paid on or before the final subscription closing date (not later than
December 31, 2000, subject to extension). At the first subscription closing
the Fund will issue one Unit for each $500 of capital contribution.
Thereafter, Units will be issued at net asset value.
MINIMUM INVESTMENTS
The minimum subscription amount is $25,000. We have the right to
waive the minimum, at our discretion. See "The Offering."
USE OF PROCEEDS
The Fund intends to invest the net proceeds of this offering in
units of membership interest ("Portfolio Units") in Excelsior Venture
Partners III, LLC (the "Portfolio"). The Fund expects to invest
substantially all of the proceeds of this offering in the Portfolio within
30 days of the Termination Date (expected to be December 31, 2000, subject
to extension). We anticipate that there will be a significant period of
time (up to four years) before the Portfolio becomes fully invested.
Although the Portfolio intends to invest or commit to invest more than 50%
of the proceeds from the offering in Venture Capital Investments within the
earlier of (i) two years after the final subscription closing date and (ii)
two and one-half years after the commencement of this offering, a delay is
common for business development companies such as the Portfolio because of
the competition for investments in entities that meet the requirements for
"qualifying assets" under the Investment Company Act. See "Use of Proceeds."
RISK FACTORS
These are speculative securities. Units of the Fund are not
deposits or obligations of, or guaranteed or endorsed by, U.S. Trust, and
the Units are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency or person.
RISKS RELATED TO THE FUND AND THE PORTFOLIO
UNSPECIFIED USE OF PROCEEDS. Since the Portfolio in which the Fund
invests has not identified the particular uses for the net proceeds from
this offering, prospective investors must rely on the ability of the
Investment Adviser and Investment Sub-Adviser to identify and make
portfolio investments consistent with the Fund's and the Portfolio's
investment objective.
LACK OF OPERATING HISTORY. While the key personnel of the
Investment Adviser, the Investment Sub-Adviser and their affiliates have
considerable experience in venture capital and private equity investing,
the Fund and the Portfolio have recently been formed and have no operating
history of their own upon which an investor may base an evaluation of the
likely performance of the Fund or the Portfolio.
MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION. To the extent that
the Portfolio makes fewer investments, it may be subject to greater risks
from developments adversely affecting one or a limited number of issuers.
If the Portfolio receives only the minimum amount of subscriptions, it will
have fewer assets to invest and will likely acquire fewer investments than
it would if it received more subscriptions. This would increase the Fund's
and the Portfolio's volatility and risk.
RELIANCE ON THE INVESTMENT ADVISER AND THE INVESTMENT SUB-ADVISER.
The investment decisions of the Portfolio will be made by the Investment
Adviser and the Investment Sub-Adviser. Investors will have no right to
take part in the management of the Fund or the Portfolio.
INCENTIVE CARRIED INTEREST. The Incentive Carried Interest is
based on 20% of the net realized capital gain on Direct Investments made by
the Portfolio and may create an incentive for the Investment Adviser to
cause the Portfolio to make investments that are riskier or more
speculative than would be the case in the absence of the Incentive Carried
Interest.
POTENTIAL CONFLICTS OF INTEREST. The Investment Adviser and its
affiliates may be subject to various conflicts of interest in connection
with their relationships and transactions with the Fund and the Portfolio.
These include conflicts associated with:
o the Incentive Carried Interest;
o investment opportunities;
o allocating management time and services;
o relationships with Portfolio Companies; and
o affiliated transactions.
See "Risk Factors - Potential Conflicts of Interest."
LIABILITIES OF MEMBERS. You will not be liable for any obligations
of the Fund in excess of your capital account balance, plus your share of
undistributed profits. However, if you receive a distribution from the Fund
and after such distribution the liabilities of the Fund exceed the fair
value of the Fund's assets (and you had knowledge of this fact at the time
of the distribution) you may be required to return such distribution to the
Fund. The Fund has no intention of making such distributions. You will not
have the right to a return of your subscription amount except in accordance
with the distribution provisions of the Operating Agreement.
NO PUBLIC OR OTHER MARKET FOR UNITS. The Fund is a newly organized
entity. A member may transfer Units only by operation of law pursuant to
the death, bankruptcy, insolvency or dissolution of the member or
otherwise, or with the written consent of the Fund (which it may withhold
in its sole and absolute discretion and will grant, if at all, only in
extenuating circumstances) or in connection with a transfer to a family
trust or another entity that does not result in a change of beneficial
ownership. Any permitted transferees will not, however, be allowed to
become substituted members in the Fund without the consent of the Fund,
which consent may be withheld in our sole and absolute discretion. No
member will have the right to require the Fund to redeem his, her or its
Units. In addition, neither the Fund nor the Fund's Adviser (nor any of
their respective affiliates) will make a market in or otherwise make offers
to repurchase Units, and Units will not be traded on any securities
exchange or other market.
FOR THESE VARIOUS REASONS, AN INVESTMENT IN THE FUND WILL BE
ILLIQUID UNTIL ITS UNDERLYING INVESTMENTS ARE LIQUIDATED. INVESTORS MUST BE
WILLING AND ABLE TO BEAR THE RISKS OF AN INVESTMENT IN THE FUND UNTIL THAT
time.
TAX STATUS. At the first subscription closing, the Fund will
receive an opinion of its counsel to the effect that, under current law and
based on certain assumptions and representations, the Fund will be treated
as a partnership and not as a publicly traded partnership that is treated
as a corporation for federal income tax purposes. Such opinion will be
based upon the maintenance of certain factual and other conditions, the
continuation of which cannot be assured. The Portfolio will receive a
similar opinion. No ruling has been or will be sought from the Internal
Revenue Service ("IRS") regarding the status of either the Fund or the
Portfolio as a partnership. An opinion of counsel is not binding on the IRS
or any court. If the Fund or the Portfolio were treated as a publicly
traded partnership or otherwise treated as a corporation for federal income
tax purposes, material adverse consequences for the members would result.
See "Certain Federal Income Tax Considerations - Tax Status of the Fund and
the Portfolio."
DISTRIBUTIONS IN KIND. The Portfolio may make distributions of
securities or other property in kind. To the extent that the Fund receives
distributions in kind from the Portfolio, the Fund intends ordinarily to
retain such assets until the Fund's Adviser determines that it is
advantageous to dispose of such assets. The Fund may, however, also make
distributions in kind. To the extent that the Fund does so, you will incur
additional expenses when you determine to dispose of such securities or
other assets. In addition, the determination of whether and when to dispose
of such securities or other assets will be your responsibility. Such
securities or other property may be worth more or less when you dispose of
them than their value at the time of distribution. Although the Fund
generally intends to distribute securities prior to liquidation only if
such securities are traded in an active secondary market without
registration, such securities may be subject to a minimum holding period or
other limitations on resale.
REGULATION. The Portfolio has elected to be treated as a business
development company under the Investment Company Act, and as such is
subject to numerous restrictions on the nature of its investments, the use
of leverage and the issuance of securities, options, warrants or rights,
which could prohibit the Portfolio from investing in potentially attractive
situations that might otherwise be available. At the same time, the
Portfolio's election to be treated as a business development company
exempts it from certain provisions of the Investment Company Act. As a
result, the Portfolio operates differently than a registered investment
company and is subject to different and potentially greater risks as
compared to a registered investment company. See "Regulation."
GENERAL RISKS OF INVESTMENTS
RISK OF PRIVATE EQUITY INVESTMENTS. Though private equity
investments offer the opportunity for significant capital gains, such
investments also involve a high degree of business and financial risk that
can result in substantial losses.
ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS. The Portfolio
anticipates that it may take up to four years before it is fully invested
or committed to invest in Portfolio Companies, and it is unlikely that any
significant distribution of the proceeds from the disposition of private
equity investments will be made until the later years of the Portfolio's
term. Securities laws, contractual limitations and practical limitations
may inhibit the Portfolio's ability to sell, distribute or liquidate its
investments in Portfolio Companies and could reduce the amount of proceeds
that might otherwise be realized. The Fund's investment in the Portfolio
will also be illiquid in that there are substantial restrictions as to
transfer of Portfolio Units.
NEED FOR FOLLOW-ON INVESTMENTS. There is no assurance that the
Portfolio will have sufficient funds available or choose to make follow-on
investments. Failure to make follow-on investments may have a substantial
impact on Portfolio Companies in need of such an investment or may result
in a missed opportunity for the Portfolio to increase its participation in
a successful operation.
COMPETITION FOR INVESTMENTS. The Portfolio expects to encounter
competition from, and to be a co-investor with, other professional venture
capital, private equity or leveraged buyout groups including several in
which the Portfolio may be an investor.
INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES. Under
current market conditions, the Portfolio plans to focus on investments in
companies that rely significantly on technological events or advances in
their product development, production or operations. The value of the
Portfolio Units may be susceptible to factors affecting technology and
technology-related industries and to greater risk and market fluctuation
than an investment in a fund that invests in a broader range of portfolio
securities.
BORROWING. The Portfolio may borrow for investment and other
purposes. The use of leverage even on a short-term basis could have the
effect of magnifying increases or decreases in the Portfolio's net asset
value and could result in lenders placing restrictions on the Portfolio
including reserve requirements or operating restrictions that would limit
the ability of the Investment Adviser to control investments or
refinancings and the ability of the Portfolio to make distributions.
LACK OF DIVERSIFICATION. The Fund and the Portfolio intend to
operate as non-diversified investment companies within the meaning of the
Investment Company Act. A non-diversified company may invest to a greater
degree in fewer issuers than may a diversified company. As a result, the
Fund and the Portfolio will be more exposed to developments adversely
affecting only one or a few companies that it has invested in. The net
asset value of a non-diversified company may be more volatile than that of
a diversified company.
ALLOCATIONS, DISTRIBUTIONS AND LIQUIDATION
The Fund has been formed as a Delaware limited liability company
and as such is governed by Delaware law and an operating agreement that
defines many of the rights and responsibilities of the Board of Managers
and members. A copy of the Operating Agreement is attached hereto as
Appendix B. Investors in the Fund will become members in the Fund, which
will establish a capital account for each member. Your capital
contributions and your share of items of income and gain will be credited
to your capital account, and your distributions and your share of items of
loss, deduction and expense will be debited from your capital account. All
allocations and distributions made by the Fund will generally be made pro
rata in proportion to each member's interest in the Fund.
The Fund will invest in and become a member of the Portfolio,
which will similarly establish a capital account in the Portfolio for the
Fund. The Portfolio will make allocations and distributions to its members,
including the Fund, as set forth below.
ALLOCATIONS. The income, gain, loss, deduction and expense of the
Portfolio generally will be determined and allocated as of the end of each
tax year (typically December 31) to reflect the economic interests of its
members and the Investment Adviser.
Portfolio allocations generally will be made in the following
order:
o gains will be allocated to the Investment Adviser until the
cumulative amount of all gain that has been allocated to the
Investment Adviser from the commencement of operations equals
the Incentive Carried Interest calculated through the period
for which the allocation is being made; then
o all remaining items of income, gain, loss, deduction and
expense will be allocated to the members pro rata in
accordance with their invested capital.
DISTRIBUTIONS. The Portfolio will distribute all cash that the
Investment Adviser does not expect to use in the operation of the
Portfolio. The Portfolio will consider making such distributions at least
annually but, as described below, investors should not expect distributions
of cash or property during the first several years of the Portfolio's
operations. Each year, the Investment Adviser generally will be entitled to
a distribution of the Incentive Carried Interest. The members generally
will be entitled to all amounts remaining for distribution pro rata in
accordance with their invested capital. The Portfolio may make
distributions in kind of its property, which generally would be treated for
purposes of the Portfolio's distribution policies as distributions of cash
in an amount equal to the current market value or fair value of such
property determined in accordance with the Portfolio's valuation
procedures.
The Fund will distribute all cash that the Fund's Adviser does not
expect to use in the operation of the Fund. Due to the nature of the
Portfolio's investments, investors should not expect distributions of cash
or property during the first several years of the Fund's operations. The
Fund will not reinvest income from its investments or the proceeds from the
sale of its investments. The Fund does not intend to make any distribution
if, after making such distribution, the liabilities of the Fund would
exceed the fair value of the Fund's assets.
LIQUIDATION. The Fund intends to liquidate and dissolve after the
Portfolio has been liquidated and has distributed all of its assets. The
duration of the Portfolio will be ten years from its final subscription
closing; however, the board of managers of the Portfolio has the right, in
its sole discretion, to extend the term for up to two additional two-year
periods, after which the approval of members of the Portfolio who represent
66 2/3% of the Portfolio's outstanding Units may determine to extend the
term of the Portfolio. See "Description of Units - Term, Dissolution and
Liquidation."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Both the Fund and the Portfolio intend to be treated as
partnerships for federal income tax purposes. See "Certain Federal Income
Tax Considerations - Tax Status of the Fund and the Portfolio." Thus, each
member in computing its federal income tax liability for a taxable year
will be required to take into account his, her or its allocable share of
Fund items of income, gain, loss, deduction and expense for the taxable
year of the Fund ending within or with each taxable year of the member,
regardless of whether the member has received any distributions from the
Fund. Such Fund items will generally include the Fund's allocable share of
corresponding items of the Portfolio. It is possible that a member's
federal income tax liability with respect to his, her or its allocable
share of Fund earnings in a particular year could exceed the distributions
to the member for the year, thus giving rise to an out-of-pocket payment by
the member.
THE FUND
The Fund is a newly organized, non-diversified, closed-end
management investment company that has registered its securities under the
Securities Act of 1933 and has registered as an investment company under
the Investment Company Act of 1940, as amended (the "Investment Company
Act"). The Fund intends to invest its assets in Excelsior Venture Partners
III, LLC (the "Portfolio"). The Fund and the Portfolio share substantially
the same investment objective and policies. The Fund provides investors
with the opportunity to participate in investments which are generally not
available to the public and typically require substantially larger
financial commitments than the minimum investment in the Fund. Pending
investment in the Portfolio, the Fund will invest its assets in U.S.
Government securities having a remaining maturity of one year or less.
The Fund was organized as Excelsior Venture Partners Fund III,
LLC, a Delaware limited liability company, on June 1, 2000. On August 30,
2000, the Fund amended its certificate of formation to change its name from
Excelsior Venture Partners Fund III, LLC to Excelsior Venture Investors
III, LLC. Pursuant to the Operating Agreement, the business and affairs of
the Fund are overseen by a four member Board of Managers, three of whom are
not "interested persons" of the Fund or its affiliates as that term is
defined in the Investment Company Act. The Board of Managers is analogous
to a board of directors of a corporation. U.S. Trust Company serves as
investment adviser to the Fund. The Fund's and the Portfolio's principal
offices are located at 114 West 47th Street, New York, New York 10036, and
the telephone number of the Fund is (212) 852-3125.
The Portfolio is a newly organized, non-diversified, close-end
management investment company that has elected to be treated as a business
development company under the Investment Company Act. The Portfolio was
organized as a Delaware limited liability company on February 18, 2000. The
board of managers and principal officers of the Portfolio also serve as the
Board of Managers and principal officers of the Fund. See "Management -
Board of Managers, Officers and Investment Professionals."
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Fund is to seek long-term capital
appreciation. The Fund currently seeks to achieve its investment objective
by investing its assets in Excelsior Venture Partners III, LLC, a separate
non-diversified, closed-end, management investment company that has elected
to be treated as a business development company under the Investment
Company Act.
In the event that the Fund receives distributions of securities in
kind from the Portfolio, the Fund may, but generally does not expect to,
distribute such securities in kind. To the extent that it does not
distribute such securities in kind, it will conduct an orderly distribution
of such securities under the direction and discretion of the Fund's
Adviser. The Fund's Adviser will seek to maximize the value to the Fund
from such liquidations, although the Fund will not be required to liquidate
such securities within any stated period of time. The Fund will not
reinvest in additional Portfolio Units or other equity securities the cash
distributions it receives from the Portfolio or the cash proceeds it
receives from the disposition of securities distributed to it in kind, but
will distribute such cash in accordance with its distribution policies.
Pending distribution, cash may be invested in short-term U.S. Government
securities.
The Fund and the Portfolio share substantially the same investment
objective and policies. The Portfolio will pursue long-term capital
appreciation primarily by investing in private, domestic venture capital
companies and other private companies (collectively, "Venture Capital
Investments"). Venture Capital Investments are domestic companies in which
the equity is closely held by company founders, management and/or a limited
number of institutional investors. Subject to the limitations of the
Investment Company Act, the Portfolio also intends to invest in domestic
and international venture capital, buyout and other private equity funds
managed by third parties ("Private Funds"), negotiated private investments
in public companies ("Private Placements in Public Companies") and foreign
companies in which the equity is closely held by company founders,
management and/or a limited number of institutional investors
("International Venture Capital Investments"). We refer to Venture Capital
Investments, Private Placements in Public Companies and International
Venture Capital Investments as Direct Investments. Pending investment, for
operating purposes and for temporary or emergency purposes, the Portfolio
will invest in interest bearing bank accounts, money market mutual funds,
U.S. treasury securities and/or certificates of deposit with maturities of
less than one year, commercial paper and other short term securities
(collectively "Short-Term Investments"). Although the Portfolio's objective
is to seek long-term capital appreciation, there is no minimum holding
period for the Portfolio's investments and the Portfolio may sell any
investment at any time that the Investment Adviser or Investment
Sub-Adviser believes it is advantageous to do so. The disposition of Direct
Investments requires the approval of the Portfolio's board of managers.
As a BDC, the Portfolio must invest at least 70% of its assets
("qualifying assets") in certain specified investments, including
securities of companies that qualify as "eligible portfolio companies"
under the Investment Company Act. The Portfolio may maintain up to 30% of
its assets in non-qualifying assets; however, the Portfolio intends to
retain maximum flexibility in connection with its investments and,
therefore does not have a policy as to the minimum percentage of its assets
that will be so invested. See "Regulation."
Venture Capital Investments
The Portfolio will invest primarily in Venture Capital
Investments. The Portfolio may also commit to invest funds in a Venture
Capital Investment beyond the initial investment or guarantee the
obligations of a Venture Capital Investment. The Portfolio will attempt to
reduce the risks inherent in private equity investing by investing in a
portfolio of companies involved in different industries and different
stages of development, through the utilization of professional management
provided by the Investment Adviser and the Investment Sub-Adviser in the
selection of private equity investments and through the active monitoring
of such investments.
Other Private Equity Investments
Subject to the limitations of the Investment Company Act, the
Portfolio may invest in Private Funds, International Venture Capital
Investments and Private Placements in Public Companies (collectively,
"Other Private Equity Investments"). The Portfolio generally will not make
an investment in Other Private Equity Investments if, immediately after
such investment is made, more than 30% of the value of our total investment
assets would be invested in such assets. Any Private Fund investments will
generally be made in domestic or foreign venture capital, buyout or other
private equity funds managed by third parties. The Portfolio does not
expect to invest more than 10% of its total assets in any one Other Private
Equity Investment. Neither the Investment Adviser nor the Investment
Sub-Adviser will have a role in the management of Private Funds. Private
Funds typically charge a management fee and an incentive fee based upon
gains. These fees are in addition to the management fees payable to the
Investment Adviser, although the Incentive Carried Interest will not be
based on gains from Private Funds.
INVESTMENT STRATEGIES
The Investment Adviser or Investment Sub-Adviser will evaluate the
ability of prospective investments to produce long-term capital
appreciation based upon criteria that may be modified from time to time.
The criteria that will initially be used by the Investment Adviser and
Investment Sub-Adviser in determining whether to make an investment
include:
o the presence or availability of strong management;
o the existence of a substantial market for the products or
services of a potential Portfolio Company, characterized by
favorable growth potential, or a substantial market position
in a stable industry;
o evidence that a potential Portfolio Company offers a
differentiated product or service and defensible market
position;
o the opportunity for liquidity to eventually be obtained for
the proposed investment through an initial public offering or
through a sale of the business; and
o the willingness of a potential Portfolio Company to permit
the Portfolio and its co-investors, if any, to take a
substantial position in the company and have representation
on its board of directors or a right to attend board meetings
as a nonvoting participant, so as to enable the Portfolio to
influence the strategic direction of the company.
Each of these criteria need not be present in every investment.
Although the Portfolio is a non-diversified company as defined in
the Investment Company Act, it does not expect to invest more than 10% of
its total assets in any one Portfolio Company or Private Fund. While the
Portfolio retains the flexibility to invest in all types of industries, it
currently expects to make investments in companies engaged in businesses
that are consistent with the general investment philosophy used by U.S.
Trust in its investment management advisory business. With the approval of
the Portfolio's board of managers, the Portfolio may change this policy.
U.S. Trust follows a long-term investment philosophy based on identifying
opportunities with sustainable fundamental values and uses two specific
portfolio strategies to guide investment decision-making.
U.S. Trust's first strategy is one of growth. This strategy seeks
to identify industries and companies with the capabilities to provide
solutions to or benefit from markets which are growing in response to
underlying trends, such as companies' need to enhance productivity through
technological innovation or the changing demographics of the U.S.
population. U.S. Trust's second strategy is a "transaction value"
comparison of a company's real underlying asset value with similar assets
changing ownership in market transactions. Differences between a company's
real asset value and the price of its shares often are corrected over time
by restructuring of the assets or by market recognition of their value.
The two portfolio strategies discussed above are applied together
with several "longer-term investment themes" to help identify specific
investment opportunities. U.S. Trust believes that the longer-term themes
described below represent strong and inexorable trends and that the
beneficiaries of these trends will be rewarded in the long-term.
o Communication and Information -- companies benefiting from
the technological and international transformation of the
communications and information industries, particularly the
convergence of information, communication and entertainment
o Productivity Enhancers -- companies benefiting from their
roles as innovators, developers and/or suppliers of goods and
services which enhance service and manufacturing productivity
or companies that are the most effective at obtaining and
applying productivity enhancements
o Infrastructure Development-- companies benefiting from the
development and expansion of global infrastructure
expenditure
o Early Life Cycle-- companies in an earlier stage of
development looking to exploit new market opportunities
o Demographics/Rising Living Standards -- companies concerned
with the quality characteristics, lifestyles and changing
demographic profiles of individuals, families and companies
o Globalization Forces-- companies benefiting from their
position as effective and strong competitors on a global
basis
o Business and Industrial Restructuring -- companies benefiting
from their restructuring or redeployment of assets and
operations in order to become more competitive or profitable
In the context of the above, the Portfolio expects to emphasize
the technological innovations that are driving the transformation of the
economy, with specific focus on:
o Information Technology;
o Communications;
o Life Sciences; and
o Information Services.
INVESTMENT PRACTICES
Borrowing. The Fund does not intend to borrow funds to make
investments in the Portfolio. The Portfolio may from time to time borrow
funds for operating purposes in an amount up to 25% of the value of its
total assets (after giving effect to the borrowing) in order to make
additional investments in existing Portfolio Companies, to maintain various
regulatory qualifications or to pay contingencies and expenses. If the
Portfolio borrows funds (other than through a private loan), distributions
to Portfolio Unitholders, including the Fund, or the repurchase of the
Portfolio Units generally is prohibited under the Investment Company Act
unless the ratio of total assets (less liabilities and indebtedness not
subject to this test) to the amount of all such borrowings is at least 200%
at the time of and after giving effect to the distribution or repurchase.
This would affect the Portfolio's ability to make distributions to its
shareholders. In general, the Portfolio does not intend to borrow for
investment purposes other than for the purpose of making additional
investments in existing Portfolio Companies and will not borrow to pay the
management fee payable to the Investment Adviser. See "Regulation."
The use of leverage even on a short-term basis will have the
effect of magnifying increases or decreases in the Portfolio's net asset
value. Also, as a condition to lending, lenders may place restrictions on
the Portfolio, which may include reserve requirements or operating
restrictions, and may limit the Portfolio's ability to make distributions.
There can be no assurance that the Portfolio will borrow when considered
desirable. The Portfolio may not be able to arrange debt financing on terms
acceptable to the Investment Adviser, the Investment Sub-Adviser and the
Portfolio's board of managers, or the Investment Adviser, the Investment
Sub-Adviser and the Portfolio's board of managers may believe borrowings
are not in the Portfolio's best interest. If the Portfolio were unable to
obtain debt financing, the Portfolio might be required to sell a portfolio
investment at an inopportune time, or to forego the purchase of an
attractive investment. In either case, the value of the Portfolio's
investment portfolio and the Units of the Fund could be adversely affected.
See "Risk Factors-- Borrowing."
Other Investment Policies. The Portfolio will not sell securities
short or on margin. Except for hedging purposes, the Portfolio will not
write puts or calls or purchase or sell commodities or commodity contracts.
The Portfolio will not underwrite the issuance of securities of other
companies except to the extent the Portfolio is deemed to be an underwriter
of any company that it invests in. Hedging instruments used to hedge Direct
Investments will be treated as Direct Investments for purposes of the
Portfolio's allocation and distribution policies.
The Portfolio will not lend its assets to any person or
individual, except through the purchase of bonds or other debt obligations
customarily sold to institutional investors. However, the Portfolio may,
subject to limitations of the Investment Company Act, lend portfolio
securities if collateral values are continuously maintained at no less than
100% by "marking to market" daily. The collateral received will consist of
cash, short-term U.S. Government securities, bank letters of credit or such
other collateral as may be permitted under the Portfolio's investment
objective and policies and by regulatory agencies and approved by the board
of managers of the Portfolio. While a loan of portfolio securities is
outstanding, the Portfolio will continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional
collateral or in recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.
The Portfolio will not invest in real estate or oil, gas or other
mineral leases, either directly or indirectly (including limited
partnership interests of entities which invest in real property or
interests in oil, gas or minerals), although the Portfolio may invest in
other entities whose business involves the holding or acquisition of real
estate or the holding or making of such leases.
The Portfolio's objective and its policies (other than its status
as a BDC) are not deemed to be fundamental policies and all may be changed
at any time and from time to time by the Portfolio's board of managers
without member approval.
The Fund has adopted certain fundamental investment restrictions
set forth in the statement of additional information which may not be
changed unless authorized by a Unitholder vote. Except for such
restrictions, the investment objective and policies of the Fund may be
changed by the Board of Managers without obtaining the approval of
Unitholders.
RISK FACTORS
The Units offered hereby involve a high degree of risk, including,
but not limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in
and affecting the business of the Fund and the Portfolio and this offering
before making an investment decision. Prospective investors should consider
the information set forth under "Management."
RISKS RELATED TO THE FUND AND THE PORTFOLIO
LACK OF OPERATING HISTORY
While the key personnel of the Investment Adviser and Investment
Sub-Adviser have considerable experience in venture capital and private
equity investing, including experience with Fund I and Fund II, the Fund
and the Portfolio have recently been formed and have no operating history
of their own upon which an investor may base an evaluation of the likely
performance of the Fund or the Portfolio. See "The Fund" and "Management."
MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION
The Portfolio will begin operations upon the receipt of proceeds
from its initial closing after the receipt of subscriptions for capital
commitments of $50,000,000. To the extent that the Portfolio makes fewer
investments, it may be subject to greater risks from developments adversely
affecting one or a limited number of issuers. If the Portfolio receives
only the minimum amount of subscriptions, it will have fewer assets to
invest and will likely acquire fewer investments than it would if it
received more Subscriptions. This would increase the Fund's and the
Portfolio's volatility and risk. See "The Offering."
RELIANCE ON THE INVESTMENT ADVISER AND INVESTMENT SUB-ADVISER
The investment decisions of the Portfolio will be made by the
Investment Adviser and the Investment Sub-Adviser. Investors will have no
right or power to take part in the management of the Fund or the Portfolio
and will not receive the detailed financial information made available by
issuers to the Investment Adviser and the Investment Sub-Adviser in
connection with the review of possible purchases for the Portfolio.
Accordingly, investors must be willing to entrust all management aspects of
the Fund and the Portfolio to the Investment Adviser and the Investment
Sub-Adviser. The investment personnel of the Investment Adviser and the
Investment Sub-Adviser consist of the same persons who are responsible for
the management of Fund I and Fund II. See "Management."
REGULATION
The Portfolio has elected to be treated as a BDC under the
Investment Company Act. The applicable provisions of the Investment Company
Act impose numerous restrictions on the activities of the Portfolio,
including restrictions on the nature of its investments, its use of
leverage and its issuance of securities, options, warrants or rights. Among
the restrictions is the requirement that a majority of the Portfolio's
board of managers be individuals who are not "interested persons" within
the meaning of the Investment Company Act and that the Portfolio must
generally invest at least 70% of its assets in securities of companies that
meet the requirements for "eligible portfolio companies" under the
Investment Company Act. In addition, a BDC must make significant managerial
assistance available to a significant number of the companies whose
securities it purchases. The Investment Adviser and Investment Sub-Adviser
believe that the constraints applicable to BDCs are consistent with the
objectives of the Portfolio. However, such constraints could prohibit the
Portfolio from investing in some potentially attractive situations that
might otherwise be available. At the same time, the Portfolio's election to
be treated as a business development company exempts it from certain
provisions of the Investment Company Act. As a result, the Portfolio
operates differently than a registered investment company and is subject to
different and potentially greater risks as compared to a registered
investment company. See "Regulation."
There are relatively few judicial decisions under and
administrative interpretations of the portions of the Investment Company
Act applicable to the Portfolio, and there can be no assurance that such
provisions will be interpreted or administratively implemented in a manner
consistent with the Fund's and the Portfolio's objectives and intended
manner of operation. In the event that the Portfolio's board of managers
determines that it cannot operate effectively as a BDC, the Portfolio's
board of managers may at some future date decide to withdraw the
Portfolio's election to be treated as a BDC and transform it into a
registered investment company or an operating company not subject to
regulation under the Investment Company Act, or cause the Portfolio to be
liquidated. The Portfolio could not operate as an operating company
unregulated under the Investment Company Act consistent with its current
investment policies. Should the Portfolio's board of managers seek to
withdraw the Portfolio's election as a BDC, it must obtain the approval of
members who represent a majority of the outstanding Portfolio Units. See
"Description of Units."
FUND/PORTFOLIO INVESTMENT STRUCTURE.
Investors should be aware that the Fund, unlike other investment
companies that directly acquire and manage their own portfolios of
securities, seeks to achieve its investment objective by investing its
assets in the Portfolio, a separate, closed-ended management investment
company with a substantially similar investment objective (the Fund may
also temporarily make investments in short-term U.S. Government
Securities). Therefore, the Fund's interest in the securities owned by the
Portfolio is indirect. In addition to selling an interest to the Fund, the
Portfolio may sell interests to other affiliated and non-affiliated
investors. Investors in the Fund should be aware that differences may
result in the returns experienced by other investors in the Portfolio.
Investors who are willing to meet the investment minimum of the Portfolio
and who desire the receipt of distributions of securities in kind rather
than in cash should consider an investment directly in the Portfolio.
The Board of Managers of the Fund has considered the advantages
and disadvantages of investing the assets of the Fund in the Portfolio, as
well as the advantages and disadvantages of the two-tier format. The
Managers believe that the structure offers opportunities for lower overall
expenses than would be the case were the Fund to invest directly in
portfolio companies.
POTENTIAL CONFLICTS OF INTEREST
The Investment Adviser, the Investment Sub-Adviser and their
affiliates may be subject to various conflicts of interest in connection
with their relationships and transactions with the Portfolio. Such
conflicts of interest include the following.
INCENTIVE CARRIED INTEREST. The Investment Adviser receives
certain allocations and distributions determined by the amount of net
realized capital gains (net of realized capital losses and net unrealized
capital depreciation) of the Direct Investments made by the Portfolio as
set forth under "Capital Accounts, Allocations and Distributions." This may
cause the Investment Adviser to select investments for the Portfolio that
involve greater risk than it would select if it did not receive a portion
of such capital gains.
CONFLICTS AS TO INVESTMENT OPPORTUNITIES. The Investment Adviser
and its affiliates may make investments for their own accounts and may be
in competition with the Portfolio for such investments. In addition, the
Investment Adviser, the Investment Sub-Adviser and their affiliates serve
as investment advisers for their fiduciary accounts and other private or
public investment vehicles that have investment objectives identical or
similar to those of the Portfolio. While the Investment Adviser and
Investment Sub-Adviser are obligated to endeavor to provide the Portfolio
with continuing and suitable investment opportunities consistent with its
investment objective and policies, the Investment Adviser and Investment
Sub-Adviser are not required to present to the Portfolio any particular
opportunity that falls within the investment objective and policies of the
Portfolio. The Investment Adviser and Investment Sub-Adviser will endeavor
to offer to the Portfolio on an equitable basis investment opportunities
that would be suitable for both the Portfolio and other accounts for which
the Investment Adviser and Investment Sub-Adviser provide discretionary
investment advisory services. The Investment Adviser and Investment
Sub-Adviser will endeavor to resolve conflicts with respect to investment
opportunities in a manner deemed equitable to all and consistent with their
fiduciary duties.
ALLOCATION OF MANAGEMENT TIME AND SERVICES. The Portfolio will not
have independent officers or employees and will rely upon the Investment
Adviser, the Investment Sub-Adviser and their affiliates for management of
the Portfolio and its assets. The Investment Adviser and Investment
Sub-Adviser believe that they and their affiliates have or can attract
sufficient personnel to discharge all of their responsibilities to the
Portfolio. Conflicts of interest may arise in allocating management time,
services or functions between the Portfolio and other entities for which
the Investment Adviser, the Investment Sub-Adviser and their affiliates may
provide similar services. The officers and employees of the Investment
Adviser and Investment Sub-Adviser will devote such time to the affairs of
the Portfolio as they, in their sole discretion, determine to be necessary
for the conduct of the business of the Portfolio.
RELATIONSHIPS WITH PORTFOLIO COMPANIES. The Investment Adviser,
Investment Sub-Adviser and their affiliates may serve as directors or
officers of or consultants to certain Portfolio Companies and, in
connection therewith, earn various fees which may be paid in the form of
cash, securities or other consideration. Any such consideration earned from
a Portfolio Company by the Investment Adviser, the Investment Sub-Adviser
or any of their officers or directors will be paid-over to the Portfolio.
In addition, the Investment Adviser, Investment Sub-Adviser and their
affiliates, will from time to time provide investment advisory, trust,
banking or insurance services to certain Portfolio Companies in connection
with their ordinary business operations. The Investment Adviser and
Investment Sub-Adviser expect that the terms of such relationships will be
consistent with the terms on which the Investment Adviser, Investment
Sub-Adviser or their affiliates generally provide such services to their
customers.
AFFILIATED TRANSACTIONS. The Investment Company Act restricts
transactions between the Portfolio and Portfolio Companies controlled by
the Portfolio and any "affiliated person" of the Portfolio (as defined in
the Investment Company Act) including, among others, the Portfolio's
officers, members of the Portfolio's board of managers, principal Portfolio
Unitholders, employees, the Investment Adviser, the Investment Sub-Adviser,
certain of their affiliated persons and other affiliates of the Portfolio.
In many cases, the Investment Company Act prohibits transactions unless the
Portfolio first applies for and obtains an exemptive order from the
Commission. Delays and costs involved in obtaining necessary approvals may
decrease the profitability of such transactions or make it impracticable or
impossible to consummate such transactions. Further, provisions of federal
and state banking regulations impose restrictions on certain types of
transactions between a bank and its affiliates. The Portfolio does not
believe that an order from the Commission would ordinarily be required for
the transactions discussed above under "Relationships with Portfolio
Companies." Certain other transactions may require an order from the
Commission. The Portfolio may in the future engage in such activities, but
does not have a present plan to do so. The Portfolio does not intend to
engage in such transactions unless it has obtained an order from the
Commission or determined that an order is not required.
Among such other activities are joint investments in Portfolio
Companies. The Investment Adviser, the Investment Sub-Adviser and their
affiliates and employees may in the future participate with the Portfolio
in joint investments in Portfolio Companies and other securities and may
make loans to, or other investments in, Portfolio Companies. Any investment
in the same security at or about the same time will be required to be on a
basis which, in the judgment of the Portfolio's board of managers, is not
more advantageous to such other persons than the basis upon which the
Portfolio participates in such joint investments, will require the prior
approval of the Portfolio's board of managers, including a majority of the
disinterested members of the Portfolio's board of managers, and may require
an order of the Commission. Because of their potentially varying investment
objectives or other factors, conflicts could arise between the Portfolio
and its affiliates relating to co-investments, which can only be resolved
through the exercise by the Investment Adviser and Investment Sub-Adviser
of such judgment as is consistent with their fiduciary duties to the
Portfolio. Even with the proper exercise of such judgment, however, there
can be no assurance that potential conflicts would be resolved in a manner
favorable to the Portfolio.
UNSPECIFIED USE OF PROCEEDS
Inasmuch as the Portfolio has not identified the particular uses
for the net proceeds from this offering other than to make investments on
the basis of opportunities as they may arise, prospective investors must
rely on the ability of the Investment Adviser and Investment Sub-Adviser to
identify and make portfolio investments consistent with the Portfolio's
investment objective. Investors will not have the opportunity to evaluate
personally the relevant economic, financial and other information which
will be utilized by the Investment Adviser and Investment Sub-Adviser in
deciding whether or not to make a particular investment or to dispose of
any such investment. See "Use of Proceeds."
FEDERAL INCOME TAXATION
TAX STATUS. At the first subscription closing, the Fund will
receive an opinion of its counsel to the effect that, under current law and
based on certain assumptions and representations, the Fund will be treated
as a partnership and not as a "publicly traded partnership" that is treated
as a corporation for federal income tax purposes. Such opinion will be
based upon the maintenance of certain factual and other conditions, the
continuation of which cannot be assured. The Portfolio will receive a
similar opinion. No ruling has been or will be sought from the IRS
regarding the status of either the Fund or the Portfolio as a partnership.
An opinion of counsel is not binding on the IRS or any court.
A limited liability company (such as the Fund or the Portfolio)
would be treated as a corporation for federal income tax purposes if it
were to become a publicly traded partnership. If the Fund or the Portfolio
(or both) were treated as a publicly traded partnership or otherwise
treated as a corporation for federal income tax purposes, material adverse
consequences for the members would result. The entity would be subject to
tax on its income at corporate tax rates, without a deduction for any
distribution to the members of such entity, thereby materially reducing the
amount of any cash available for distribution to the members. In addition,
the members of the entity would be treated as shareholders for federal
income tax purposes. Thus, capital gains and losses and other income and
deductions of the entity would not be passed through to the members, and
all distributions by the entity to its members would be treated as
dividends, return of capital and/or gains. See "Certain Federal Income Tax
Considerations - Tax Status of the Fund and the Portfolio."
TAXATION OF MEMBERS ON PROFITS AND LOSSES. The Fund and the
Portfolio, if treated as partnerships for tax purposes as discussed above,
will not themselves be subject to federal income tax. Rather, with respect
to the Fund, each member in computing his, her or its federal income tax
liability will be required to take into account his, her or its allocable
share of Fund items of income, gain, loss, deduction and expense for the
taxable year of the Fund ending within or with such taxable year of the
member, regardless of whether the member has received any distributions
from the Fund. Prospective investors should also be aware that they will be
subject to various limitations on their ability to deduct their allocable
share of Fund and Portfolio losses (or items of loss and deduction
thereof). For these and various other reasons, it is possible that a
member's federal income tax liability with respect to his, her or its
allocable share of Fund earnings in a particular year could exceed the cash
distributions to the member for the year, thus giving rise to an
out-of-pocket payment by the member. See "Certain Federal Income Tax
Considerations - Taxation of Members of the Fund."
GENERAL. In view of the complexity of the tax aspects of the
offering, particularly in light of recent changes in the law and the fact
that certain of the tax aspects of the offering will not be the same for
all investors, prospective investors must consult their own tax advisers
with specific reference to their own tax situations prior to investing in
the Fund. No assurance can be given that the current federal income tax
treatment applicable to an investment in the Fund will not be modified by
legislative, administrative or judicial action in the future. Any such
changes may retroactively affect existing transactions and investments.
Prospective investors must also consult their own tax advisers with respect
to the effects of applicable state, local and non-U.S. tax laws.
The foregoing is a summary of certain significant federal income
tax risks relating to an investment in the Fund. This summary should not be
interpreted as a representation that the matters referred to herein are the
only tax risks involved in this investment or that the magnitude of such
risks is necessarily equal. For a more detailed discussion of these and
other federal income tax risks of an investment in the Fund, see "Certain
Federal Income Tax Considerations."
LIABILITY OF MEMBERS
You will not be liable for any obligations of the Fund in excess
of your capital account balance, plus your share of undistributed profits.
However, if you receive a distribution from the Fund, and, after such
distribution, the liabilities of the Fund exceed the fair value of the
Fund's assets (and you had knowledge of this fact at the time of the
distribution) you may be required to return such distribution to the Fund.
The Fund has no intention of making such distributions. You will not have
the right to a return of the subscription amount except in accordance with
the distribution provisions of the Operating Agreement.
NO PUBLIC OR OTHER MARKET FOR UNITS
No person may become a substitute member without the written
consent of the Fund, which we may withhold for any reason in our sole and
absolute discretion. A member may transfer Units only by operation of law
pursuant to the death, bankruptcy, insolvency or dissolution of the member
or otherwise, or with the written consent of the Fund (which we may
withhold in our sole and absolute discretion and will grant, if at all,
only in extenuating circumstances) or in connection with the transfer to a
family trust or another entity that does not result in a change in
beneficial ownership. Notice to the Fund of any proposed transfer must
include evidence satisfactory to the Fund that the proposed transferee
meets any eligibility and suitability standards and must be accompanied by
properly completed transfer documents.
Any transferee that acquires Units by operation of law as a result
of death, bankruptcy, insolvency or dissolution of a member or otherwise
shall be entitled to the allocations and distributions, if any, with
respect to the Units so acquired and to transfer those Units subject to the
restrictions of the Operating Agreement, but shall not be entitled to the
other rights of a member unless and until that transferee becomes a
substituted member as provided in the Operating Agreement. If a member
transfers Units with the approval of the Fund under the policies
established by the Fund, the Fund shall promptly take all necessary actions
so that each transferee or successor to whom those Units is transferred is
admitted to the Fund as a member. Each member and transferee must pay all
expenses, including attorneys' and accountants' fees, incurred by the Fund
in connection with such transfer. See "Description of Units - Summary of
Limited Liability Company Operating Agreement."
By subscribing for Units, each member will agree to indemnify and
hold harmless the Fund, the Portfolio, the Fund's Adviser, the Distributor
and any of their affiliates and controlling persons and each other member
and any successor or assign of any of the foregoing, against all losses,
claims, damages, liabilities, costs and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any transfer made by that
member in violation of these provisions or any misrepresentation made by
that member in connection with any such transfer. A similar indemnification
is required to be made by a permitted transferee.
DISTRIBUTIONS IN KIND. The Portfolio may make distributions of
securities or other property in kind. To the extent that the Fund receives
distributions in kind from the Portfolio, the Fund intends ordinarily to
retain such assets until the Fund's Adviser determines that it is
advantageous to dispose of such assets. The Fund may, however, also make
distributions in kind. To the extent that the Fund does so, you will incur
additional expenses when you determine to dispose of such securities or
other assets. In addition, the determination of whether and when to dispose
of such securities or other assets will be your responsibility. Such
securities or other property may be worth more or less when you dispose of
them than their value at the time of distribution. Although the Fund
generally intends to distribute securities prior to liquidation only if
such securities are traded in an active secondary market, without
registration such securities may be subject to a minimum holding period or
other limitations on resale.
GENERAL RISKS OF INVESTMENTS
RISK OF PRIVATE EQUITY INVESTMENTS
While the Portfolio will be a non-diversified company as defined
by the Investment Company Act, it does not expect to invest more than 10%
of its total assets in any one Portfolio Company. The Portfolio's
investments in Private Funds serve to further diversify its holdings. Since
the Portfolio's assets may be concentrated in relatively few investments,
substantial declines in the values of its investments could have a material
adverse effect on the net asset value of the Portfolio. Although private
equity investments offer the opportunity for significant capital gains,
such investments involve a high degree of business and financial risk that
can result in substantial losses. Among these are the risks associated with
investments in companies in an early stage of development or with little or
no operating history, companies operating at a loss or with substantial
variation in operating results from period to period, companies with the
need for substantial additional capital to support expansion or to maintain
a competitive position or companies with significant financial leverage.
Such companies may also face intense competition from others including
those with greater financial resources, more extensive development,
manufacturing, distribution or other attributes over which the Portfolio
will have no control. The Portfolio anticipates that it may also make
investments in high-technology companies that may face risks of product
obsolescence.
ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS
Because of the competition for investments that meet the
requirements for "qualifying assets," the Portfolio anticipates that it may
take up to four years before it is fully invested or committed to invest in
Portfolio Companies. Private equity investments may typically take from two
to seven years from the date of initial investment to reach a state of
maturity at which disposition can be considered. In light of the foregoing,
it is unlikely that any significant distribution of the proceeds from the
disposition of private equity investments will be made until the later
years of the Portfolio's term.
The Portfolio's private equity investments will consist primarily
of securities that are subject to restrictions on sale by the Portfolio
because they were acquired from the issuer in "private placement"
transactions or because the Portfolio is deemed to be an affiliate of the
issuer. Generally, the Portfolio cannot sell these securities publicly
without the expense and time required to register the securities under the
Securities Act or sell the securities under Rule 144 or other rules under
the Securities Act which permit only limited sales under specified
conditions. When restricted securities are sold to the public, the
Portfolio may be deemed an "underwriter" or possibly a controlling person
under the Securities Act and be subject to liability as such under the
Securities Act.
In addition, contractual or practical limitations may inhibit the
Portfolio's ability to sell, distribute or liquidate its investments in
Portfolio Companies because the issuers are privately held, because the
Portfolio owns a relatively large percentage of the issuer's outstanding
securities or because joint venture associates, other investors, financial
institutions or management are relying on the Portfolio's continued
investment. Sales may also be limited by financial market conditions, which
may be unfavorable for sales of securities of particular issuers or issuers
in particular markets. The above limitations on liquidity of the
Portfolio's investments could prevent a successful sale and result in the
delay of any sale or reduction in the amount of proceeds that might
otherwise be realized. Although the Portfolio will reflect these
restrictive factors in the valuation of its investments, no assurance can
be given that the estimated values will represent the return that might
ultimately be realized by the Portfolio from the investment. See "Valuation
of Portfolio Securities." The Fund's investment in the Portfolio will also
be illiquid in that there are substantial restrictions as to transfer of
Portfolio Units.
NEED FOR FOLLOW-ON INVESTMENTS
Following its initial investments in Portfolio Companies, the
Portfolio anticipates that it may be called upon to provide additional
funds to Portfolio Companies or have the opportunity to increase
investments in successful operations. Although the Portfolio may borrow to
make follow-on investments, there is no assurance that the Portfolio will
make follow-on investments or that the Portfolio will have sufficient funds
to make such investments. Any decision by the Portfolio not to make
follow-on investments or its inability to make them may have a substantial
impact on Portfolio Companies in need of such an investment or may result
in a missed opportunity for the Portfolio to increase its participation in
a successful operation.
COMPETITION FOR INVESTMENTS
The Portfolio expects to encounter competition from other entities
having similar investment objectives. Historically, the primary competition
for venture capital, buyout and other private equity investments has been
from venture capital, buyout and private equity partnerships and
corporations, private equity affiliates of large industrial and financial
companies, small business investment companies and wealthy individuals. The
Portfolio will frequently be a co-investor with other professional venture
capital, private equity or leveraged buyout groups including several in
which the Portfolio may be an investor. These relationships with other
groups should expand the Portfolio's access to investment opportunities.
In addition, it is possible that there may be circumstances under
which an additional investment would be considered an affiliated
transaction, requiring prior Commission approval. The receipt of an
exemptive order from the Commission could be time consuming and costly, and
there can be no assurance that such approval would be obtained.
INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES
Under current market conditions, the Portfolio plans to focus on
investments in companies that rely significantly on technological events or
advances in their product development, production or operations. The value
of the Portfolio Units may be susceptible to factors affecting technology
and technology-related industries and to greater risk and market
fluctuation than an investment in a fund that invests in a broader range of
portfolio securities. The specific risks faced by technology companies
include:
o rapidly changing technologies and products that may quickly
become obsolete;
o changing investor sentiments and preferences with regard to
technology sector investments (which are generally perceived
as risky);
o cyclical patterns in information technology spending which
may result in inventory write-offs;
o scarcity of management, engineering and marketing personnel
with appropriate technological training;
o the possibility of lawsuits related to technological patents
and intellectual property; and
o exposure to a high degree of government regulation, making
these companies susceptible to changes in government policy
and failures to secure regulatory approvals.
BORROWING
The Fund does not intend to borrow to invest in the Portfolio, and
the Portfolio does not intend to borrow funds for investment purposes.
However, the Portfolio may borrow funds to facilitate the making of
follow-on investments, to maintain various regulatory qualifications or to
pay contingencies and expenses. The Portfolio will not borrow to pay the
advisory fee payable to the Investment Adviser. The Portfolio is permitted
under the Investment Company Act to borrow funds if, immediately after the
borrowing, it will have an asset coverage (as defined in the Investment
Company Act) of at least 200%. The amount and nature of any borrowings will
depend upon a number of factors over which neither the Portfolio's board of
managers nor the Investment Adviser has control, including general economic
conditions, conditions in the financial markets and the impact of the
financing on the tax treatment of the members. Subject to the foregoing,
the Portfolio may borrow funds in an amount up to 25% of the value of its
total assets (after giving effect to the proceeds from the borrowing).
See "Investment Objective and Policies-- Borrowing" and "Regulation."
Although the Portfolio does not intend to borrow funds to make
initial investments, the use of leverage even on a short-term basis could
have the effect of magnifying increases or decreases in the Portfolio's net
asset value. The Portfolio also expects that, as a condition to lending,
lenders may place restrictions on the Portfolio, which may include reserve
requirements or operating restrictions, and may limit the ability of the
Portfolio to make distributions to members. There can be no assurance that
debt financing will be available on terms that the Investment Adviser,
Investment Sub-Adviser or the Portfolio's board of managers consider to be
acceptable and in the best interests of the Portfolio. If borrowing is
unavailable, the Portfolio may be required to make an untimely disposition
of an investment.
LACK OF DIVERSIFICATION
The Fund and the Portfolio intend to operate as non-diversified
investment companies within the meaning of the Investment Company Act and,
therefore, the Fund and the Portfolio's investments may not be
substantially diversified. In any event, the Fund and the Portfolio will
not be able to achieve the same level of diversification as much larger
entities engaged in similar activities. The Fund's and the Portfolio's
assets may be subject to greater risk of loss than if they were more widely
diversified, inasmuch as the failure of one or more of a limited number of
investments could have a greater adverse effect on the Portfolio than the
failure of one of a large number of investments. The net asset value of a
non-diversified company may be more volatile than in the case of a
diversified company. See "Investment Objective and Policies."
THE OFFERING
The Fund is offering investors the opportunity to subscribe to
make capital contributions to the Fund in exchange for membership interests
in the Fund (the "Units"). The Fund is offering up to 400,000 Units through
Charles Schwab & Co., Inc., as principal distributor. The Distributor is
under common control with an affiliate of the Investment Adviser and
Investment Sub-Adviser. Units may be sold by the Distributor to investors
through financial intermediaries acting as broker or agent for their
customers. The Fund's Adviser or an affiliate will pay the Distributor from
its own assets, and not the assets of the Fund, an amount equal to 0.02% of
the total of all subscriptions received in this offering. The Fund's
Adviser or an affiliate, out of its own assets and not the assets of the
Fund, may compensate Selling Agents who sell Units of the Fund to
investors. The Fund's Adviser or an affiliate will also pay the
Distributor, to the extent that investors are introduced to the Fund
through the Distributor, an ongoing fee for the sale of Units and the
provision of ongoing investor services in an amount equal to the annual
rate through the fifth anniversary of the final subscription closing date
of 0.45% of the average quarterly net asset value of all outstanding Units
held by investors introduced to the Fund by the Distributor and at the
annual rate of 0.22% thereafter, subject to elimination upon all such fees
totaling 6.5% of the gross proceeds received by the Fund from this
offering. Such ongoing investor services may include: answering questions
from the Distributor's clients or their advisers concerning the Fund and
its operations; providing information to the Distributor's clients or their
advisers at the request of the Fund or the Fund's Adviser; consulting upon
request with the Fund, the Board of Managers or the Fund's Adviser
concerning investor relations; and providing such other investor relations
services as the Fund's Adviser may reasonably request. The offering will
terminate December 31, 2000, subject to extension by the Board of Managers
to a date not later than May 11, 2001. If subscriptions for at least
$50,000,000 have not been received by the Termination Date, the offering
will terminate and all proceeds from the offering will be refunded to
investors with any interest earned thereon and without any deductions. See
"Risk Factors -- Minimum Proceeds; Portfolio Diversification." The minimum
subscription is $25,000. We have the right to waive the minimum at our
discretion.
Each investor will be required to complete, execute and deliver to
the Fund an executed copy of the Subscription Agreement, which will form a
binding contract of the investor. The Fund will not commence accepting
subscriptions until the Portfolio has set a date for its first closing. The
Fund intends to notify you of the date upon which it will begin accepting
subscriptions. Any subscriptions received before such date will be returned
promptly. Pursuant to the Subscription Agreement your subscription amount
is required to be paid on or before the final subscription closing date
(not later than December 31, 2000, subject to extension). Units may be
purchased only by persons who represent to the Fund that the value of their
total assets (exclusive of their principal residence) less their total
liabilities is at least $500,000 and that the amount that they are
subscribing for does not exceed 10% of their total assets less their total
liabilities, and who make the other representations included in the
Subscription Agreement to be entered into by each investor.
Payments transmitted by subscribers to the Fund, or to the Selling
Agents, for investment in the Fund prior to the applicable closing date
will be deposited in an interest-bearing bank escrow account with PNC Bank,
Delaware pending each closing. Any checks should be made payable to PNC
Bank Delaware, as "Escrow Agent," and must be transmitted by Selling Agents
directly to PFPC Inc. as Escrow Administrator by noon of the next business
day after receipt. Funds deposited into escrow accounts will be invested in
accordance with Rule 15c2-4 of the Exchange Act until the relevant
subscription closing or the termination of the offering. In the event the
Fund rejects a subscriber's Subscription Agreement or a subscriber elects
to withdraw his subscription prior to his or her subscription closing date,
PFPC Inc. will promptly deliver to such subscriber all funds received; any
interest earned on such funds will be returned within five business days of
the next subscription closing after such rejection or withdrawal.
We expect that a first subscription closing will be held on or
about the fifth business day after receipt of subscriptions totaling at
least $50,000,000. The Fund may continue to offer the remaining unsold
Units and accept subscriptions for such Units from time to time at
subsequent closings until the Termination Date. Within five business days
after each closing, PFPC Inc. will mail to each subscriber checks in the
respective amounts of interest earned by funds held in escrow. If the
minimum of $50,000,000 subscriptions are received, any charges or expenses
associated with the escrow account will be paid by the Fund's Adviser or an
affiliate.
USE OF PROCEEDS
The net proceeds to the Fund from this offering will be
$200,000,000 if all Units are sold and before deducting organizational and
initial offering expenses estimated to be approximately $307,800.
Organizational and offering expenses will be payable from the offering
proceeds and will be deducted from members' capital accounts. Charles
Schwab & Co., Inc., the Fund's principal distributor, has agreed to pay the
Fund's organizational costs, estimated to be $10,000 in the event that the
Fund receives subscriptions totaling less than $75,000,000. If the Fund
receives subscriptions totaling $75,000,000 or more, the Fund will pay its
own organizational expenses.
The Fund expects to invest substantially all of the proceeds from
this offering in Excelsior Venture Partners III, LLC (the "Portfolio")
within 30 days of the Termination Date (expected to be December 31, 2000,
subject to extension). The Fund and the Portfolio share substantially the
same investment objective and policies. Pending investment and for
short-term cash management purposes, the Fund may invest in short-term U.S.
Government securities.
It is anticipated that there will be a significant period of time
(up to four years) before the Portfolio becomes fully invested. Although
the Portfolio intends to invest or commit to invest more than 50% of the
proceeds from the offering in Venture Capital Investments within the
earlier of (i) two years after the final subscription closing date and (ii)
two and one-half years after the commencement of this offering, a delay is
common for BDCs because of the competition for investments in entities that
meet the requirements for "qualifying assets" under the Investment Company
Act. Further, investments in Venture Capital Investments and other Direct
Investments may typically take from two to seven years from the date of
initial investment to reach a state of maturity at which disposition can be
considered. In light of the foregoing, it is unlikely that any significant
distribution of the proceeds from the disposition of Venture Capital
Investments and other Direct Investments will be made until the later years
of the existence of the Portfolio. See "Risk Factors - Illiquidity of
Private Equity Investments."
MANAGEMENT
INVESTMENT ADVISERS; COMPENSATION
Investment Advisers. U.S. Trust Company, a Connecticut state
chartered bank and trust company, will serve as the investment adviser of
the Fund (the "Fund's Adviser"). U.S. Trust Company will also serve as the
Investment Adviser of the Portfolio pursuant to an investment advisory
agreement with the Portfolio. United States Trust Company of New York, a
New York state chartered bank and trust company, will serve as the
Investment Sub-Adviser of the Portfolio pursuant to an investment
sub-advisory agreement with the Investment Adviser and the Portfolio. U.S.
Trust Company and United States Trust Company of New York are wholly owned
subsidiaries of U.S. Trust Corporation, a registered bank holding company.
The Investment Adviser or Investment Sub-Adviser have been the investment
advisers to Fund I and Fund II, each a registered BDC, since September 1994
and March 1997, respectively. The investment management personnel of the
Investment Adviser and Investment Sub-Adviser consist of the same persons
that perform the investment management functions for Fund I and Fund II.
U.S. Trust Company's principal business address is 225 High Ridge Road,
Stamford, Connecticut 06905. United States Trust Company of New York's
principal business address is 114 West 47th Street, New York, New York
10036. On December 31, 1999, U.S. Trust's Asset Management Group, which
includes U.S. Trust Company and United States Trust Company of New York and
other affiliates of U.S. Trust Corporation, had approximately $86 billion
in assets under management.
Under the supervision of the Board of Managers, the Fund's Adviser
is responsible for managing the Fund's temporary investments in U.S.
Government securities and for managing the disposition of assets
distributed to the Fund in kind from the Portfolio. The Fund's Adviser is
also responsible for providing or arranging for management and
administrative services for the Fund.
Under the supervision of the Portfolio's board of managers, the
Investment Adviser and Investment Sub-Adviser are responsible for finding,
evaluating, structuring and monitoring the Portfolio's investments and for
providing or arranging for management and administrative services for the
Portfolio. The investment professionals in charge of the day-to-day
management of the Portfolio have extensive experience in venture capital
and private equity investing. See "Board of Managers, Officers and
Investment Professionals" below.
U.S. Trust Corporation is an indirect, wholly owned subsidiary of
The Charles Schwab Corporation ("Schwab"). Through its principal
subsidiary, Charles Schwab & Co., Inc., Schwab is the nation's fourth
largest financial services firm and the nation's largest electronic
brokerage firm, in each case, as measured by customer assets. At December
31, 1999, Schwab served 6.6 million active accounts with $725 billion in
customer assets through 340 branch offices, four regional customer
telephone service centers and automated telephone online channels.
Approximately 30% of Schwab's customer assets and approximately 13% of its
customer accounts are managed by 5,800 independent, fee-based investment
advisers served by Schwab's institutional investor segment. Charles R.
Schwab is the founder, Chairman, Co-Chief Executive Officer, a director and
significant shareholder of Schwab.
Management Fees. The Fund will pay the Fund's Adviser an
investment advisory fee equal to 0.1% of the Fund's net assets that are not
represented by the Fund's investment in the Portfolio. The Fund will not
pay the Fund's Adviser a management fee on assets invested in the
Portfolio. The Portfolio will pay the Investment Adviser, on a quarterly
basis, a management fee at an annual rate equal to 2.00% of the Portfolio's
average quarterly net assets through the fifth anniversary of the
Portfolio's first closing date and at an annual rate of 1.00% of net assets
thereafter. The management fee is payable in arrears on the last day of
each fiscal quarter. The Investment Adviser has agreed to waive the
management fee during the subscription period, which will end on the final
subscription closing date. Pursuant to the Investment Sub-Advisory
Agreement, the Investment Adviser pays an investment management fee to the
Investment Sub-Adviser.
Investment Advisory Agreement. The Fund will enter into an
investment advisory agreement with the Fund's Adviser. The Fund's
Investment Advisory Agreement provides that the Fund's Adviser shall,
subject to the supervision of the Fund's Board of Managers, identify,
monitor and dispose of the Fund's investments and provide management and
administrative services. Such administrative services may include:
providing the Fund with office space, equipment, facilities, supplies and
clerical services; keeping and maintaining the books and records of the
Fund, administering capital accounts and handling communications and
correspondence with members, preparing accounting, management and other
reports; and providing such other managerial and administrative services as
may be reasonably requested by the Fund. The Fund also uses the services of
an administrator, PFPC Inc.
Under the Fund's Investment Advisory Agreement, the Fund is
obligated to bear all costs and expenses directly allocable and
identifiable to the Fund or its business' or investments, including, but
not limited to, fees and expenses of the Board of Managers; fees and
expenses of the Fund's Adviser; fees and expenses of registering the Fund's
Units under federal and state securities laws; interest; taxes; fees and
expenses of the Fund's legal counsel and independent accountants; fees and
expenses of the Fund's administrator (PFPC Inc.), transfer agent and
custodian; expenses of printing and mailing Unit certificates, reports to
members, notices to members and proxy statements; reports to regulatory
bodies; brokerage and other expenses in connection with the execution,
recording and settlement of portfolio security transactions; expenses in
connection with the acquisition and disposition of portfolio securities or
the registration of privately issued portfolio securities; costs of third
party evaluations or appraisals of the Fund (or its assets) or its actual
investments; expenses of membership in investment company and other trade
associations; expenses of fidelity bonding and other insurance premiums;
expenses of members' meetings; fees payable to the National Association of
Securities Dealers, Inc. (the "NASD"), if any, in connection with this
offering; indemnification costs and expenses; fees and expenses of legal
counsel to the members of the Board of Managers who are not interested
persons of the Fund (within the meaning of the Investment Company Act); and
the Fund's other business and operating expenses.
The Fund's Investment Advisory Agreement provides for
indemnification by the Fund of the Fund's Adviser, its affiliates and their
officers, directors, employees, members and agents from any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees
and expenses) incurred by them in connection with, or resulting from, their
actions or inactions in connection with the performance of, or under, the
Fund's Investment Advisory Agreement. Indemnification is only available to
the extent the loss, claim, damage, liability or expense did not result
from willful misfeasance, bad faith or gross negligence in the performance
by the persons seeking indemnification of their duties under the Fund's
Investment Advisory Agreement, or the reckless disregard of their
obligations and duties under the Fund's Investment Advisory Agreement.
The Fund's Investment Advisory Agreement provides that it will
continue in effect for two years and that, after the initial period of
effectiveness will continue in effect for successive annual periods,
provided that such continuance is specifically approved at least annually
by the vote of a majority of the Board of Managers of the Fund who are not
parties to the agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such continuance,
and either: (i) the vote of a majority of the outstanding Units of the
Fund; or (ii) the vote of a majority of the full Board of Managers of the
Fund. The Fund's Investment Advisory Agreement also provides that it be
terminated at any time, without the payment of any penalty, either by: (i)
the Fund, by action of the Board of Managers or by vote of a majority of
the outstanding Units of the Fund, on 60 days' written notice to the Fund's
Adviser; or (ii) the Fund's Adviser on 90 days' written notice to the Fund.
The Fund's Investment Advisory Agreement will terminate immediately in the
event of its "assignment" (as defined in the Investment Company Act).
The Portfolio has entered into substantially similar investment
advisory agreements with the Investment Adviser and the Investment
Sub-Adviser.
INVESTMENT OPERATIONS
The Investment Adviser and/or the Investment Sub-Adviser will
initiate, screen and monitor the Portfolio's investments.
Direct Investments will typically be structured in negotiated,
private transactions directly with the issuer. The Portfolio's investments
will generally consist of non-publicly traded equity and equity-like
securities, including common stock, preferred stock, limited partnership
interests, limited liability company interests, warrants and convertible
debentures, subject to certain regulatory and other restrictions. In
connection with most Portfolio investments, the Portfolio will work with
the Portfolio Company to develop and implement the Portfolio Company's
long-term financial strategy and to enhance its value.
The Investment Committee, which consists of senior investment
professionals of the Investment Sub-Adviser, will make the final investment
decisions regarding any investment proposal made by the Investment Adviser
or Investment Sub-Adviser.
Deal Origination. Investment proposals may come to the attention
of the Investment Adviser or Investment Sub-Adviser from many sources
including unsolicited proposals from the public, personal contacts of the
Investment Adviser, Investment Sub-Adviser or their affiliates, other
private equity investors and referrals from investment banks, commercial
banks, lawyers, accountants and other members of the financial community,
including U.S. Trust personnel. The Investment Adviser and the Investment
Sub-Adviser believe that investment opportunities may also come from
several venture capital and private equity funds of which they or any of
their affiliates may be an investor. Under certain circumstances, such
opportunities may require prior exemptive relief from the Commission. See
"Risk Factors --Potential Conflicts of Interest" and "Regulation."
Evaluation of Investment Opportunities. Prior to committing funds
to an investment opportunity, a disciplined investment process is
undertaken which includes a legal, financial, tax, industry and company due
diligence investigation by the Investment Adviser and/or the Investment
Sub-Adviser to assess the prospects and risks of the potential investment.
The experience and expertise of the officers of the Investment Adviser and
the Investment Sub-Adviser will be essential in evaluating products,
markets, industry trends, financial requirements, competition and the
management team associated with a prospective investment. Each investment
will be approved by the Investment Committee.
Structuring of Investments. The terms and conditions of the
investments acquired will result from negotiations directly with the
Portfolio Company or an affiliate thereof. The Investment Adviser or the
Investment Sub-Adviser will be responsible for conducting such negotiations
on behalf of the Portfolio and will seek to structure the terms of the
investment to provide for the capital needs and success of the issuer and
at the same time to maximize the Portfolio's opportunity for long-term
capital appreciation. An important factor in successful private equity
investing is proper structuring of the transaction in terms of such matters
as price, type of security, restrictions on use of funds, commitments or
rights to provide additional financing, control and involvement in the
issuer's business and liquidity.
Management Assistance and Monitoring of Investments. Successful
business development investing requires active monitoring and participation
and influence on major financial decisions. Representatives of the
Portfolio, the Investment Adviser or the Investment Sub-Adviser and their
affiliates will frequently serve as members of the boards of directors or
advisory boards of Portfolio Companies or will have visitation rights to
those companies. Board representation, as well as a close working
relationship with the operating management, should enable the Portfolio to
exercise influence and provide management assistance with respect to such
matters as capital structure, budgets, profit goals, diversification
strategy, financing requirements, management additions or replacements and
developing a public market for the securities of the Portfolio Companies.
The close tracking of internal financial statements and progress reports,
as well as an active working relationship with management, form the basis
of effective portfolio monitoring and risk management.
Liquidation of Investments. In order to realize the benefits of
capital appreciation, private equity investments must be liquidated. The
method and timing of the liquidation of investments are critical elements
to maximizing portfolio return. The Portfolio expects to liquidate its
investments through a variety of transactions, including mergers,
negotiated sales of Portfolio Companies, sales in registered public
offerings, sales in the public markets of registered securities and
recapitalizations. In structuring the investments, the Investment Adviser
or the Investment Sub-Adviser will endeavor to reach such understanding
with the Portfolio Company or its affiliates as may be appropriate as to
the method and timing of liquidation of the Portfolio's investments and
will usually seek to obtain registration rights at the expense of the
issuer and reporting compliance for eligible companies under Rule 144 under
the Securities Act. Timing of divestiture or liquidation depends on the
performance of the Portfolio Company, the ability of the Portfolio Company
to refinance its outstanding securities and other financial market
opportunities. See "Risk Factors -- Illiquidity of Private Equity
Investments." The Portfolio will bear the costs of liquidating investments
to the extent that such expenses are not paid by the issuer. The Portfolio
may as an alternative to liquidating certain investments distribute such
investments in kind. Prior to liquidation of the Portfolio, the Portfolio
intends to distribute in kind only securities that may be resold without
registration under the Securities Act and for which an active trading
market exists. The Fund ordinarily intends to liquidate such assets
directly, rather than distributing such assets in kind to investors.
Distributions in kind involve certain expenses and risks. See "Risk Factors
-- Distributions In Kind."
ADMINISTRATOR
The Administrator, PFPC Inc., performs certain administration,
accounting and investor services for the Fund and the Portfolio. In
consideration for these services, the Fund (i) pays the Administrator a
variable fee between 0.065% and 0.03% based on average quarterly net
assets, subject to a minimum quarterly fee of approximately $30,000, (ii)
pays annual fees of approximately $11,000 for taxation services and (iii)
will reimburse the Administrator for out-of-pocket expenses. The Portfolio
pays the Administrator a variable fee between 0.105% and 0.07% based on
average quarterly net assets, subject to a minimum quarterly fee of
approximately $30,000, (ii) pays annual fees of approximately $11,000 for
taxation services and (iii) will reimburse the Administrator for
out-of-pocket expenses.
BACKGROUND
The following list includes all the private companies and private
funds in which Fund I and Fund II have invested as of October 31, 2000.
Except as otherwise noted, unrealized gain/(loss) and total value reflect
the values assigned for purposes of determining the net asset values of
Fund I and Fund II. The values of securities for which no active trading
market exists or which are subject to material restrictions on resale
reflect fair value as determined pursuant to such fund's valuation policies
except as otherwise noted. All or substantially all of the investments
listed below are valued at fair value. The list is intended to illustrate
the types of investments with which the Investment Adviser and Investment
Sub-Adviser have experience.
<TABLE>
<CAPTION>
SUMMARY OF DIRECT INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF OCTOBER 31, 2000
(UNAUDITED)
TOTAL VALUE
AVERAGE (COST BASIS AND REALIZED
HOLDING COST REALIZED UNREALIZED GAIN/(LOSS) AND
DIRECT INVESTMENTS PERIOD (YEARS) BASIS GAIN/(LOSS) GAIN/(LOSS) UNREALIZED GAIN/(LOSS))
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
INVESTMENTS REALIZED AND/OR PUBLIC
COMPANIES
<S> <C> <C> <C> <C> <C>
Accrue Software, Inc. (NeoVista)* 2.7 $ 1,038,488 $ 680,572 (371,664) $ 1,347,397
CommSite International, Inc. 2.6 2,718,750 106,058 - 2,824,808
Corsair Communications, Inc. 2.7 3,000,003 1,743,843 - 4,743,846
Curon Medical, Inc. ** 1.0 6,124,144 - 19,935,000 26,059,144
LifeMinders, Inc. *** 1.4 11,499,997 25,208,441 30,395,298 67,103,737
QuickLogic Corporation 3.9 3,000,000 5,389,571 163,101 8,552,672
Rental Services Corp. 1.7 985,000 2,086,479 - 3,071,479
Signius Corporation 3.1 3,418,146 (3,414,128) - 4,018
Softcom Microsystems, Inc. 1.0 4,178,649 11,241,816 - 15,420,465
WNP Communications, Inc. 0.9 5,877,855 13,338,276 - 19,216,131
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
SUB-TOTAL $ 41,841,032 $ 56,380,929 $ 50,121,736 $ 148,343,696
PRIVATE COMPANIES
Advantage Schools, Inc. 2.0 $ 5,119,422 $ $ 6,264,725 $ 11,384,147
-
Best Friends Pet Care, Inc. 3.5 3,525,000 - (1,762,500) 1,762,500
BPA Systems, Inc. 0.4 5,000,000 - - 5,000,000
Captura Software, Inc. 1.7 4,799,998 - 3,078,260 7,878,258
Classroom Connect, Inc. 1.9 7,999,951 - 1,819,965 9,819,915
ePod Corporation 0.6 2,099,998 - 1,071,240 3,171,239
firstsource Corporation 0.7 10,000,000 - - 10,000,000
KillerBiz, Inc. 0.8 750,000 - - 750,000
LogicVision, Inc. 2.9 1,549,499 - 106,208 1,655,707
MarketFirst Software, Inc. 1.0 6,799,543 - - 6,799,543
MySeasons.com, Inc. 0.7 2,000,100 - - 2,000,100
PowerSmart, Inc. 2.5 9,926,843 - 9,014,329 18,941,172
Protogene Laboratories, Inc. 0.8 5,680,000 - - 5,680,000
ReleaseNow.com Corp. 2.2 6,810,039 - 2,646,106 9,456,145
SurVivaLink Corporation 2.1 7,584,999 - - 7,584,999
Zeus Wireless, Inc. 0.9 5,000,001 - - 5,000,001
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
SUB-TOTAL $ 84,645,394 $ - $ 22,238,332 $ 106,883,726
INVESTMENTS WRITTEN OFF
AbTox, Inc. 3.2 $ 2,800,001 $ $ (2,800,001) $ -
-
Cardiopulmonary Corporation 3.6 2,150,000 - (2,150,000) -
Constellar Corporation 2.3 6,999,995 - (6,999,995) -
Managemark, Inc. 1.4 5,500,002 - (5,500,002) -
P2 Holdings Corp. 1.3 2,750,000 (2,750,000) - -
Party Stores Holdings, Inc. 1.4 2,055,206 (2,055,206) - -
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
SUB-TOTAL $ 22,255,204 $ (4,805,206) $ (17,449,998) $ -
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
TOTAL - ALL DIRECT INVESTMENTS 1.8 $148,741,630 $ 51,575,723 $ 54,910,070 $ 255,227,422
------------------------------------- --------------- ---------------- ---------------- -------------- --------------------------
* Fund I owns both restricted and unrestricted stock. Fund I's holdings of restricted stock are valued at a 20%
discount to the public market valuation shown in the table.
** Fund II's holdings are restricted as to resale and are valued at a 25% discount to the public market valuation
shown in the table.
*** Fund II's holdings are restricted as to resale and are valued at a 20% discount to the public market valuation
shown in the table.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY OF FUND INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF OCTOBER 31, 2000
(UNAUDITED)
TOTAL VALUE
(COST BASIS AND
CAPITAL COST REALIZED UNREALIZED REALIZED GAIN/(LOSS) AND
FUND INVESTMENTS COMMITTED BASIS GAIN/(LOSS) GAIN/(LOSS) UNREALIZED GAIN/(LOSS))
----------------------------------------- --------------- --------------- ------------- ---------------- -------------------------
<S> <C> <C> <C> <C> <C>
Advanced Technology Ventures V $ 3,000,000 $ 2,625,000 $ 283,911 $ 1,304,152 $ 4,213,064
Allegra Capital Partners III 2,000,000 2,000,000 2,439,444 2,081,878 6,521,321
Brand Equity Ventures 2,500,000 2,250,000 496,877 709,960 3,456,837
Brentwood Associates Buyout Fund II 2,000,000 2,000,000 - 161,227 2,161,227
Brentwood Associates III 5,000,000 1,986,642 - (182,897) 1,803,745
Broadview Capital II 5,000,000 2,250,000 - (111,964) 2,138,036
Bruckmann, Rosser, Sherrill 2,000,000 2,000,000 - 386,593 2,386,593
Commonwealth Capital Ventures II 4,000,000 3,000,000 1,349,294 94,160 4,443,453
Communications Ventures III 5,000,000 5,000,000 - 16,656,414 21,656,414
Friedman, Fleischer & Lowe 5,000,000 1,359,295 - (216,265) 1,143,030
Mayfield Fund X 5,000,000 4,250,000 134,556 2,421,425 6,805,981
Mid-Atlantic Venture Fund III 5,000,000 4,650,000 - 4,255,640 8,905,640
Morgenthaler Venture Partners IV 2,000,000 2,000,000 1,655,047 3,469,449 7,124,496
Morgenthaler Venture Partners V 8,000,000 6,400,000 279,025 10,129,788 16,808,812
Quad-C Partners V 5,000,000 3,419,719 - 812,174 4,231,893
Sevin Rosen Fund V 2,000,000 2,000,000 1,410,385 3,374,934 6,785,319
Sevin Rosen Fund VI 2,500,000 2,387,500 3,594,693 3,251,697 9,233,891
Trinity Ventures VI 3,000,000 2,830,802 5,705 2,365,186 5,201,693
Vanguard Venture Partners V 2,000,000 2,000,000 4,256,492 3,346,422 9,602,914
----------------------------------------- --------------- --------------- ------------- ---------------- -----------------------
TOTAL - ALL FUND INVESTMENTS $ 70,000,000 $ 54,408,958 $ 15,905,428 $ 54,309,973 $ 124,624,358
----------------------------------------- --------------- --------------- ------------- ---------------- -----------------------
----------------------------------------- --------------- --------------- ------------- ---------------- -----------------------
TOTAL - ALL INVESTMENTS $203,150,588 $ 67,481,150 $ 109,220,042 $ 379,851,780
----------------------------------------- --------------- --------------- ------------- ---------------- -----------------------
</TABLE>
INVESTMENTS REALIZED AND/OR PUBLIC COMPANIES
Accrue Software, Inc., Cupertino, CA ("Accrue")
Initial Investment Date: June 1997
Total Investment: $1.0 million
Total Investment Value:* $1.3 million
In January 2000, Accrue (NASDAQ: ACRU) acquired NeoVista in
exchange for 2.4 million shares of Accrue stock. NeoVista develops
data mining software and applications related to customer
relationship management. Data mining allows companies to discover
non-obvious relationships by applying various algorithms to data
stored in databases and data warehouses and is applied to
inventory management, customer profiling, behavior prediction and
fraud detection.
*Fund I owns both restricted and unrestricted stock. Fund I's
holdings of restricted stock are valued at a 20% discount to the
public market valuation shown.
CommSite International, Inc., Vienna, VA ("CommSite")
Initial Investment Date: April 1996
Total Investment: $2.7 million
Total Proceeds: $2.8 million
CommSite is a provider of wireless towers and construction
services. On May 13, 1999, American Tower Corporation, a publicly
traded company, acquired CommSite.
Corsair Communications, Inc., Palo Alto, CA ("Corsair")
Initial Investment Date: October 1996
Total Investment: $3.0 million
Total Investment Value: $4.7 million
Corsair (NASDAQ: CAIR) is a wireless communication infrastructure
company providing pre-paid wireless handset and fraud detection
software and services. Fund I has sold all of its shares.
Curon Medical, Inc., Sunnyvale, CA ("Curon")
Initial Investment Date: August 1999
Total Investment: $6.1 million
Total Investment Value:** $26.1 million
Curon (NASDAQ: CURN) develops and markets medical devices for the
treatment of gastrointestinal diseases using radio frequency
delivered through a catheter. Curon has developed a product
targeting gastroesophageal reflux disease that received 510(k)
clearance from the Food and Drug Administration in April 2000. On
September 28, 2000 Curon completed its initial public offering of
5,000,000 shares of its common stock at a price of $11 per share.
Fund II invested $6.1 million in Curon and currently holds
2,280,000 shares at an average cost of $2.63 per share and the
Company's stock, as of October 31, 2000, was trading at $113/8 per
share.
**Fund II's holdings are restricted as to resale and are valued at
a 25% discount to the public market valuation shown.
LifeMinders, Inc., Herndon, VA ("LifeMinders")
Initial Investment Date: February 1999
Total Investment: $11.5 million
Total Investment Value:*** $67.1 million
LifeMinders (NASDAQ: LFMN) is an online direct marketing company
that provides personalized information or content and
advertisements via email to a community of members. Email messages
contain helpful reminders and tips that enable its members to
better organize and manage their lives. As of September 30, 2000,
the company had approximately 19 million members and numerous
advertising partners. LifeMinders has experienced significant
membership growth since our initial investment in February 1999,
when the company had less than 50,000 members. LifeMinders held
its initial public offering in November 1999. Fund II has invested
$11.5 million in LifeMinders at an average cost of $2.70 per share
and the company's stock, as of October 31, 2000, was trading at
$11 5/8 per share.
***Fund II's holdings are restricted as to resale and are valued
at a 20% discount to the public market valuation shown.
QuickLogic Corporation, Sunnyvale, CA ("QuickLogic")
Initial Investment Date: November 1996
Total Investment: $3.0 million
Total Investment Value: $8.6 million
QuickLogic (NASDAQ: QUIK) designs, manufactures and markets
high-capacity programmable logic semiconductors, known as field
programmable gate arrays, along with comprehensive design
software. The company's products shorten the design cycle time for
electronic systems and accelerate time-to-market. QuickLogic's new
class of devices, embedded standard products, facilitate extremely
fast development of complex systems. QuickLogic held its initial
public offering in October 1999. As of October 31, 2000 Fund II
had sold 345,865 shares of Quicklogic for $7.8 million and holds
85,170 shares, which were trading at $8 7/8.
Rental Service Corp., Scottsdale, AZ ("Rental Service")
Initial Investment Date: January 1996
Total Investment: $1.0 million
Total Proceeds: $3.1 million
Rental Service is a consolidator of heavy equipment rental
businesses and an outsourced provider of heavy equipment. The
company had its initial public offering in September 1996 and was
subsequently acquired by Atlas, Copco North America in July, 1999.
Signius Corporation (formerly known as ProCommunications Corp.),
Somerset, NJ ("Signius")
Initial Investment Date: September 1996
Total Investment: $3.4 million
Total Investment Value: $0
Signius provides telemessaging services for small and medium-sized
businesses. In March 2000, Signius was sold for a nominal amount.
Softcom Microsystems, Inc., Fremont, CA ("Softcom")
Initial Investment Date: August 1998
Total Investment: $4.2 million
Total Proceeds: $15.4 million
Softcom designs, develops and markets data acceleration products
used in high-speed communications networks. Softcom's single-chip
network accelerator solutions and integrated subsystems provide
processing capabilities which help alleviate the "data bottleneck"
at the point where baseband Local Area Network traffic moves on to
a high-speed broadband Internet backbone. Softcom was sold in
August 1999 to Intel.
WNP Communications, Inc., Reston, VA ("WNP")
Initial Investment Date: January 1998
Total Investment: $5.9 million
Total Proceeds: $19.2 million
WNP acquired broadband spectrum covering 30 of the top 50 markets
in the United States in the Local Multipoint Distribution Services
auction conducted by the FCC in 1998. Subsequently, the company
was acquired in May 1999 by NextLink, a publicly traded wireless
communication services provider, for cash and stock.
PRIVATE COMPANIES
Advantage Schools, Inc., Boston, MA ("Advantage")
Initial Investment Date: June 1998
Total Investment: $5.1 million
Investment Carrying Value: $11.4 million
Advantage is an education management organization which manages
public charter schools on a for-profit basis. Advantage manages
charter schools in urban school districts in cooperation with
local partners. Its schools are publicly funded, receiving
per-student capitalization rates generally consistent with those
received by other schools in the district. Founded in 1996,
Advantage currently manages 15 schools across the country.
Best Friends Pet Care, Inc., Norwalk, CT ("Best Friends")
Initial Investment Date: December 1996
Total Investment: $3.5 million
Total Investment Value: $1.8 million
Best Friends is the largest operator of pet kennels in the United
States. The company's facilities offer a wide range of pet
services including boarding, grooming and training.
BPA Systems, Inc., Austin, TX ("BPA")
Initial Investment Date: June 2000
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
BPA develops fulfillment software solutions that help
Internet-enabled companies rapidly take advantage of e-commerce
opportunities. The BPA product suite allows large global companies
as well as internet startups to fully integrate their existing
supply chains with their e-commerce web sites.
Captura Software, Inc., Bothell, WA ("Captura")
Initial Investment Date: February 1999
Total Investment: $4.8 million
Investment Carrying Value: $7.9 million
Captura is an e-finance application services provider developing
and marketing expense management software and solutions for large
companies. The company's products significantly increase the
efficiency and lower the cost of expense reports by providing a
web-based software application that automates much of the process.
Captura's customer base includes General Motors, Ford, Compaq and
Aetna. On October 12, 2000, Captura Software filed a registration
statement with the Securities and Exchange Commission relating to
a proposed initial public offering of its common stock. Banc of
America Securities LLC will act as the lead underwriter of the
offering. Other managing underwriters of the offering include U.S.
Bancorp Piper Jaffray, Wit SoundView and Pacific Crest Securities.
Classroom Connect Inc., Foster City, CA ("Classroom Connect")
Initial Investment Date: September 1998
Total Investment: $8.0 million
Investment Carrying Value: $9.8 million
Classroom Connect is a provider of educational Internet products
to students in the kindergarten to eighth grade market. The
company offers products and services, including proprietary
instruction guides, teaching plans, seminars and unique Internet
content via electronic commerce and direct mail, to teachers and
school districts wishing to incorporate the Internet into the
classroom.
ePod Corporation, New York, NY ("ePod")
Initial Investment Date: December 1999
Total Investment: $2.1 million
Investment Carrying Value: $3.2 million
ePod provides distributed e-commerce, content syndication and
media advertising services to manufacturers, retailers, Web
publishers and content providers in the entertainment, retail and
advertising industries. The ePod.com commerce network uses a
common merchandising infrastructure through which companies can
promote and sell products by packaging and distributing content
and merchandise through commerce-enabled showcases called ePods.
firstsource Corporation, Santa Ana, CA ("firstsource")
Initial Investment Date: February 2000
Total Investment: $10.0 million
Investment Value: $10.0 million
firstsource is a provider of business products, services and
online business procurement solutions for small and medium-sized
businesses. With approximately 250,000 SKUs (Store Keeping Units)
and numerous different service providers, the firstsource.com web
site allows customers to search, compare, price and buy products
and services directly from multiple distributors' inventories.
KillerBiz, Inc., Fremont, CA ("KillerBiz")
Initial Investment Date: December 1999
Total Investment: $0.8 million
Investment Carrying Value: $0.8 million
KillerBiz is an online business-to-business marketplace and
software solution connecting small businesses to suppliers of
goods and services. The company is dedicated to lowering the time
and costs associated with procurement, while providing sellers
with a cost effective means to access and respond to qualified
sales leads. The KillerBiz web site offers a business-to-business
marketplace that leverages both Extensible Mark-up Language and
patent-pending Intelligent Trained Agent technology.
LogicVision, Inc., San Jose, CA ("LogicVision")
Initial Investment Date: May 1997
Total Investment: $1.5 million
Total Investment Value: $1.7 million
LogicVision is a developer of built-in self testing technologies
used in semiconductor design, testing and manufacture. As
semiconductors become more complex (i.e. large systems reduced to
a customized chip), the need to adopt new testing technology has
become critical. LogicVision's customers include Sun Microsystems,
Cisco Systems, NCR Corp., Hitachi and Hughes. On August 11, 2000,
Logicvision filed a registration statement with the Securities and
Exchange Commission relating to a proposed initial public offering
of its common stock. Chase H&Q will act as the lead underwriter of
the offering. Other managing underwriters of the offering include
Robertson Stephens and SG Cowen.
MarketFirst Software, Inc., Mountain View, CA ("MarketFirst")
Initial Investment Date: August 1999
Total Investment: $6.8 million
Investment Carrying Value: $6.8 million
MarketFirst is a developer and marketer of hosted e-marketing
software and services targeting middle-market corporations. The
company's solution is focused on enabling and managing interactive
marketing campaigns through the Internet. The company's customers
are motivated by the prospect of increasing customer revenue,
improving customer relationships and reducing costs by automating
key marketing functions with the MarketFirst solution.
MySeasons.com, Inc., New York, NY ("MySeasons")
Initial Investment Date: February 2000
Total Investment: $2.0 million
Investment Value: $2.0 million
MySeasons is a business-to-consumer and business-to-business
Internet commerce site aimed at selling gardening and related
horticultural products, as well as providing associated content to
the gardening community. MySeasons is a newly capitalized entity
and represents the internet initiative of Foster & Gallagher, a
direct mail company and the largest horticulture direct marketing
retailer in the United States.
PowerSmart, Inc., Shelton, CT ("PowerSmart")
Initial Investment Date: January 1998
Total Investment: $9.9 million
Investment carrying Value: $18.9 million
PowerSmart is a provider of "smart" battery management products
designed to maximize battery run-times and safety in laptop
computers, cellular telephones and camcorders as well as a variety
of hand-held industrial devices. PowerSmart recently introduced
two new lines of Application Specific Integrated Circuits and
electronic modules that offer performance and flexibility at
competitive prices. PowerSmart was formed as a spin-off of
technology and related assets from Duracell.
Protogene Laboratories, Inc., Menlo Park, CA ("Protogene")
Initial Investment Date: December 1999
Total Investment $5.7 million
Investment Carrying Value: $5.7 million
Protogene is a developer and manufacturer of DNA gene chip
technology used in molecular biology and genetic research. The
company's products allow for flexible, short-run testing of
genetic expression that has broad applications in genetic research
and pharmaceutical development.
ReleaseNow.com Corp., Menlo Park, CA ("ReleaseNow")
Initial Investment Date: June 1998
Total Investment: $6.8 million
Investment Carrying Value: $9.5 million
ReleaseNow is an outsourced provider of e-commerce services for
vendors and resellers of software and other digital goods. The
company builds and manages e-commerce solutions that enable
customers to market, sell and deliver software online. ReleaseNow
provides software publishers, software resellers and
content-driven web sites with technology and services to establish
an Internet-based sales and distribution channel.
SurVivaLink Corporation, Minnetonka, MN ("SurVivaLink")
Initial Investment Date: August 1998
Total Investment: $7.6 million
Investment Carrying Value: $7.6 million
SurVivaLink designs, develops and markets automated external
defibrillators ("AEDs"), which are portable, emergency medical
devices that deliver electrical shocks to resuscitate victims of
cardiac arrest. SurVivaLink's AEDs are small, lightweight and easy
to use, making them suitable for law enforcement personnel,
firefighters and paramedics. To date, SurVivaLink estimates that
its AEDs have been responsible for saving over 250 lives.
Zeus Wireless, Inc., Columbia, MD ("Zeus")
Initial Investment Date: December 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
Zeus builds and markets long-range frequency hopping radios for
commercial and industrial facilities. The company utilizes radio
frequency technology as a substitute for wire with comparable
range, reliability and security at an equivalent price.
INVESTMENTS WRITTEN-OFF
AbTox, Inc., Mundelein, IL ("AbTox")
Initial Investment Date: March 1997
Total Investment: $2.8 million
Total Investment Value: $0
AbTox, a manufacturer of gas plasma sterilizers, has filed for
bankruptcy due to operating problems arising from regulatory
issues related to one of its products.
Cardiopulmonary Corporation, Milford, CT
Initial Investment Date: November 1996
Total Investment: $2.2 million
Total Investment Value: $0
Cardiopulmonary Corporation is a manufacturer of a smart
ventilator used in the acute and sub-acute hospital market that
adapts to patients' changing breathing patterns. Fund I's position
has been written down pursuant to a recent recapitalization of the
company.
Constellar Corporation, Redwood Shores, CA ("Constellar")
Initial Investment Date: April 1998
Total Investment: $7.0 million
Total Investment Value: $0
Constellar, a provider of enterprise application integration
software and services to large organizations in North America,
Europe and Australia, was sold in an asset purchase transaction to
the Data Mirror Group. The purchase price was $15 million, which
was used to satisfy the company's debt. Although the transaction
calls for certain contingency payments to shareholders, the
investment has been fully written down.
Managemark, Inc., Sunnyvale, CA ("Managemark")
Initial Investment Date: June 1999
Total Investment: $5.5 million
Total Investment Value: $0
Managemark, an Internet application software company focused on
developing finance and administration software and services for
small and middle-market firms, has been unsuccessful in raising
additional capital. The value of the Managemark investment has
been written down to $0 to reflect the potential for realizing
little, if any, proceeds from a quick sale of the business or the
prospects of a bankruptcy filing. Consequently, it is not likely
that Fund II will receive any proceeds from this investment and it
is not likely that it will realize a loss of $5.5 million.
P2 Holdings Corp. (formerly known as Plynetics Express),
San Leandro, CA ("P2 Holdings")
Initial Investment Date: June 1997
Total Investment: $2.8 million
Total Investment Value: $0
P2 Holdings was a provider of rapid prototyping and rapid tooling
services. Fund I wrote off its investment as the company filed for
bankruptcy in 1998.
Party Stores Holdings, Inc., Melville, NY ("Party Stores")
Initial Investment Date: May 1997
Total Investment: $2.1 million
Total Investment Value: $0
Party Stores operated the Party Experience, the Paperama and Paper
Cutter retail stores. The company filed for bankruptcy in 1998 and
Fund I's $2.1 million investment was written off.
PRIVATE FUNDS
Advanced Technology Ventures V, LP ("ATV V")
Fund Size: $175 million
Investment commitment: $3.0 million
ATV V is an early-stage focused fund targeting information
technology and health care markets. Since 1979, ATV V has invested
in and worked with over 100 emerging companies, including Actel,
Berkeley Networks, Cadence Design Systems, DataSage, Epigram and
VLSI Technology.
Allegra Capital Partners III, LP ("Allegra III")
Fund Size: $40 million
Investment commitment: $2.0 million
Allegra III is a later-stage focused venture fund based in New
York City. Allegra III invests primarily in companies in the
telecommunications, software and service industries with
"Internet-driven" strategies. Allegra III's principals have been
investors in Autotote, Axent Technologies, Business Evolution and
Viasoft.
Brand Equity Ventures I, LP ("BEV")
Fund Size: $95 million
Investment commitment: $2.5 million
BEV is focused on investing broadly across the consumer sector,
particularly in branded opportunities within e-commerce,
retailing, direct response and other consumer services. To date,
the fund has made distributions resulting from investments in
Alloy Online and Outpost.com.
Brentwood Associates Buyout Fund II, LP ("Brentwood II")
Fund Size: $240 million
Investment commitment: $2.0 million
Brentwood II is focused on middle-market buyouts and
consolidations. Brentwood II's strategy is to identify industries
with consolidation characteristics, develop a strategy for
implementation and recruit management to execute that strategy.
Brentwood was an investor in Rental Services and is an investor in
Classroom Connect, companies in which Fund I and Fund II,
respectively, have invested.
Brentwood Associates III, LP
Fund Size: $360 million
Investment commitment: $5.0 million
See Brentwood II above.
Broadview Capital II, LP ("Broadview")
Fund Size: $220 million
Investment commitment: $5.0 million
Broadview is focused on buyouts and other recapitalizations within
the technology sector. The fund is sponsored by Broadview
International LLC, a leading technology mergers and acquisitions
focused investment banking firm. To date, Broadview International
has advised on mergers and acquisitions for companies such as
Nokia, Fore Systems, Lycos and BMC Software and will be able to
provide Broadview with substantial resources to make its
investments.
Bruckmann, Rosser, Sherrill & Co., LP ("BRS")
Fund Size: $375 million
Investment commitment: $2.0 million
BRS is a leveraged buyout fund based in New York. The firm's
portfolio contains investments such as restaurant operators
California Pizza Kitchen and Restaurant Associates and Doane Pet
Care Enterprises, a manufacturer and distributor of pet food.
Commonwealth Capital Ventures II, LP ("Commonwealth II")
Fund Size: $80 million
Investment commitment: $4.0 million
Commonwealth II makes investments in early to later-stage
information technology companies in the New England region.
Commonwealth II maintains a particular focus on communications
technology, Internet software and services and e-commerce
companies. Commonwealth II has been an investor in Altiga
Networks, Direct Hit Technologies and Smarterkids.com.
Communications Ventures III, LP ("Communications Ventures III")
Fund Size: $125 million
Investment commitment: $5.0 million
Communications Ventures III invests exclusively in the
communications sector, targeting early-stage companies. As
investors, the principals of Communications Ventures III have
played roles in the formation of many companies in the
communications industry, including Advanced Fibre Communications,
Ascend, Broadcom, Ciena, Copper Mountain, Digital Microwave,
Digital Island, Intecom, MCI, Newbridge, Octel, PairGain,
Paradyne, Tellabs, Tut Systems and 3COM. Communications Ventures
III has made investments in Universal Access, Cosine
Communications, Sitesmith and Entera.
Friedman, Fleischer & Lowe, LP ("Friedman, Fleischer & Lowe")
Fund Size: $325 million
Investment commitment: $5.0 million
Friedman, Fleischer & Lowe is a first-time fund focused
exclusively on participation in middle-market buyouts. The
principals of Friedman, Fleischer & Lowe have been involved in a
number of buyout transactions including Young & Rubicam,
Levi-Strauss, Hoyts and Western Wireless.
Mayfield Fund X, LP ("Mayfield X")
Fund Size: $450 million
Investment commitment: $5.0 million
Mayfield X is focused on early-stage information technology and
healthcare investments, primarily located in Silicon Valley, CA.
Founded in 1969, Mayfield has raised over $1 billion in nine
venture funds and invested in over 340 high-growth companies.
Among their investments are 3COM, Compaq, Immunex, Silicon
Graphics, Citrix Systems and Legato.
Mid-Atlantic Venture Fund III, LP ("MAVF III")
Fund Size: $60 million
Investment commitment: $5.0 million
MAVF III invests in early and expansion-stage technology companies
in the Mid-Atlantic region. The principals of MAVF III have
significant investment experience and have established over the
years a presence within the investment community in the
Mid-Atlantic region. The principals of MAVF III have been
investors in Visual Networks and Net2000 Communications.
Morgenthaler Venture Partners IV, LP ("MVP IV")
Fund Size: $135 million
Investment commitment: $2.0 million
MVP IV is an early-stage venture fund, investing primarily in
information technology and healthcare companies as well as buyouts
of basic businesses. The fund's principals have been involved with
successful venture capital investments in Apple Computer,
Synopsys, Atria Software, Premysis Software and CardioThoracic. To
date, Fund I has received from MVP IV shares of CheckFree
Holdings, Inktomi, Nortel, Microsoft and Guidant, as well as
several cash distributions.
Morgenthaler Venture Partners V, LP
Fund Size: $300 million
Investment commitment: $8.0 million
See MVP IV above.
Quad-C Partners V, LP ("Quad-C")
Fund Size: $300 million
Investment commitment: $5.0 million
Quad-C is focused on taking control positions in leveraged
acquisitions and recapitalizations of middle-market companies.
Quad-C's principals have significant operating and financial
experience and have made investments across industries such as
restaurants, banking, automotive logistics and media.
Sevin Rosen Fund V, LP ("Sevin Rosen V")
Fund Size: $160 million
Investment commitment: $2.0 million
Sevin Rosen V invests in early-stage technology companies,
focusing specifically on companies in communications and eBusiness
infrastructure and solutions, as well as those companies with
Internet-enabled business models. The principals at Sevin Rosen V
have a track record that includes being early investors in Compaq,
Lotus, Cyrix, Citrix and Ciena. To date, this fund holds
investments in Capstone, Turbine and Metawave Communications and
has made distributions of stock including Ciena, Pure Atria
Software and Cisco Systems.
Sevin Rosen Fund VI, LP
Fund Size: $165 million
Investment commitment: $2.5 million
See Sevin Rosen V above.
Trinity Ventures VI, LP ("Trinity VI")
Fund Size: $140 million
Investment commitment: $3.0 million
Trinity VI is focused on investing in early to late-stage
companies in the software, communications and electronic commerce
sectors. The principals of Trinity VI have been involved with
numerous successful investments, including Extreme Networks, Kiva
Software, NextCard, Quokka Sports and Starbucks.
Vanguard Venture Partners V, LP ("Vanguard V")
Fund Size: $55 million
Investment commitment: $2.0 million
Vanguard V is an early-stage fund investing in information
technology and healthcare. Among the principals' previous
successful investments are Ciena, Advanced Fibre Communications
and Network Appliances. The fund has distributed shares of Cobalt
Networks and Cisco Systems and currently holds shares of Digital
Island.
THE FOREGOING INFORMATION WITH RESPECT TO FUND I AND FUND II IS
PRESENTED TO ILLUSTRATE THE TYPES OF INVESTMENTS THAT THE INVESTMENT
ADVISER AND INVESTMENT SUB-ADVISER HAVE EXPERIENCE WITH IN THE BDC CONTEXT
AND TO SHOW THE POTENTIAL ECONOMIC BENEFITS AND RISKS INHERENT IN MAKING
SUCH INVESTMENTS. THE INFORMATION SHOWN SHOULD NOT BE CONSIDERED TO BE
REPRESENTATIVE OF THE GAINS OR LOSSES THAT THE PORTFOLIO WILL EXPERIENCE ON
ITS INVESTMENTS. IN ADDITION, THE PORTFOLIO MAY MAKE INVESTMENTS IN A WIDE
RANGE OF BUSINESSES AND ENTITIES AND THE FOREGOING INFORMATION SHOULD NOT
BE VIEWED AS REPRESENTATIVE OF THE PORTFOLIO'S ACTUAL PORTFOLIO. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
INFORMATION SET FORTH ABOVE REPRESENTS ACTUAL COST AND REALIZED AND
UNREALIZED GAIN AND LOSS FOR EACH INDIVIDUAL INVESTMENT MADE BY FUND I AND
FUND II, OTHER THAN SHORT-TERM INVESTMENTS. FUND I AND FUND II EXPERIENCED
COSTS AND EXPENSES IN MAKING SUCH INVESTMENTS, MONITORING SUCH INVESTMENTS
AND, WHERE APPLICABLE, DISPOSING OF SUCH INVESTMENTS. ADDITIONAL COSTS WILL
BE EXPERIENCED ON THE DISPOSITION OF INVESTMENTS NOT YET DISPOSED OF.
UNREALIZED GAIN AND LOSS AMOUNTS ARE BASED ON UNITED STATES TRUST COMPANY
OF NEW YORK'S DETERMINATION OF THE CURRENT VALUE OF THE INVESTMENTS, WHICH
DETERMINATION ORDINARILY INVOLVES A HIGH DEGREE OF JUDGMENT AND
SUBJECTIVITY (SEE "VALUATION OF PORTFOLIO SECURITIES"). UPON DISPOSITION,
FUND I AND FUND II MAY REALIZE MORE OR LESS THAN THE ASSIGNED VALUATION. IN
ADDITION, FUND I AND FUND II ARE SUBJECT TO INVESTMENT MANAGEMENT FEES,
INCENTIVE FEES AND ONGOING OPERATING EXPENSES, NONE OF WHICH ARE REFLECTED
IN THE FOREGOING INFORMATION. FUND I AND FUND II ALSO MAINTAINED
SUBSTANTIAL HOLDINGS OF SHORT-TERM INVESTMENTS PENDING INVESTMENT IN THE
ABOVE LISTED INVESTMENTS. ACCORDINGLY, THE FOREGOING INFORMATION IS NOT
INDICATIVE OF THE ACTUAL RETURNS EXPERIENCED BY INVESTORS IN FUND I AND
FUND II.
Set forth below are the performance figures for Fund I and Fund II
for the periods shown, through the funds' most recent fiscal quarter ended
October 31, 2000 calculated in conformity with the standardized performance
methodology required by the Securities and Exchange Commission.
Since
1-Year 3-Year Inception
UST Private Equity Investors Fund, Inc. 38.72% 7.63% 8.54%
Excelsior Private Equity Fund II, Inc. 35.66% N/A 20.75
CODE OF ETHICS
The Fund, the Portfolio, the Distributor, the Fund's
Adviser/Investment Adviser and the Investment Sub-Adviser have adopted
codes of ethics under Rule 17j-1 of the Investment Company Act that
restrict the personal securities transactions of certain associated persons
of the Fund, the Portfolio, the Distributor, the Fund's Adviser/Investment
Adviser and the Investment Sub-Adviser. The primary purpose of such codes
is to ensure that personal trading by their respective employees does not
disadvantage the Fund or the Portfolio. U.S. Trust portfolio managers and
other investment personnel who comply with the code of ethic's
pre-clearance and disclosure procedures may be permitted to purchase, sell
or hold certain types of securities which also may be purchased or sold by
or are held in the fund(s) they advise. The codes of ethics can be reviewed
and copied at the Commission's Public Reference Room in Washington, D.C.
Information on the Public Reference Room can be obtained by calling the
Commission at 1-202-942-8090. The codes of ethics are also available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov or
may be obtained after paying a duplicate fee, by electronic request to the
following E-mail address: [email protected] or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
BOARD OF MANAGERS, OFFICERS AND INVESTMENT PROFESSIONALS
Pursuant to the Fund's Operating Agreement, the business and
affairs of the Fund will be managed under the direction of its Board of
Managers. Pursuant to the Portfolio's operating agreement, the business and
affairs of the Portfolio will be managed under the direction of its board
of managers. The Board of Managers of the Fund consists of the same persons
as the board of managers of the Portfolio. The following are descriptions
of the members of the boards of managers and the officers of the Fund and
the Portfolio, as well as of key employees of the investment advisers,
including the members of the Company's Investment Committee. Unless
otherwise noted, each member of the Company's Investment Committee has been
an employee of United States Trust Company of New York for at least the
previous five years and the business address of each individual listed
below is 114 West 47th Street, New York, New York 10036. Mr. Hover may be
deemed an "interested person" of the Fund and the Portfolio, as defined in
the Investment Company Act, on the basis of his affiliation with U.S.
Trust.
Board of Managers
Gene M. Bernstein (53). As of September 1, 2000, Mr. Bernstein is
the Dean of the Skodneck Business Development Center at Hofstra University
in Hempstead, New York. Prior to that, he worked at (and remains a
principal of) Northville Industries Corp., a third generation privately
held petroleum marketing, trading, storage and distribution company since
1994. While at Northville he held positions ranging from Vice President to
President to Vice-Chairman. Prior to working at Northville Industries, he
taught at the University of Notre Dame. He is Chairman of the Board of
Trustees at his alma mater, Alfred University, from which he holds a B.A.
degree in English Literature. He also has a M.A. degree in English
Literature from the University of Wisconsin and a Ph.D. in English
Literature from the University of Massachusetts. Mr. Bernstein serves as a
director/manager of Fund I, Fund II, the Excelsior Hedge Fund of Funds I,
LLC and the Portfolio.
John C. Hover II (57).* Mr. Hover retired as Executive Vice
President of the United States Trust Company of New York in 1998 after 22
years of service. He was responsible for the Personal Asset Management and
Private Banking Group and served as Chairman of U.S. Trust International.
Prior to joining United States Trust Company of New York, he was a
commercial banker with Chemical Bank. Mr. Hover received his B.A. degree in
English Literature from the University of Pennsylvania and a M.B.A. degree
in Marketing from The Wharton School. He is a trustee of the University of
Pennsylvania, and is Chairman of the Board of Overseers of the University's
Museum of Archaeology and Anthropology. He is a trustee and Vice President
of the Penn Club of New York. Mr. Hover serves as chairman of the board of
directors/managers of Fund I, Fund II and the Portfolio.
Stephen V. Murphy (54). Since 1991, Mr. Murphy has been President
of S. V. Murphy & Co., Inc., an investment banking firm that specializes in
mergers and acquisitions, divestitures and strategic and capital-related
advisory services for financial and other institutions. From 1988 until
1990, he was Managing Director of Merrill Lynch Capital Markets in charge
of the Financial Institutions Mergers and Acquisitions Department. Prior to
1988, Mr. Murphy was Managing Director of The First Boston Corporation
where he headed up its Investment Banking Department's Commercial Bank
Group. Mr. Murphy holds a B.S.B.A. degree from Georgetown University and a
M.B.A. degree from Columbia University. Mr. Murphy serves as a
director/manager of Fund I, Fund II, the Excelsior Hedge Fund of Funds I,
LLC and the Portfolio.
Victor F. Imbimbo, Jr. (47). Victor Imbimbo was the founder in
1996 of Bedrock Communications, Inc., a consulting company addressing the
merger of traditional and digital communications solutions. He was also the
founder of the Hadley Group, a promotional marketing company, in 1985,
which he ran until 1996. Mr. Imbimbo serves as a director/manager of Fund
I, Fund II, the Excelsior Hedge Fund of Funds I, LLC and the Portfolio.
Officers
David I. Fann (36) is Co-Chief Executive Officer and President of
the Fund and the Portfolio and Managing Director of United States Trust
Company of New York. Mr. Fann serves as President and Chief Executive
Officer of Fund I and Fund II. He is focused on Direct Investments in
information services and life sciences. Prior to joining United States
Trust Company of New York in April 1994, Mr. Fann served in various
capacities for Citibank from 1986 through 1994, including, as a Vice
President of Citibank and its small business investment company subsidiary,
Citicorp Venture Capital Ltd. from 1991 until 1994. While at Citicorp
Venture Capital Ltd., Mr. Fann invested in buyout and venture capital
transactions and venture capital funds and served on the board of directors
of several of its portfolio companies. Mr. Fann holds a B.A.S. degree in
Industrial Engineering and Economics from Stanford University. Mr. Fann
serves on the United States Trust Company of New York Portfolio Policy
Committee, Strategy Review Committee and Special Fiduciary Committee. Mr.
Fann is on the boards of Classroom Connect, Inc., Curon Medical, Inc.,
SurVivaLink Corp. and Protogene Laboratories, Inc.
Douglas A. Lindgren (38) is Co-Chief Executive Officer and Chief
Investment Officer of the Fund and the Portfolio and Managing Director of
United States Trust Company of New York. Mr. Lindgren is Chief Investment
Officer of Fund II and Executive Vice President of Fund I. He is focused on
Direct Investments in information technology, information services and
communications. Prior to joining United States Trust Company of New York in
April 1995, Mr. Lindgren served in various capacities for Inco Venture
Capital Management ("IVCM") from January 1988 through March 1995, including
President and Managing Principal from January 1993 through March 1995.
While at IVCM, Mr. Lindgren invested in venture capital and buyout
transactions and served on the board of directors of several of its
portfolio companies. Before joining IVCM, Mr. Lindgren was employed by
Salomon Brothers Inc and Smith Barney, Harris Upham & Co., Inc. He is an
Adjunct Professor of Finance at Columbia University's Graduate School of
Business, where he has taught courses on venture capital since 1993. Mr.
Lindgren holds a M.B.A. and B.A. from Columbia University. He serves on the
United States Trust Company of New York Portfolio Policy Committee. Mr.
Lindgren is on the boards of PowerSmart, Inc., MarketFirst Software, Inc.,
ReleaseNow.com, Corp., LifeMinders, Inc., Zeus Wireless, Inc. and
firstsource Corporation.
Alan M. Braverman (39) is Executive Vice President of the Fund and
the Portfolio and a Managing Director of United States Trust Company of New
York. He is focused on Direct Investments in information technology,
information services and communications. Prior to joining United States
Trust Company of New York in September 2000, Mr. Braverman served as
President, Business-to-Business at NBCi since November 1999. Previously,
Mr. Braverman was Head of Internet Research at several top-level Wall
Street firms. Mr. Braverman was also ranked by Institutional Investor and
the Wall Street Journal as one of the top Internet research analysts on
Wall Street. Mr. Braverman worked at Banc of America Securities and held
the position of Senior Managing Director and Head of Internet Research
there until November 1999. Mr. Braverman was Managing Director and Head of
Internet Research at Deutsche Bank Securities, the investment banking arm
of Deutsche Bank Group. From July 1996 to July 1998, he was the senior
Internet analyst at Credit Suisse First Boston. From 1995 to July 1996, Mr.
Braverman was Vice President, Internet Analysis at Hanifen Imhoff. From
1991 to 1995, Mr. Braverman served as a senior executive at U.S. West as
well as General Manager for CityKey Online, where he oversaw the national
roll-out for the company's online business. Mr. Braverman earned a B.B.A.
in Finance and Strategy from The Wharton School of the University of
Pennsylvania and a M.B.A. in Finance, Strategy and Marketing from
Northwestern University's Kellogg Graduate School of Management.
Lee A. Gardella (33) is Vice President of the Fund and the
Portfolio and Vice President of United States Trust Company of New York,
joined United States Trust Company of New York in September 1997. He is
focused on Direct Investments in information technology companies and on
fund investments. Mr. Gardella currently has monitoring responsibilities
for several Portfolio Companies including Captura Software, Inc. and
LogicVision, Inc. From July 1994 to September 1997, Mr. Gardella held
several positions with the Edison Venture Fund, an expansion-stage venture
capital firm in Lawrenceville, N.J. In addition, Mr. Gardella has worked at
Wilshire Associates and National Steel Corporation. Mr. Gardella has served
as a director of the Greater Philadelphia Venture Group. He received a
M.B.A. from the University of Notre Dam and a B.S.B.A. in Finance from
Shippensburg University. Mr. Gardella is a Chartered Financial Analyst. Mr.
Gardella is on the board of BPA Systems.
James F. Rorer (30) is Vice President of the Fund and the
Portfolio and United States Trust Company of New York. Mr. Rorer is focused
on Direct Investments in information services and life sciences. Prior to
joining United States Trust Company of New York in May 1999, he worked at
Bain & Company ("Bain"), a leading global strategic consulting firm, from
September 1996 until April 1999. He was a consultant in the Private Equity
Practice, providing strategic due diligence services to large private
equity firms. In addition, Mr. Rorer also spent time in Bain's standard
consulting practice, working with companies on a variety of strategic
issues in a number of different industries including automotive, electric
power, telecommunications, consumer products and financial services. Mr.
Rorer was an investment banking analyst at CS First Boston from 1992 to
1994, where he worked on mergers and acquisitions and financing for banks
and consumer finance companies. Mr. Rorer graduated from Duke University,
Phi Beta Kappa, with a degree in Economics and Mathematics. He holds a
M.B.A. from Harvard Business School.
James F. Dorment (27) Chief Administrative Officer and Secretary
of the Fund and the Portfolio and Assistant Vice President of United States
Trust Company of New York, has been with the Private Equity Division of
United States Trust Company of New York since December 1997. Mr. Dorment is
involved in all areas of investment analysis and decision-making. From
August 1995 through November 1997, he worked in the wealth management
division of United States Trust Company of New York. Mr. Dorment graduated
from Bates College with a B.A. degree in Economics. He is a Chartered
Financial Analyst and a member of the New York Society of Security Analysts
and the Association for Investment Management and Research.
Brian F. Schmidt (41) is Chief Financial Officer of the Fund and
the Portfolio and Senior Vice President of U.S. Trust Company. Mr. Schmidt
is the Chief Financial Officer of Fund I and Fund II. He is the Division
Manager of Mutual Funds with U.S. Trust Company. He is responsible for the
operation and administration of the Excelsior Family of Funds and the U.S.
Trust Company Common Trust Funds. Mr. Schmidt joined U.S. Trust Company in
1991 from Prudential Insurance Company of America, where he was Director of
Accounting. Prior to that he was a senior accounting manager at Dreyfus
Corporation. Mr. Schmidt has 20 years of experience in financial services,
concentrating in mutual funds. He received his B.S. degree from Marist
College. He is on the Accountant's and Treasurer's Committee of the
Investment Company Institute.
Frank D. Bruno (40) is Treasurer of the Fund and the Portfolio and
Vice President of U.S. Trust Company. Mr. Bruno is a Vice President in the
Mutual Funds Administration Department of an affiliate of U.S. Trust
Company. Prior to joining U.S. Trust Company, he worked for the Dreyfus
Corporation and PriceWaterhouse. Mr. Bruno received his B.S. degree from
The Pennsylvania State University.
Investment Committee of the Investment Sub-Adviser
Frederick B. Taylor (58) is Chairman of the Investment Committee.
Mr. Taylor is Vice Chairman and Chief Investment Officer of United States
Trust Company of New York and is a member of the board of directors and
Chairman of the Portfolio Policy Committee. He has been with United States
Trust Company of New York for over 30 years, and has been responsible for
developing and implementing the current investment policy since 1981. Mr.
Taylor received his B.A. degree from Wesleyan University, with distinction,
and his M.B.A. degree from the University of Pennsylvania, Wharton School.
He is a member of the New York Society of Security Analysts and the
Association for Investment Management and Research.
Paul K. Napoli (54) is Co-Chairman of the Investment Committee.
Mr. Napoli is an Executive Vice President of United States Trust Company of
New York and is responsible for the Personal Wealth Management Group. He is
a member of the Management Committee, the Risk Policy Committee, the Trust
Committee, the Broker Relations Committee and Derivatives Committee. Mr.
Napoli received his undergraduate degree in Economics and Mathematics from
Boston College and his M.B.A. in Finance and Economics from Columbia
University. He holds the designation of Chartered Financial Analyst and
Certified Trust & Financial Adviser. Mr. Napoli is a member of the New York
Society of Security Analysts and the Association of Investment Management
and Research.
John J. Apruzzese (42) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Apruzzese is a
Division Manager in the Wealth Management Group. Previously, Mr. Apruzzese
was a staff member of the Labor and Human Resources Committee of the U.S.
Senate and worked on federal budget matters. Mr. Apruzzese received his
B.A. from Bucknell University and his M.B.A. from New York University. Mr.
Apruzzese is a Chartered Financial Analyst, a member of the New York
Society of Security Analysts and a member of the Board of Advisers of
Outward Bound.
Richard L. Bayles (56) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Bayles manages the
Stock Fund for Trusts. Mr. Bayles earned his B.A. from Dartmouth College.
He is a warden of St. Bartholomew's Church in the City of New York. Mr.
Bayles served with the Peace Corps in Kenya for three years and is
President of the Mid Manhattan Performing Arts Foundation.
Edith A. Cassidy (47) is Managing Director and Division Manager at
United States Trust Company of New York. Ms. Cassidy is responsible for
managing individual client assets and a division of portfolio managers,
administrators and support staff. Ms. Cassidy is a member of United States
Trust Company of New York's Operating Committee and Portfolio Policy
Committee. Upon joining U.S. Trust in 1989, Ms. Cassidy was appointed
Director of the Equity Research Division. Prior to joining U.S. Trust in
1989, Ms. Cassidy was an investment executive at Piper, Jaffray & Hopwood
in New York City. From 1976 through 1986, she was with International
Business Machines Corporation in New York, where her last position was
Marketing Manager. Ms. Cassidy is a member of the New York Society of
Security Analysts. She is a member of the board of trustees of The
Westmoreland Davis Foundation and Learning Leaders. Ms. Cassidy received
her B.A. in 1975 from Goucher College.
Katherine T. Ellis (36) is Senior Vice President and Senior
Portfolio Manager of United States Trust Company of New York. Ms. Ellis is
a Division Manager in the Wealth Management Group. She is a member of the
Portfolio Policy Committee. She earned her B.A. in Political Science from
Wellesley College and her M.B.A. with Distinction in Finance from the Stern
School where she was designated a Stern Scholar as well as a member of the
Beta Gamma Sigma Honor Society. Ms. Ellis holds the designation of
Chartered Financial Analyst and is a member of the New York Society of
Security Analysts and the Association of Investment Management and
Research.
William V. Ferdinand (58) is Managing Director and Senior
Investment Officer of U.S. Trust Company. Mr. Ferdinand is responsible for
managing the investment organization of U.S. Trust Company. With eleven
portfolio managers, this group actively manages over $2.6 billion of
assets. In addition, Mr. Ferdinand is a member of the Portfolio Policy
Committee, headquartered at United States Trust Company of New York. With
over 30 years of investment management experience, he comes to U.S. Trust
Company from The Penn Mutual Life Insurance Company, where he served as
Executive Vice President and Chief Investment Officer as well as President
and Chief Executive Officer of the investment management subsidiaries. His
background includes over 10 years of senior trust investment experience in
Connecticut and Pennsylvania. He is a member of the board of directors of
U.S. Trust Company. Mr. Ferdinand is a Chartered Financial Analyst and
received a B.S. degree from the University of Pennsylvania Wharton School
of Business. He earned his M.B.A. from New York University. He is a member
of the New York and International Society of Security Analysts and the
Association for Investment Management and Research.
Joseph A. Gallagher (58) is Senior Vice President of U.S. Trust
Company of New Jersey. Prior to joining U.S. Trust Company of New Jersey,
Mr. Gallagher was Managing Director of Delafield, Harvey, Tabell, which was
acquired by U.S. Trust in 1992. Previously, he held the positions of Senior
Portfolio Manager in the Private Banking and Investment Division at
Citibank, N.A. and Vice President -- Investments at United Jersey Bank. Mr.
Gallagher received his B.S. degree from Georgetown University. He is a
Chartered Financial Analyst and a member of the New York Society of
Security Analysts and the Association for Investment Management and
Research.
Rosemary Sagar (40) is Managing Director of United States Trust
Company of New York. Ms. Sagar is responsible for U.S. Trust Company's
Global Investment Division. She is responsible for overseeing U.S. Trust's
international investment activities, including portfolio management,
research and trading. Prior to joining U.S. Trust, Ms. Sagar was senior
vice president for international equities for GE Investments in Stamford,
Connecticut. She was also Chairman of GE (UK) Common Investment Fund, GE
Company's largest pension fund outside North America, and a member of the
board of the GE Netherlands Pension Fund. From 1987 to 1990, Ms. Sagar was
associate director of research for Baring Securities. Previously, she held
positions as a vice president at Drexel Burnham Lambert and as an analyst
with Morgan Stanley. Ms. Sagar is a member of the Advisory Board of the
Paris Stock Exchange. She is a Chartered Financial Analyst. She received
her M.B.A. from Columbia University, her undergraduate degree from Boston
University (summa cum laude) and studied at the Sorbonne in Paris.
Harvey A. Seline (61) is a Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Seline is a
Division Manager in the Personal Wealth Management Group. He has been with
United States Trust Company of New York since 1969. Prior to joining U.S.
Trust, he was a Trust Investment Officer at The National Bank of Tulsa and
a Trust Analyst at First City National Bank in Houston. Mr. Seline received
his B.A. from the University of Colorado and his M.B.A. from the Columbia
University Graduate School of Business Administration. Mr. Seline is a
Chartered Financial Analyst, a member of the New York Society of Security
Analysts and a member of The Association for Investment Management and
Research.
Jay B. Springer (41) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Springer is a
Division Manager in the Personal Wealth Management Group. Previously, he
worked as a Financial Analyst at Citibank. Mr. Springer earned his B.A.,
magna cum laude, from Boston University and his M.B.A. from New York
University Graduate School of Business. He is currently a member of The New
York State Bankers Association Trust Investment Committee and is a former
director of Bank Fiduciary Funds. Mr. Springer serves on the board of
directors of Christmas-in-April-USA.
David A. Tillson (51) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Tillson is a
Division Manager in the Personal Wealth Management Group. Prior to joining
United States Trust Company of New York, he was the President of TDA
Capital Management Company, which he formed in 1990. From 1992 until he
joined U.S. Trust, he was also a Senior Vice President at Matrix Asset
Advisers. Prior to founding TDA Capital management, he was a vice
president, portfolio manager and director of research at Management Asset
Corporation. He also held positions at W.P. Carey & Company and General
Reinsurance Corporation. Mr. Tillson received his B.A. in 1971 from Brown
University and his M.B.A. in 1974 from New York University. A Chartered
Financial Analyst, Mr. Tillson is a member of the New York Society of
Security Analysts and the Association for Investment Management Research.
Leigh H. Weiss (45) is Managing Director of United States Trust
Company of New York and Manager of Institutional Equity and Balanced
Portfolios. Mr. Weiss has been with the United States Trust Company of New
York since September of 1993. Prior to joining United States Trust Company
of New York, he worked for Goldman, Sachs & Co., where he had been since
1981. Mr. Weiss received his B.S. degree in Economics from the Wharton
School of the University of Pennsylvania and he earned his M.B.A. from the
University of Chicago.
David J. Williams (58) is Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. He is a member of
United States Trust Company of New York's Investment Policy Committee and
manages the Excelsior Value and Restructuring Fund. Formerly, Mr. Williams
was a Senior Vice President and the Senior Investment Officer of Horizon
Trust Company in Morristown, New Jersey. He was also a Portfolio Manager
with T. Rowe Price Associates, Inc. in Baltimore, Maryland. Mr. Williams
received his B.A. from Yale University and his M.B.A. from Harvard
University. He is a Chartered Financial Analyst.
George C. Whiteley III (60) is Managing Director and Senior
Portfolio Manager of United States Trust Company of New York. Mr. Whiteley
is a Division Manager in the Personal Wealth Management Group. He joined
the United States Trust Company of New York in 1995. Prior to joining
United States Trust Company of New York, he worked for Chase Manhattan Bank
where he was Vice President and Chief Investment Executive of U.S. Private
Banking. Mr. Whiteley received his B.A. degree from Harvard College and was
awarded his J.D. from New York University School of Law.
BOARD OF MANAGER COMPENSATION
Each member of the Board of Managers will receive $750 annually
and $500 per Fund meeting attended, paid by the Fund. Members of the Board
of Managers are also entitled to reimbursement of their actual
out-of-pocket expenses incurred in connection with their attendance at
meetings of the Board of Managers. Neither the Fund nor the Portfolio has a
stock option plan, other long-term incentive plan, retirement plan or other
retirement benefits.
<TABLE>
<CAPTION>
ESTIMATED COMPENSATION TABLE
TOTAL
AGGREGATE ESTIMATED ANNUAL COMPENSATION
AGGREGATE COMPENSATION PENSION OR RETIREMENT BENEFITS UPON FROM PORTFOLIO
NAME OF PERSON, POSITION COMPENSATION FROM BENEFITS ACCRUED AS RETIREMENT AND FUND
FROM THE FUND THE PORTFOLIO PART OF FUND EXPENSES COMPLEX1
<S> <C> <C> <C> <C> <C>
John C. Hover, II* Manager $1,750 $9,750 0 0 $53,500
(4 Funds)
Gene M. Bernstein, Manager $1,750 $9,750 0 0 $59,750
(5 Funds)
Steven V. Murphy, Manager $1,750 $9,750 0 0 $59,750
(5 Funds)
Victor F. Imbimbo, Jr. $1,750 $9,750 0 0 $55,250
Manager (5 Funds)
-------------------
1 The total compensation paid to such persons by the Fund, the Portfolio and the Fund Complex is estimated
for the fiscal year ending October 31, 2000. The parenthetical number represents the number of investment
companies (including the Fund and the Portfolio) from which such person receives compensation that are
considered part of the same Fund Complex as the Fund.
* Interested person of the Fund and the Portfolio.
</TABLE>
CONTROL PERSONS
Upon completion of the offering, no person is expected to have
voting control over the Fund.
CUSTODIAN AND TRANSFER AGENT
PFPC Trust Company ("PFPC Trust") will serve as the Fund's and the
Portfolio's custodian in accordance with the provisions of the Investment
Company Act and the rules and regulations thereunder. As such, PFPC Trust
will be responsible for holding the Fund's and the Portfolio's cash and
portfolio securities. PFPC Trust will also serve as the transfer agent and
distribution paying agent for the Fund's Units. For its custodian, transfer
agency and paying agency services, PFPC Trust will receive customary fees
from the Fund and the Portfolio. PFPC Trust's address is: PFPC Trust
Company, 8800 Tinicum Boulevard, 3rd Floor, Suite 200, Philadelphia,
Pennsylvania 19153.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board of Managers, the
Fund's Adviser will arrange for the execution of the Fund's portfolio
transactions and the allocation of brokerage. Subject to policies
established by the Portfolio's board of managers, the Investment Adviser or
Investment Sub-Adviser will arrange for the execution of the Portfolio's
portfolio transactions and the allocation of brokerage. For purposes of
this discussion, the Fund's Adviser, the Investment Adviser and the
Investment Sub-Adviser are referred to collectively as the Advisers. In
executing portfolio transactions, the Advisers will seek to obtain the most
favorable execution of portfolio transactions that is the best combination
of net price and prompt reliable execution. In the Advisers' opinions, it
is not possible to determine in advance that any particular broker will
actually be able to effect the most favorable execution because, in the
context of a constantly changing market, order execution involves judgments
as to the price, volume, trend and breadth of the market, possibility of a
block transaction and the broker's activity in the security, as well as its
general record for prompt, competent and reliable service in all aspects of
order processing, execution and settlement as well as anticipated
commission rates.
A portion of the securities in which the Portfolio or the Fund
will invest may be traded in the over-the-counter markets, and the
Portfolio and Fund intend to deal directly with the dealers who make
markets in the securities involved, except in those circumstances where
better prices and execution are otherwise available. Under the Investment
Company Act, persons affiliated with the Portfolio or the Fund generally
are prohibited from dealing with them as principal in the purchase and sale
of securities. Transactions in the over-the-counter markets usually involve
transactions with dealers acting as principal for their own account. The
Portfolio and Fund will not deal with affiliated persons as principal in
such transactions; however, affiliated persons of the Portfolio or the Fund
may serve as broker in over-the-counter markets and other transactions
conducted on an agency basis in accordance with the Investment Company Act.
If an affiliated person of the Portfolio or the Fund is a market maker in
the securities of a company, the affiliated person will not serve as the
Portfolio's or the Fund's broker in the purchase of such securities.
The Advisers have no obligation to deal with any broker or group
of brokers in the execution of transactions. With respect to certain
securities, portfolio transactions may be effected through affiliates of
the Advisers, provided it is consistent with the policy of obtaining the
most favorable execution. The Fund's and the Portfolio's boards of managers
have adopted procedures to ensure compliance with applicable regulations
relating to trading of portfolio securities.
In allocating brokerage among other brokers who are believed to be
capable of providing equally favorable execution, the Fund and the
Portfolio may also take into consideration the fact that a particular
broker may, in addition to execution capability, provide other services to
the Fund, the Portfolio or the Advisers and their affiliates, such as
research and statistical information. Research services so received are in
addition to and not in lieu of services required to be performed by the
Advisers and do not reduce the investment advisory fees payable by the
Portfolio or the Fund. Such services may be useful to the Advisers in
serving the Fund and the Portfolio and other clients and, conversely,
research services obtained by the placement of brokerage business of other
clients may be useful to the Advisers in carrying out their obligations to
the Fund and the Portfolio. The Advisers might incur significant expense
were they to purchase such research services.
PORTFOLIO TURNOVER
Because the investments of the Portfolio generally require
relatively long periods of time to reach maturity, it is expected that the
Portfolio's investment turnover will be low. There is, however, no policy
limitation on the ability of the Portfolio to sell an investment after a
short period of time. Any short-term securities in which the Portfolio or
the Fund invest will have a high rate of turnover.
Portfolio turnover will generally involve some expense, including
brokerage commissions or dealer mark-ups and other transaction costs on the
sale of securities and, where permitted, reinvestment in other securities.
The portfolio turnover rate will be computed by dividing the lesser of the
amount of the securities purchased or securities sold during the year by
the average monthly value of securities owned during the year (excluding
securities whose maturities at acquisition were one year or less).
REGULATION
The Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"), generally prohibits an investment adviser from entering
into an investment advisory contract with an investment company that
provides for compensation to the investment adviser on the basis of a share
of capital gains upon or capital appreciation of the funds or any portion
of the funds of the investment company. In 1980, Congress enacted the Small
Business Investment Incentive Act of 1980 which added provisions to the
Investment Advisers Act which permit the payment of compensation to an
investment adviser to a BDC based on capital gains.
In addition, the Small Business Investment Incentive Act of 1980
modified the provisions of the Investment Company Act that are applicable
to BDCs. The BDC is considered to be a closed-end investment company as
those terms are defined in the Investment Company Act. The following is a
brief description of certain provisions of the Investment Company Act, as
modified by the Small Business Investment Incentive Act of 1980, and is
qualified in its entirety by reference to the full text of the Investment
Company Act and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must
engage in the business of furnishing capital and offering significant
managerial assistance to companies that do not have ready access to capital
through conventional financial channels. A BDC must be operated for the
purpose of making investments in securities of the types required by the
Investment Company Act, which types include certain present and former
"eligible portfolio companies" and certain bankrupt or insolvent companies.
A BDC need not invest in all of the possible types of securities approved
for investment by BDCs. Business development companies must also make
available significant managerial assistance to portfolio companies. An
eligible portfolio company generally is a United States company that is not
an investment company (except for wholly-owned Small Business Investment
Companies licensed by the Small Business Administration) and that (i) does
not have a class of securities registered on a national securities exchange
or included in the Federal Reserve Board's over-the-counter margin list,
(ii) is actively controlled by the BDC, either alone or as part of a group
acting together, and an affiliate of the BDC is a member of the portfolio
company's board of directors or (iii) meets such other criteria as may be
established by the Commission. Control, under the Investment Company Act,
is presumed to exist where the BDC owns 25% of the outstanding voting
securities of the portfolio company.
The Investment Company Act limits the type of assets that the
Portfolio may acquire to "qualifying assets" and certain assets necessary
for its operations (such as office furniture, equipment, and facilities)
unless, at the time of the acquisition, at least 70% of the value of the
Portfolio's investment assets consists of qualifying assets. Qualifying
assets include: (i) securities of companies that were eligible portfolio
companies at the time the Portfolio acquired their securities; (ii)
securities of bankrupt or insolvent companies that are not otherwise
eligible portfolio companies; (iii) securities acquired as follow-on
investments in companies that were eligible at the time of the Portfolio's
initial acquisition of their securities but are no longer eligible,
provided that the Portfolio has maintained a substantial portion of its
initial investment in those companies; (iv) securities received in exchange
for or distributed on or with respect to any of the foregoing; and (v) cash
items, government securities, and high-quality, short-term debt. The
Investment Company Act also places restrictions on the nature of the
transactions in which, and the persons from whom, securities can be
purchased in order for the securities to be considered qualifying assets.
In addition, certain provisions of the federal banking laws, including the
Bank Holding Company Act of 1956, as amended, would prohibit or restrict
investments by the Portfolio in securities of commercial banking
organizations.
The Portfolio is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of equity senior to the Portfolio Units if its asset coverage, as
defined in the Investment Company Act, is at least 200% after the issuance
of the debt or equity. In addition, provision must be made to prohibit any
distribution to members or the repurchase of any Portfolio Units unless the
asset coverage ratio is at least 200% at the time of the distribution or
repurchase.
After this offering, the Portfolio may sell its securities at a
price that is below the prevailing net asset value per Unit only upon the
approval by the holders of a majority of its voting securities, including
the Fund.
Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the
Portfolio and its affiliates (as well as affiliates of those affiliates)
that would previously have been prohibited without the prior approval of
the Commission require the prior approval of a majority of the
disinterested members of the Portfolio's board of managers having no
financial interest in the transactions. Certain transactions involving
certain closely affiliated persons of the Portfolio, including the
Investment Adviser, the Investment Sub-Adviser and their officers and
employees, still require the prior approval of the Commission. In general,
(i) any person who owns, controls, or holds with power to vote, more than
5% of the outstanding Units (including the Fund), (ii) any director,
executive officer, or general partner of that person, and (iii) any person
who directly or indirectly controls, is controlled by, or is under common
control with, that person, must obtain the prior approval of a majority of
the disinterested members of the Portfolio's board of managers and, in some
situations, the prior approval of the Commission, before engaging in
certain transactions involving the Portfolio or any company controlled by
the Portfolio. The Investment Company Act and applicable rules thereunder
generally do not restrict transactions between the Portfolio and its
Portfolio Companies. In accordance with the Investment Company Act, a
majority of the members of the Fund's and the Portfolio's boards of
managers are not interested persons as defined in the Investment Company
Act. See "Management."
VALUATION OF PORTFOLIO SECURITIES
The valuation of the Fund's assets is dependent on the valuation
of the Portfolio's portfolio securities. Because the Fund invests its
assets in interests in the Portfolio, the Fund's net asset value will
reflect the value of its interest in the Portfolio (which, in turn,
reflects the underlying value of the Portfolio's assets and liabilities).
Under the supervision of and in accordance with procedures adopted by the
Portfolio's board of managers, the Investment Adviser or Investment
Sub-Adviser or a committee of the Portfolio's board of managers will value
the securities in the Portfolio's portfolio quarterly and at such other
time as, in the Portfolio's board of manager's view, circumstances warrant.
In the event of a sale by the Portfolio of its units, the Portfolio must
determine the net asset value (the "NAV") of a Portfolio Unit as of a date
within 48 hours before such sale (excluding Sundays and holidays) to comply
with the requirement of the Investment Company Act that securities not be
sold below NAV without member approval.
In order to determine the NAV per Portfolio Unit, (i) the value of
the assets of the Portfolio, including its portfolio securities, will be
determined by the Investment Adviser or Investment Sub-Adviser or a
committee of the Portfolio's board of managers under the supervision of the
Portfolio's board of managers, (ii) the Portfolio's liabilities will be
subtracted therefrom and (iii) the difference will be divided by the number
of outstanding Portfolio Units. For purposes of this calculation, any
amount of the Incentive Carried Interest, calculated as if all gains on
investments were realized gains, that the Investment Adviser would be
entitled to distribution of if the Portfolio had cash available for
distribution will be treated as a liability of the Portfolio.
Securities for which market quotations are readily available
generally will be valued at the last sale price on the date of valuation
or, if no sale occurred, at the mean of the latest bid and ask prices.
Securities for which market quotations are not readily available and other
assets will be valued at fair value as determined in good faith by the
Investment Adviser or Investment Sub-Adviser or a committee of the
Portfolio's board of managers under the supervision of the Portfolio's
board of managers and pursuant to procedures established and periodically
reviewed by the Portfolio's board of managers. Securities having remaining
maturities of 60 days or less are valued at amortized cost.
The value for restricted stock investments for which no public
market exists is difficult to determine. Generally, such investments will
be valued on a "going concern" basis without giving effect to any
disposition costs. There is a range of values that is reasonable for such
investments at any particular time. In the early stages of development,
venture capital investments shall be valued based upon their original cost
to the Portfolio, until developments positively or negatively affecting the
Portfolio Company provide a sufficient basis for use of a valuation other
than cost (such as changes in the Portfolio Company's prospects or reliable
private sales of a Portfolio Company's securities at prices different from
the value initially used by management). Such developments may occur
shortly after the Portfolio's original investment, or after a longer
period. Upon the occurrence of developments providing a sufficient basis
for a change in valuation, venture capital investments will be valued by
the private market or appraisal methods of valuation. The Portfolio shall
use reliable third party transactions (actual or proposed) in Portfolio
Company securities as a basis of valuation. This private market method
shall only be used with respect to actual transactions or actual firm
offers by sophisticated, independent investors. The appraisal method shall
be based upon such factors affecting the Portfolio Company as earnings, net
worth, reliable private sale prices of the Portfolio Company's securities,
the market prices for similar securities of comparable companies and an
assessment of the Portfolio Company's future prospects. In the case of
unsuccessful operations, the appraisal may be based upon liquidation value.
The values for the investments referred to in this paragraph will be
estimated regularly by the Investment Adviser or Investment Sub-Adviser or
a committee of the Portfolio's board of managers and, in any event, not
less frequently than quarterly. However, there can be no assurance that
such value will represent the return that might ultimately be realized by
the Portfolio from the investments.
The Portfolio anticipates that it may invest in securities for
which a public market exists but which are "restricted securities" for
purposes of the Securities Act. In evaluating such securities, the
Investment Adviser or Investment Sub-Adviser or a committee of the
Portfolio's board of managers will take into consideration various factors,
including the price at which the securities in question were acquired
relative to the market price for unrestricted shares of the same securities
at the time of such acquisition, modified as appropriate to reflect the
nature of the market in which the securities are traded, if any, the amount
of the public float, the existence and terms of any securities registration
rights, the proportion of the Portfolio Company's securities held by the
Portfolio, changes in the financial condition and prospects of such
Portfolio Company and other factors which may affect their fair value, all
in accordance with the Investment Company Act. Restricted securities for
which an established trading market exists will typically be valued at a
discount of 10% to 40% from the public market price with the amount of the
discount decreasing as the restriction period decreases. If an established
trading market does not exist, valuations will be made consistent with the
"going concern" method described above.
The Portfolio's investments in Private Funds generally will be
valued based upon the Portfolio's pro rata share of the value of the assets
of a Private Fund as determined by such Private Fund in accordance with its
by-laws and constitutional or other documents governing such valuation, on
the valuation date. If such valuation with respect to investments in
Private Funds is not available by reason of timing or other event on the
valuation date or are deemed to be unreliable by the Investment Adviser or
Investment Sub-Adviser, the Investment Adviser or Investment Sub-Adviser,
under supervision of the Portfolio's board of managers, will determine such
value based on the Investment Adviser's or Investment Sub-Adviser's
judgment of fair value on the appropriate date, less applicable charges, if
any.
To the extent that the Fund holds any assets directly, it will
value such assets consistent with the valuation procedures of the Portfolio
described above.
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS
Investors in the Fund will become members in the Fund, which will
establish a capital account for each member. Your capital contributions and
your share of items of income and gain will be credited to your capital
account, and your distributions and your share of items of loss, deduction
and expense will be debited from your capital account. All allocations and
distributions made by the Fund will generally be made pro rata in
proportion to each member's interest in the Fund. The Fund will in turn
become a member of the Portfolio, which will maintain capital accounts and
make allocations and distributions as discussed below.
Capital Accounts. The Portfolio will establish a capital account
for each investor who becomes a member of the Portfolio, including the
Fund. Capital contributions and the member's share of items of income and
gain will be credited to the member's capital account, and distributions
and the member's share of items of loss, deduction and expense will be
debited from the member's capital account. The Portfolio will establish a
capital account for the Investment Adviser to which allocations in respect
of the Incentive Carried Interest will be made.
Allocations. The income, gain, loss, deduction and expense of the
Portfolio will be determined and allocated as of the end of each tax year
(typically December 31) to reflect the economic interests of the members
and the Investment Adviser.
Each year, Portfolio allocations generally will be made in the
following order:
o gains will be allocated to the Investment Adviser until the
cumulative amount of all gains that has been allocated to the
Investment Adviser from the commencement of operations equals
the Incentive Carried Interest calculated through the end of
the period for which the allocation is being made; then
o all remaining items of income, gain, loss, deduction and
expense will be allocated to the members pro rata in
accordance with their capital contributions.
For any given period, the allocation of gain to the Investment
Adviser described above will be made out of long-term capital gain and
short-term capital gain in proportion to the amount of such gains available
for allocation.
For any given period, the Incentive Carried Interest will be an
amount equal to 20% of the excess, if any, of the cumulative amount of all
capital gains realized by the Portfolio on Direct Investments from the
commencement of operations through the end of such period over the sum of:
o the cumulative amount of all capital losses realized by the
Portfolio on all investments of any type from the
commencement of operations through the end of such period;
and
o the amount of net unrealized capital depreciation on all
investments of any type determined as of the close of such
period.
To the extent that the Portfolio distributes property in kind, the
Portfolio will be deemed to have realized gain or loss on such property
based on the value assigned to such property in accordance with the
Portfolio's valuation procedures. In the event of the resignation or
removal of the Investment Adviser or other termination without
reinstatement of the Portfolio's investment advisory agreement with the
Investment Adviser or an affiliate, the assets of the Portfolio will be
valued in accordance with the Portfolio's operating agreement as of the
date of resignation, removal or termination, and the Portfolio will be
deemed to have realized gain or loss on such assets based on the valuations
so assigned.
Notwithstanding the foregoing, the Portfolio may, in its sole and
absolute discretion, make special allocations of items of Portfolio income,
gain, loss, deduction and expense in order to cause the capital account
balances of the members and the Investment Adviser to reflect the economic
arrangement set forth in the following paragraph.
Distributions. The Fund will distribute all cash that the Fund's
Adviser does not expect to use in the operation of the Fund and that is
available after the payment of all expenses then due and the creation of
any reserves. As discussed below, due to the nature of the Portfolio's
investments, investors in the Fund should not expect distributions of cash
or property during the first several years of the Fund's operations. The
Fund will not reinvest income from its investments or the proceeds from the
sale of its investments. The Fund does not intend to make any distribution
if, after making such distribution, the liabilities of the Fund would
exceed the fair value of the Fund's assets.
The Portfolio will distribute all cash that the Investment Adviser
does not expect to use in the operation of the Portfolio and that is
available after the payment of all expenses then due and the creation of
any reserves. The Portfolio will consider such distributions at least
annually but, as described below, does not expect to make distributions of
cash or property during the first several years of operations. Each year,
the Investment Adviser generally will be entitled to a distribution equal
to the Incentive Carried Interest. The members, including the Fund,
generally will be entitled to all amounts remaining for distribution pro
rata in accordance with their capital contributions. Upon liquidation of
the Portfolio, any cash or other property available for distribution will
be distributed to the members, including the Fund, and to the Investment
Adviser pro rata in accordance with their respective capital account
balances. The Investment Adviser's capital account balance generally will
reflect the allocations that have been made to the Investment Adviser in
respect of the Incentive Carried Interest but that have not been previously
distributed to the Investment Adviser.
Due to the nature of the Portfolio's investments, investors should
not expect to receive distributions of cash or property during the first
several years of the Portfolio's and the Fund's operations. The Portfolio
will not reinvest income from its investments or the proceeds from the sale
of its investments, in each case other than in Short-Term Investments,
except to make follow-on investments. The Portfolio may make distributions
in kind of its property, which generally would be treated for purposes of
the Portfolio's distribution policies as distributions of cash in an amount
equal to the current market value or fair value of such property determined
in accordance with the Portfolio's valuation procedures. The Portfolio does
not intend to make any distributions if after making such distribution the
liabilities of the Portfolio would exceed the fair value of the Portfolio's
assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax
consequences to the initial members who are U.S. persons. The discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, judicial authorities, published positions of the IRS
and other applicable authorities, all as in effect on the date hereof and
all of which are subject to change or differing interpretations (possibly
with retroactive effect). The discussion does not address all of the tax
consequences that may be relevant to a particular member or to members
subject to special treatment under federal income tax laws (e.g., banks and
certain other financial institutions, insurance companies, tax-exempt
organizations and non-U.S. persons). This discussion is limited to members
who hold their Units as capital assets. No ruling has been or will be
sought from the IRS regarding any matter discussed herein. Except as
expressed in "Tax Status of the Fund and the Portfolio" below, counsel to
the Fund has not rendered any legal opinion regarding any tax consequences
relating to the Fund or the Portfolio or an investment in the Fund. No
assurance can be given that the IRS would not assert, or that a court would
not sustain, a position contrary to any of the tax aspects set forth below.
PROSPECTIVE INVESTORS MUST CONSULT THEIR OWN TAX ADVISERS AS TO THE FEDERAL
INCOME TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF UNITS AS
WELL AS THE EFFECTS OF STATE, LOCAL AND NON-U.S. TAX LAWS.
TAX STATUS OF THE FUND AND THE PORTFOLIO. At the first
subscription closing, the Fund will receive an opinion of its counsel,
Skadden, Arps, Slate, Meagher & Flom LLP, to the effect that, under current
law and based on certain assumptions and representations, the Fund will be
treated as a partnership and not as a "publicly traded partnership" that is
treated as a corporation for federal income tax purposes. The Portfolio
will receive a similar opinion from counsel on or before the first
subscription closing for the Portfolio. An opinion of counsel is not
binding on the IRS or any court.
A limited liability company that is registered as an investment
company under the Investment Company Act (in the case of the Fund) or that
has elected to be treated as a business development company under the
Investment Company Act (in the case of the Portfolio) would be treated as a
corporation for federal income tax purposes if it were to become a publicly
traded partnership. A publicly traded partnership is a partnership (or
limited liability company intended to be treated as a partnership) the
interests of which are either traded on an established securities market or
readily tradable on a secondary market (or the substantial equivalent
thereof). Each of the Fund and the Fund's Adviser has represented to
counsel for the Fund that, among other things, neither it, nor any
affiliate thereof, will participate in the establishment of an established
securities market or secondary market (or the substantial equivalent
thereof) for this purpose. Similarly, each of the Portfolio, the Investment
Adviser and the Investment Sub-Adviser has represented to counsel for the
Portfolio that, among other things, neither it, nor any affiliate thereof,
will participate in the establishment of an established securities market
or secondary market (or the substantial equivalent thereof) for this
purpose.
In addition, the operating agreements for the Fund and the
Portfolio impose significant restrictions on transfer of interests of the
respective entities in order to address this point. By subscribing for
Units, each member agrees to indemnify and hold harmless the Fund, the
Fund's Adviser, the Distributor, each other member and any successor or
assign of any of the foregoing, from and against all losses, claims,
damages, liabilities, costs and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any transfer made by that
member in violation of the Operating Agreement or any misrepresentation
made by that member in connection with any purported transfer. A similar
indemnification is required to be made by a permitted transferee of Units.
Members of the Portfolio (including the Fund) and permitted transferees of
Portfolio interests will similarly indemnify the Portfolio, the Investment
Adviser, the Investment Sub-Adviser, each other member of the Portfolio and
any successor or assign of any of the foregoing.
Ultimately, counsel's opinion as to the treatment of the Fund and
Portfolio as partnerships for federal income tax purposes will be based on,
among other things, the maintenance of factual conditions (including those
underlying the representations made to counsel), the continuation of which
cannot be assured. Counsel to the Fund and the Portfolio will not render a
tax status opinion or review such factual environment after the first
subscription closings.
If either the Fund or the Portfolio were treated as a publicly
traded partnership or otherwise treated as a corporation for federal income
tax purposes, material adverse consequences for the members would result.
The entity would be subject to tax on its income at corporate tax rates
without a deduction for any distribution to the members of such entity,
thereby materially reducing the amount of any cash available for
distribution to the members. In addition, the members of the entity would
be treated as shareholders for federal income tax purposes. Thus, capital
gains and losses and other income and deductions of the entity would not be
passed through to the members of the entity, and all distributions by the
entity to the members would be treated as dividends, return of capital
and/or gains.
The following discussion assumes that each of the Fund and the
Portfolio will continue to be treated as a partnership for federal income
tax purposes.
TAXATION OF MEMBERS OF THE FUND. By reason of the treatment of the
Fund and the Portfolio as partnerships for federal income tax purposes,
neither entity will be subject to federal income tax. Rather, with respect
to the Fund, each member in computing its federal income tax will include
his, her or its allocable share of Fund items of income, gain, loss,
deduction and expense for the taxable year of the ending within or with the
taxable year of the member. Each member's allocable share of Fund items
will include his, her or its share of the Fund's allocable share of
Portfolio items of income, gain, loss, deduction and expense.
Nonliquidating cash distributions made by the Fund to a member
generally will not be taxable to the member, except to the extent that the
amount of such cash distributions exceeds the distributee's adjusted tax
basis in his, her or its Units. Nonliquidating distributions of property
other than cash are also generally not taxable. If the Fund distributes
both cash and other property to a member, the member's adjusted tax basis
in his, her or its Units will be reduced first by the cash and then by the
Fund's tax basis in the other property distributed. The member will have a
tax basis in non-liquidating, non-cash distributions of property equal to
the Fund's tax basis in such property (but in no event in excess of the
member's adjusted tax basis in his, her or its Units reduced by the amount
of any cash distributed in the same transaction).
For federal income tax purposes, a member's allocable share of
Fund tax items will be determined by the provisions of the Operating
Agreement if such allocations have or are deemed to have "substantial
economic effect" or are determined to be in accordance with the members'
interests in the Fund. The allocations under the Operating Agreement are
intended to satisfy such requirements. If, however, the IRS successfully
challenged the Fund's allocations of income, gain, loss, deduction and
expense, the redetermination of the allocations to a particular member for
federal income tax purposes may be less favorable than the allocations set
forth in the Operating Agreement. Similar rules apply with respect to the
Fund's allocable share of Portfolio tax items.
The Fund may derive taxable income from a Portfolio investment
that is not matched by a corresponding receipt of cash. This could occur,
for example, if the Portfolio makes an investment in certain non-U.S.
corporations. See "Phantom Income from Portfolio Investments in Non-U.S.
Corporations" below. This could also occur if the Portfolio invests in an
entity that is classified as a partnership and such entity allocates income
or gain to the Portfolio without making a corresponding distribution of
cash. Moreover, the Portfolio is not required to make current distributions
of its entire earnings. In addition, a reduction of Portfolio nonrecourse
borrowings (as defined for federal income tax purposes) would be treated as
a constructive distribution of cash to a member to the extent of his, her
or its allocable share of such reduction, even though an actual cash
distribution is not made. Accordingly, it is possible that a member's
federal income tax liability with respect to his, her or its allocable
share of Fund earnings in a particular taxable year could exceed the cash
distributions to the member for the year, thus giving rise to an
out-of-pocket payment by the member.
TAX BASIS RULES. Fund distributions generally will not be taxable
to a member to the extent of such member's adjusted tax basis in his, her
or its Units. In addition, a member is allowed to deduct his, her or its
allocable share of Fund losses (if any) only to the extent of such member's
adjusted tax basis in his, her, or its Units at the end of the taxable year
in which the losses occur. A member's adjusted tax basis is equal to the
member's capital contributions to the Fund as adjusted by certain items.
Basis is generally increased by the member's allocable share of Fund
profits (and items of income and gain) and nonrecourse borrowings (as
defined for federal income tax purposes). Basis is generally decreased by
the member's allocable share of Fund losses (and items of loss, deduction
and expense), the amount of cash distributed by the Fund to the member, the
Fund's tax basis of property (other than cash) distributed by the Fund to
the member and any reduction in the member's allocable share of nonrecourse
borrowings (as defined for federal income tax purposes).
To the extent that a member's allocable share of Fund losses are
not allowed because the member has insufficient adjusted tax basis in his,
her or its Units, such disallowed losses may be carried over by the member
to subsequent taxable years and will be allowed if and to the extent of the
member's adjusted tax basis in subsequent years.
AT RISK RULES. Individuals and certain closely held C corporations
are allowed to deduct their allocable share of Fund losses (if any) only to
the extent of each such member's "at risk" amount in the Fund at the end of
the taxable year in which the losses occur. A member's at risk amount
generally is equal to the member's aggregate capital contributions to the
Fund. To the extent that a member's allocable share of Fund losses are not
allowed because the member has an insufficient amount at risk in the Fund,
such disallowed losses may be carried over by the member to subsequent
taxable years and will be allowed if and to the extent of the member's at
risk amount in subsequent years.
PASSIVE ACTIVITY LOSS RULES. Individuals, estates, trusts, closely
held C corporations and personal service corporations are not allowed to
deduct "passive activity losses" (as defined for federal income tax
purposes) against certain other income, such as salary or other
compensation for personal services, interest, dividends, annuities or
royalties not derived in the ordinary course of a trade or business and
gain attributable to the disposition of property that either produces such
nonbusiness income or is held for investment. The Fund's investment
activities generally will not constitute a passive activity for purposes of
the passive activity loss rules. Therefore, a member will not be allowed to
offset his, her or its allocable share of Fund items of income or gain with
the member's passive activity losses from other sources.
INVESTMENT INTEREST LIMITATION. Individuals and other noncorporate
taxpayers are allowed to deduct their allocable shares of interest paid or
accrued by the Portfolio on its indebtedness (so-called investment
interest) only to the extent of each such member's net investment income
for the taxable year. A member's net investment income generally is the
excess, if any, of the member's investment income from all sources (which
is gross income from property held for investment) over investment expenses
from all sources (which are deductions allowed that are directly connected
with the production of investment income). Investment income excludes net
capital gain attributable to the disposition of property held for
investment (and thus would not include any gains realized by the Portfolio
on the sale of its investments), unless the member elects to pay tax on
such gain at ordinary income rates.
To the extent that a member's allocable share of Portfolio
investment interest is not allowed because the member has insufficient net
investment income, such disallowed investment interest may be carried over
by the member to subsequent taxable years and will be allowed if and to the
extent of the member's net investment income in subsequent years. If a
member borrows to finance the purchase of Units, any interest paid or
accrued on the borrowing will be investment interest that is subject to
these limitations. Since the amount of a member's allocable share of
Portfolio investment interest that is subject to this limitation will
depend on the member's aggregate investment interest and net investment
income from all sources for any taxable year, the extent, if any, to which
Portfolio investment interest will be disallowed under this rule will
depend on each member's particular circumstances each year.
OTHER LIMITATIONS ON DEDUCTIONS AND SPECIAL CODE PROVISIONS.
Prospective investors should be aware that they could be subject to various
other limitations on their ability to deduct their allocable share of Fund
losses (or items of loss and deduction thereof, including the Fund's
allocable share of Portfolio items of loss and deduction). An individual,
estate or trust may deduct so-called miscellaneous itemized deductions
(which include the Portfolio management fee and certain other fees and
expenses of the Fund, the Portfolio and the Private Funds) only to the
extent that such deductions exceed 2% of the adjusted gross income of the
taxpayer. Since the amount of a member's allocable share of such expenses
that is subject to this disallowance rule will depend on the member's
aggregate miscellaneous itemized deductions from all sources and adjusted
gross income for any taxable year, the extent, if any, to which such
expenses will be subject to disallowance will depend on each member's
particular circumstances each year. Other limitations are imposed on
itemized deductions of high-income individuals.
For federal income tax purposes, if a member of a limited
liability company performs services for the company and there is a related
direct or indirect allocation and distribution by the company to such a
member, the allocation and distribution may be recharacterized as a fee. It
is intended that the Investment Adviser's Incentive Carried Interest
constitute an allocable share of Portfolio earnings and not a fee. No
assurance can be given, however, that the IRS could not successfully assert
that the Incentive Carried Interest be recharacterized as a fee under these
rules. If the Incentive Carried Interest were characterized as a fee,
members could be subject to the limitations on deductibility relating to
miscellaneous itemized deductions and certain other itemized deductions of
high-income individuals described in the preceding paragraph.
In addition, prospective investors should be aware that certain of
the activities of the Fund and the Portfolio may be subject to various
special provisions of the Code that, among other things, defer or disallow
the deductibility of certain expenses. Organizational expenses of the Fund
and the Portfolio are not currently deductible, but may, at the election of
the Fund and the Portfolio (as the case may be) be amortized ratably over a
period of not less than 60 months. Syndication expenses of the Fund and the
Portfolio (i.e., expenditures made in connection with the marketing and
issuance of interests therein, including placement fees) are neither
deductible nor amortizable.
NON-U.S. CURRENCY GAINS OR LOSSES. If the Portfolio makes an
investment or obtains financing denominated in a currency other than the
U.S. dollar, then the Portfolio (and thus the Fund) may recognize gain or
loss attributable to fluctuations in such currency relative to the U.S.
dollar. The Portfolio may also recognize gain or loss on such fluctuations
occurring between the time it obtains and disposes of non-U.S. currency,
between the time it accrues and collects income denominated in a non-U.S.
currency, or between the time it accrues and pays liabilities denominated
in a non-U.S. currency. Such gains or losses generally will be treated as
ordinary income or loss.
PHANTOM INCOME FROM PORTFOLIO INVESTMENTS IN NON-U.S.
CORPORATIONS. It is possible that the Portfolio may invest in non-U.S.
corporations that could be classified as "passive foreign investment
companies," "controlled foreign corporations" and "foreign personal holding
companies" (each as defined for federal income tax purposes). For federal
income tax purposes, these investments may, among other things, cause a
member to recognize taxable income without a corresponding receipt of cash,
to incur an interest charge on taxable income that is deemed to have been
deferred and/or to recognize ordinary income that would have otherwise been
treated as capital gains.
NON-U.S. TAXES. Certain dividends and interest received by the
Portfolio from sources outside of the U.S. may be subject to withholding
taxes imposed by other countries. The Portfolio may also be subject to
capital gains taxes in certain other countries where it purchases and sells
stocks and securities. Tax treaties between the United States and other
countries may reduce or eliminate such taxes.
The Fund will inform members as to their proportionate share of
non-U.S. taxes paid by the Portfolio and members will be required to
include such taxes in their income. Members generally will be entitled to
claim either a credit (subject, however, to various limitations on foreign
tax credits) or, if they itemize their deductions, a deduction (subject to
the limitations generally applicable to deductions) for their share of such
non-U.S. taxes in computing their federal income taxes.
SALE OF PORTFOLIO INVESTMENTS. The Portfolio (and thus the Fund)
will generally recognize capital gain or loss on the sale of its
investments.
LIMITATION ON DEDUCTIBILITY OF CAPITAL LOSSES. Capital losses are
deductible only to the extent of capital gains (subject to an exception for
individuals under which a limited amount of capital losses may be offset
against ordinary income).
SALE OF UNITS. Members will not be able or allowed to freely sell
or otherwise transfer their Units. In addition, neither the Fund, nor the
Fund's Adviser (or any affiliate thereof) will repurchase any Units, except
that the Fund will repurchase Units upon its termination. The Portfolio has
similar transfer restrictions with respect to its Units. By subscribing for
Units, each member agrees to indemnify and hold harmless the Fund, the
Fund's Adviser, the Distributor, each other member, and any successor or
assign of any of the foregoing, from and against all losses, claims,
damages, liabilities, costs and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any transfer made by that
member in violation of the Operating Agreement or any misrepresentation
made by that member in connection with any purported transfer. A similar
indemnification is required to be made by a permitted transferee. The
Portfolio has similar indemnities with respect to transfers of its units.
See "Risk Factors - No Public or Other Market for Units."
A member that is allowed to sell his, her, or its Units will
recognize gain or loss measured by the difference between the amount
realized on the sale and the member's adjusted tax basis in the Units sold
(as described in "Tax Basis Rules" above). Such gain or loss generally will
be long-term capital gain or loss if the member held the sold Units for
more than one year. The amount realized will include the member's allocable
share of Portfolio nonrecourse borrowings (as defined for federal income
tax purposes), if any, as well as any proceeds from the sale. Thus, a
member's tax liability upon the sale of Units may exceed the member's cash
proceeds from the sale.
ALTERNATIVE MINIMUM TAX. In certain circumstances, individuals,
corporations and other taxpayers may be subject to an alternative minimum
tax in addition to regular tax. A member's potential alternative minimum
tax liability may be affected by reason of an investment in the Fund. The
extent, if any, to which the alternative minimum tax applies will depend on
each member's particular circumstances for each taxable year.
TAX ELECTIONS. Under Section 754 of the Code, a limited liability
company treated as a partnership may make a generally irrevocable election
to adjust the tax basis of its assets in the event of a distribution of
company property to a member or in the event of a transfer of company
interests (in which latter case basis will be adjusted with respect to the
transferee member only). Neither the Fund nor the Portfolio currently
intends to make a Section 754 election. The board of managers for each of
the Fund and the Portfolio has sole and absolute discretion to make all tax
elections for its respective entity.
REPORTS TO MEMBERS. The Fund has the calendar year as its taxable
year. The Fund will furnish annually to each member a report containing a
Schedule K-1, which indicates each member's distributive share for each
calendar year of Fund income, gain, loss, deduction and expense for use in
the preparation of the member's income tax return. The Fund will endeavor
to deliver Schedules K-1 to members prior to April 15 of each year, but may
not be able to do so because, among other things, the Portfolio may not
receive, prior to April 15, a Schedule K-1 from a Private Fund that is
classified as a partnership for federal income tax purposes in which the
Portfolio has invested. Accordingly, members may be required to obtain
extensions for filing their federal, state and local income tax returns
each year. The Fund will provide members with estimated annual federal
income tax information prior to April 15, assuming the Fund is able to
obtain such information.
TAX AUDITS. Although not required to pay any federal income tax,
the Portfolio must file a federal income tax information return each
taxable year. The IRS may audit Portfolio returns in a unified entity
proceeding at the Portfolio level. The Investment Adviser, who would
represent the Portfolio at such an audit as the so-called tax matters
partner, has considerable authority to make decisions affecting the tax
treatment and procedural rights of the Portfolio. The Investment Adviser
may also generally enter into settlement agreements with the IRS that bind
the Portfolio and consent on behalf of the Portfolio to extend the statute
of limitations for assessing a deficiency with respect to a Portfolio item.
Rules similar to those described above also apply with respect to the Fund.
Successful adjustments by the IRS of Fund or Portfolio items of income,
gain, loss, deduction or expense could change a member's federal, state and
local income tax liabilities.
BACKUP WITHHOLDING. The Fund may be required to withhold federal
income tax at a rate of 31% on a member's allocable share of interest and
dividends if the member fails to provide the Fund with his, her or its
taxpayer identification number or a certificate that he, she or it is
exempt from backup withholding, or the IRS notifies the Fund that the
member is subject to backup withholding. The member may be entitled to a
federal income tax credit for the amount of any backup withholding if the
required information is furnished to the IRS.
CERTAIN CONSIDERATIONS FOR TAX-EXEMPT INVESTORS. The Portfolio may
from time to time borrow funds for operating purposes in an amount up to
25% of the value of its total assets (after giving effect to the borrowing)
in order to make additional investments in existing Portfolio Companies, to
maintain various regulatory qualifications, to pay contingencies and
expenses or in anticipation of the receipt of funds from capital
contributions or the disposition of investments. To the extent that the
Portfolio borrows funds, the Fund's allocable share of income attributable
to such borrowing will generate unrelated business taxable income ("UBTI")
for federal income tax purposes for pension funds, Keogh plans, individual
retirement accounts, tax-exempt institutions and other tax-exempt investors
(and may have other adverse tax consequences for certain tax exempt
investors, e.g., the receipt of any UBTI by a charitable remainder trust
would cause all income from all sources to be taxable to such a trust).
Accordingly, such prospective investors are urged to consult their own tax
advisers concerning possible federal, state, local and non-U.S. tax
consequences from an investment in the Fund.
CERTAIN CONSIDERATIONS FOR NON-U.S. INVESTORS. The discussion
under this heading applies to certain members who are not "U.S. persons" as
determined for U.S. federal income tax purposes ("non-U.S. members"). The
term "U.S. person" means:
o a citizen or individual resident of the United States;
o a corporation or partnership created or organized under the
laws of the United States or any political subdivision
thereof or therein;
o an estate the income of which is subject to U.S. federal
income taxation regardless of source; or
o a trust if (a) a U.S. court is able to exercise primary
supervision over the administration of the trust and one or
more U.S. persons has the authority to control all
substantial decisions of the trust or (b) the trust was in
existence on August 20, 1996 and properly elected to continue
to be treated as a U.S. person.
Given the nature of the investment activities of the Fund and the
Portfolio (the activities of which would be attributed to the Fund), the
Fund believes that a non-U.S. member generally should not be subject to
regular U.S. federal income taxation on his, her or its allocable share of
Fund income where such member's nexus with the U.S. is solely as a result
of an investment in Units. No prohibition exists on the nature of
investment activities of Private Funds in which the Portfolio invests, and
thus no assurances can be given in this regard. Fund allocations of
dividends and certain interest income to non-U.S. members will be subject
to U.S. withholding tax of 30% (unless reduced or eliminated by an
applicable treaty).
If, contrary to expectations, the Portfolio and thus the Fund,
were treated as being engaged in a U.S. trade or business, then each
non-U.S. member generally would be subject to regular U.S. federal income
taxation on his, her or its allocable share of Fund income. In such case,
each non-U.S. member would be required to file a U.S. federal income tax
return reporting his, her or its allocable share of Fund income
attributable to the conduct of a U.S. trade or business and to pay U.S.
federal income tax at regular U.S. rates on that income. In addition, the
Fund would be required to withhold and pay over to the IRS certain amounts
with respect to such income. Any amount so withheld would be creditable
against the non-U.S. member's ultimate U.S. federal income tax liability,
and the non-U.S. member would be entitled to a refund to the extent that
the amount withheld exceeded such member's U.S. federal income tax
liability for the taxable year. Finally, a corporate non-U.S. member's
allocable share of Fund income may be subject to a 30% U.S. branch profits
tax.
Different rules from those described above apply in the case of
non-U.S. members subject to special treatment under U.S. federal income tax
law, including a non-U.S. member:
o who has an office or fixed place of business in the U.S. or
is otherwise carrying on a U.S. trade or business;
o who is an individual present in the U.S. for 183 or more days
or has a "tax home" in the U.S. for U.S. federal income tax
purposes;
o who is a former citizen or resident of the U.S.; or
o that is a controlled foreign corporation, a foreign insurance
company that holds Units in connection with a U.S. trade or
business, a foreign personal holding company or a corporation
that accumulates earnings to avoid U.S. federal income tax.
NON-U.S. MEMBERS ARE URGED TO CONSULT THEIR U.S. TAX ADVISERS
REGARDING THE TAX CONSEQUENCES OF INVESTING IN THE FUND.
STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES. In addition to the
federal income tax consequences described above, the members, the Fund, the
Portfolio and the entities in which the Portfolio invests, may be subject
to various state, local and non-U.S. taxes. A member's allocable share of
Fund income, gain, loss, deduction and expense may be required to be
included in determining such member's reportable income for state, local
and non-U.S. tax purposes. In addition, state, local and non-U.S. taxation
of Fund and Portfolio tax items may differ from the treatment of such items
for federal income tax purposes.
The Fund's Adviser has sole and absolute discretion to file or not
to file composite, group or similar state, local and non-U.S. tax returns
on behalf of the members (where and to the extent permissible under
applicable law). If the Fund's Adviser decides to make any such composite,
group or similar filing, such a filing would eliminate a member's filing
requirement in such a jurisdiction arising by reason of an investment in
the Fund. Each member will be required to execute any relevant documents
(including a power of attorney authorizing such a filing), to furnish any
relevant information and otherwise to do anything necessary in order to
facilitate any such composite, group or similar filing. Any taxes paid by
the Fund in connection with any such composite, group or similar filing
will be treated as an advance to the relevant members (with interest being
charged thereon) and will be recouped by the Fund out of any distributions
subsequently made to the relevant members. Such advances may be funded by
the Fund's Adviser or an affiliate thereof (with interest thereon). Both
the deduction for interest payable by the Fund to the Fund's Adviser (or an
affiliate thereof) with respect to such advances, and the corresponding
income from interest received by the Fund from relevant members will be
specially allocated to such members, and such interest expense may be
subject to limitations on deductibility (see "Investment Interest
Limitation" above). Such taxes may be higher or lower than what a member's
state, local or non-U.S. tax liability would be in the absence of such a
composite, group or similar filing. The Portfolio's Investment Adviser has
similar discretion to file composite, group or similar state, local and
non-U.S. tax returns on behalf of its members.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF UNITS.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) that are subject to Title I of
ERISA, (b) plans (as defined in Section 4975(e)(1) of the Code) that are
subject to Section 4975 of the Code, including individual retirement
accounts or Keogh plans, (c) any entities whose underlying assets include
plan assets by reason of a plan's investment in such entities (each of (a),
(b) and (c), a "Plan") and (d) persons who have certain specified
relationships to Plans ("Parties in Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United
States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav.
Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account
(e.g., through the purchase of an annuity contract), and such insurance
company might be treated as a Party in Interest with respect to a Plan by
virtue of such investment. ERISA also imposes certain duties on persons who
are fiduciaries of Plans subject to ERISA, and ERISA and Section 4975 of
the Code prohibit certain transactions between a Plan and Parties in
Interest or Disqualified Persons with respect to such Plan. Violations of
these rules may result in the imposition of excise taxes and other
penalties and liabilities under ERISA and the Code.
Prior to making an investment in the Units, prospective Plan
investors should consult with their legal advisers concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Plan fiduciary
should take into account, among other considerations, whether the fiduciary
has the authority to make the investment; whether the investment
constitutes a direct or indirect transaction with a Party in Interest or
Disqualified Person; the composition of the Plan's portfolio with respect
to diversification by type of asset; the Plan's funding objectives; the tax
effects of the investment; and whether under the general fiduciary
standards of investment prudence and diversification an investment in the
Units is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio. Governmental plans, foreign pension plans and certain church
plans are not generally subject to the fiduciary responsibility provisions
of ERISA or the provisions of Section 4975 of the Code.
The sale of any Units to a Plan is in no respect a representation
by the Fund that such an investment meets all relevant legal requirements
with respect to investments by Plans generally or any particular Plan, or
that such an investment is appropriate for Plans generally or any
particular Plan.
DESCRIPTION OF UNITS
The Fund has been formed as a Delaware limited liability company
and as such is governed by Delaware law and an operating agreement (the
"Operating Agreement") that defines many of the rights and responsibilities
of the Board of Managers and members. A copy of the form of Operating
Agreement is attached hereto as Appendix B. Investors will become members
of the Fund, which will establish a capital account for each member. Your
capital contribution and your share of items of income and gain will be
credited to your capital account and your distributions and your share of
items of loss, deduction and expense will be debited from your capital
account. See "Capital Accounts, Allocations and Distributions." The fiscal
year of the Fund ends on October 31.
SUMMARY OF LIMITED LIABILITY COMPANY OPERATING AGREEMENT
The Operating Agreement governs the relationships, rights and
obligations of the investors in the Fund. The following is intended only as
a summary of certain provisions of the Operating Agreement not discussed
elsewhere in this prospectus. The Operating Agreement is subject to the
provisions of the Investment Company Act. The statements made herein do not
purport to be complete and are qualified by reference to the Operating
Agreement. Prospective investors should study the entire Operating
Agreement before signing the Subscription Agreement.
Fund Capital. Except as specifically provided in the Operating
Agreement, no investor is entitled to interest on any capital contribution
to the Fund or on such investor's capital account. Except as otherwise
provided in the Operating Agreement, no investor has the right to withdraw,
or to receive any return of, such investor's capital contribution. No
investor is required to make any additional capital contributions to the
Fund beyond the amount of the investor's subscription. See "Liability of
Members" below.
Voting Rights of Investors. Investors cannot participate in the
management or control of the Fund. However, the Operating Agreement
provides that, subject to certain conditions described below, the investors
may vote on or approve certain Fund matters. Upon notification to the Fund,
investors may obtain a list of the names and addresses (if known) of all of
the investors for a purpose reasonably related to such investor's interest
as an investor in the Fund.
Subject to the provisions described below, the investors may: (i)
approve and elect and for cause disapprove and remove the members of the
Board of Managers; (ii) to the extent required by the Investment Company
Act, approve or disapprove any proposed investment advisory contract or
disapprove and terminate any such existing contract; provided, however,
that such contracts are also approved by a majority of the members of the
Board of Managers who are not parties to such contract or "interested
persons" of any such party as such term is defined in the Investment
Company Act; (iii) to the extent required by the Investment Company Act,
ratify or reject the appointment of the independent accountants of the
Fund; (iv) to the extent required by the Investment Company Act, terminate
the Fund's independent accountants; (v) to the extent required by the
Investment Company Act, consent to the dissolution of the Fund; (vi) select
a liquidator in certain limited circumstances; (vii) approve certain
limited amendments to the Operating Agreement; and (viii) approve any other
matters related to the business of the Fund that the Investment Company Act
requires to be approved by the investors so long as the Fund is subject to
the provisions of the Investment Company Act; provided, however, that,
prior to the exercise of any such right of approval, the Board of Managers
amend the Operating Agreement to reflect such additional voting right.
Whenever the Fund as an investor in the Portfolio is requested to
vote on matters pertaining to the Portfolio, the Fund will hold a meeting
of Fund Members and will vote its interest in the Portfolio for or against
such matters proportionately to the instructions to vote for or against
such matters received from the Unitholders. The Fund shall vote Units for
which it receives no voting instructions in the same proportion as the
Units for which it receives voting instructions. Other investors in the
Portfolio may alone or collectively acquire sufficient voting interests in
the Portfolio to control matters relating to the operation of the
Portfolio.
Restrictions. The Operating Agreement may limit or restrict
Members and their affiliates from owning securities in, holding certain
positions with or performing certain services for media or common carrier
companies in which the Fund has acquired or is proposing to acquire any
direct or indirect interest, that could result in a violation of the
Communications Act of 1934 or of the regulations of the Federal
Communications Commission. Such restrictions could prohibit Members from
obtaining employment with, or for, a media or common carrier company.
Prospective investors are urged to carefully read these restrictions in the
Operating Agreement.
Transferability of Units. A member may transfer Units only by
operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of the member or otherwise, or with the written consent of the
Fund (which it may withhold in its sole and absolute discretion and will
grant, if at all, only in extenuating circumstances) or in connection with
a transfer to a family trust or another entity that does not result in a
change of beneficial ownership. Any permitted transferees will not,
however, be allowed to become substituted members in the Fund without the
consent of the Fund, which consent may be withheld in its sole and absolute
discretion. No member will have the right to require the Fund to redeem
his, her or its Units. In addition, neither the Fund nor the Fund's
Adviser, nor any of their respective affiliates, will make offers to
repurchase Units, and Units will not be traded on any securities exchange
or other market.
The issuance of Units is not subject to any preemptive rights,
redemption rights or sinking fund and Units are not convertible into any
other security of the Fund.
The Portfolio's operating agreement contains substantially
equivalent provisions.
OUTSTANDING SECURITIES AS OF NOVEMBER 8, 2000
<TABLE>
<CAPTION>
(1) (2) (3) (4)
AMOUNT HELD BY AMOUNT OUTSTANDING
REGISTRANT EXCLUSIVE OF AMOUNT
TITLE OF CLASS AMOUNT AUTHORIZED OR FOR ITS ACCOUNT SHOWN UNDER (3)
-------------- ---------------- ------------------ ---------------
<S> <C> <C> <C>
Units of Membership Interest Unlimited 0 220
</TABLE>
LIABILITY OF MEMBERS
You will not be liable for any obligations of the Fund in excess
of your capital account balance, plus your share of undistributed profits.
If, however, you receive a distribution from the Fund and after such
distribution the liabilities of the Fund exceed the fair value of the
Fund's assets (and you had knowledge of this fact at the time of the
distribution) you may be required to return such distribution to the Fund.
The Fund has no intention of making such a distribution. You will not have
the right to a return of your capital contribution except in accordance
with the distribution provisions of the Operating Agreement.
The Portfolio's operating agreement contains substantially
equivalent provisions.
DUTY OF CARE
The Operating Agreement provides that the members of the Board of
Managers shall not be personally liable to the Fund for the debts,
obligations or liabilities of the Fund; obligated to cure any deficit in
any capital account; required to return all or any portion of any capital
contribution; or required to lend any funds to the Fund. The Operating
Agreement also provides that no member of the Board of Managers,
appropriate officer, member, investment adviser, distributor or selling
agent of or for the Units of the Fund, or any of their respective
affiliates, shareholders, partners, officers, directors, members,
employees, agents and representatives shall have any liability,
responsibility, or accountability in damages or otherwise to any member or
the Fund for any action or inaction on the part of the Fund or otherwise in
connection with the business or affairs of the Fund or any Portfolio
Company. The Operating Agreement contains provision for the
indemnification, to the extent permitted by law, of the Board of Managers,
appropriate officers, members, investment advisers, distributor or selling
agent and any of their respective affiliates, shareholders, partners,
officers, directors, members, employees, agents and representatives by the
Fund, but not by the members individually, against any liability and
expense to which any of them may become liable which arises out of or in
connection with the performance of their activities on behalf of the Fund.
The rights of indemnification and exculpation provided under the Operating
Agreement do not provide for indemnification against any liability to which
the indemnified person would otherwise be subject to as a result of their
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties under the Operating Agreement.
The Portfolio's operating agreement contains substantially
equivalent provisions.
AMENDMENT OF THE OPERATING AGREEMENT
Subject to the requirements of the Investment Company Act, the Board of
Managers may adopt amendments without a vote of the members provided such
amendments do not impair the limited liability of the members, adversely
affect the tax status of the Fund as a partnership or increase the amounts
distributed to the investment adviser while decreasing the amounts
distributed to other members.
Amendments to the Operating Agreement may be proposed by any
manager, the Fund's Adviser or by members owning in the aggregate, at least
10% of the outstanding Units. The person or persons proposing such
amendments must submit to the Board of Managers (i) the text of the
amendment, (ii) the purpose of the amendment, and in the case of proposals
by members, (iii) an opinion of counsel reasonably acceptable to the Board
of Managers that the proposed amendment is permitted by the Investment
Company Act, the Delaware Limited Liability Company Act, applicable state
and federal laws, and that the proposed amendment will not impair the
limited liability of the members or adversely affect the classification of
the Fund as a partnership for federal income tax purposes.
To the extent required by the Investment Company Act, the Board of
Managers shall submit all proposals validly presented to the Board of
Managers to the members for a vote. Proposals approved by the Board of
Managers will be adopted with the affirmative vote of a majority of the
members, proposals which do not have the approval of the Board of Managers
require the vote of more than 67% of the members for adoption.
The Portfolio's operating agreement contains substantially
equivalent provisions.
POWER OF ATTORNEY
By purchasing an interest in the Fund, each member will appoint
each member of the Board of Managers and appropriate officers of the Fund
his or her attorney-in-fact for purposes of filing required certificates
and documents relating to the formation and continuation of the Fund as a
limited liability company under Delaware law or signing instruments
effecting authorized changes in the Fund or the Operating Agreement or
conveyances and other instruments deemed necessary to effect the
dissolution or termination of the Fund.
The power-of-attorney is a special power-of-attorney coupled with
an interest and as such is irrevocable and continues in effect until
expressly withdrawn or the investor ceases to be a member subject to and in
accordance with the Operating Agreement.
The Portfolio's operating agreement contains substantially
equivalent provisions.
TERM, DISSOLUTION AND LIQUIDATION
The Fund will be dissolved:
o on the final distribution of its assets as provided in the
Operating Agreement;
o upon election by the Board of Managers and subject, to the
extent required by the Investment Company Act, to the consent
of the members;
o upon voluntary bankruptcy, liquidation or other dissolution
of the Fund;
o on the sale or other disposition at any one time of all or
substantially all of the assets of the Fund; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the Fund's
Adviser, or a liquidator appointed by the Board of Managers, will be
charged with winding up the affairs of the Fund and liquidating its assets.
Items of income, gain, loss, deduction and expense during the fiscal period
including the period of liquidation will be allocated as described in the
section titled "Capital Accounts, Allocations and Distributions."
Upon the dissolution of the Fund, its assets are to be distributed
(1) first to satisfy the debts, liabilities and obligations of the Fund,
other than debts to members including actual or anticipated liquidation
expenses, (2) next to satisfy debts owing to members and (3) finally to
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 Fund's Adviser or a liquidator determines that such a distribution
would be in the interests of the members in facilitating an orderly
liquidation.
The Portfolio will be dissolved:
o on the tenth anniversary of the Termination Date, provided
that the Board of Managers may extend termination for up to
two additional periods of up to two years each; provided
further, that termination may be extended to any later date
with the approval of members holding at least two-thirds of
the total number of votes eligible to be cast;
o upon election by the Board of Managers and subject, to the
extent required by the Investment Company Act, to the consent
of the members;
o upon the voluntary bankruptcy, liquidation or other
dissolution of the Portfolio;
o on the sale or other disposition at any one time of all or
substantially all of the assets of the Portfolio; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the Investment
Adviser, or a liquidator appointed by the Board of Managers, will be
charged with winding up the affairs of the Portfolio and liquidating its
assets. Items of income, gain, loss, deduction and expense during the
fiscal period including the period of liquidation will be allocated as
described in the section titled "Capital Accounts, Allocations and
Distributions."
Upon the dissolution of the Portfolio, its assets are to be
distributed (1) first to satisfy the debts, liabilities and obligations of
the Portfolio, other than debts to members including actual or anticipated
liquidation expenses, (2) next to satisfy debts owing to members and (3)
finally to members and the Investment Adviser proportionately in accordance
with the balances in their respective capital accounts. Assets may be
distributed in kind on a pro rata basis if the Investment Adviser or
liquidator determines that such a distribution would be in the interests of
the members in facilitating an orderly liquidation.
SELLING ARRANGEMENTS
DISTRIBUTOR
Units are offered for sale by Charles Schwab & Co., Inc. (the
"Distributor"), a registered broker-dealer and the Fund and the Portfolio's
distributor. Charles Schwab & Co., Inc. is a member of the Securities
Investor Protector Corporation and New York Stock Exchange. The Distributor
is an indirect, wholly owned subsidiary of The Charles Schwab Corporation,
the parent company of U.S. Trust Corporation and an affiliate of the
Investment Adviser and Investment Sub-Adviser. The Distributor has entered
into a Distribution Agreement with the Fund pursuant to which the
Distributor has agreed to act as the principal distributor for the Units.
This agreement is an agency agreement only and places the Distributor under
no obligation to use its best efforts to sell the Units or otherwise
solicit or promote transactions in such Units. The Distributor will not at
any time purchase any Units for its own account and its sole function is to
promote the sale of the Units. The Distributor is located at 101 Montgomery
Street, San Francisco, California 94101.
The Fund's Adviser or an affiliate will pay the Distributor from
its own assets an amount equal to 0.02% of the total of all subscriptions
received in this offering. Pursuant to the Distribution Agreement, the
Distributor may enter into agreements with one or more financial
intermediaries ("Selling Agents") relating to the purchase of Units through
such Selling Agents acting as brokers or agents for their customers. To the
extent that the Distributor introduces investors to the Fund, the Fund's
Adviser or an affiliate will pay the Distributor an on-going fee for the
sale of Units and the provision of ongoing investor services in an amount
equal to the annual rate through the fifth anniversary of the final
subscription closing date of 0.45% of the average quarterly net asset value
of all outstanding Units held by investors introduced to the Fund by the
Distributor and at the annual rate of 0.22% thereafter, subject to
elimination upon all such fees totaling 6.5% of the gross proceeds received
by the Fund from this offering.
The Fund has agreed to indemnify the Distributor and each Selling
Agent who enters into a selling agent agreement against certain civil
liabilities, including liabilities under the federal securities laws.
However, such indemnification is subject to the provisions of Section 17(i)
of the Investment Company Act which provides, in part, that no agreement
shall contain a provision which protects or purports to protect any
principal underwriter against any liability to the Fund or its security
holders to which such principal underwriter would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under such agreement.
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for
the Fund by Skadden, Arps, Slate, Meagher & Flom LLP, Boston,
Massachusetts.
INDEPENDENT AUDITORS
The Statement of Assets and Liabilities of the Fund and the
Portfolio included in this prospectus has been audited by Ernst & Young,
LLP, independent certified public accountants, as stated in their report
included herein, and is included herein in reliance upon such report given
on their authority as experts in auditing and accounting. Ernst & Young,
LLP is located at 787 Seventh Avenue, New York, New York 10019.
AVAILABLE INFORMATION
The Fund and the Portfolio are required to file reports with the
Securities and Exchange Commission. Information about the Fund and the
Portfolio can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330
for information on the operation of the public reference room. This
information is also available on the Securities and Exchange Commission's
Internet site at http://www.sec.gov and copies may be obtained upon payment
of a duplicating fee by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. You may obtain a prospectus and statement of
additional information relating to the Portfolio by contacting the Fund or
the Portfolio at 212-852-3125.
Investors should rely only on the information contained in this
prospectus. Neither the Fund nor the Distributor has authorized any other
person to provide investors with different information. If anyone provides
you with different or inconsistent information, you should not rely on it.
Neither the Fund nor the Distributor, nor any selling agent, is, making an
offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. Investors should assume that the information appearing in
this prospectus is accurate as of the date on the front cover of this
prospectus only. The Fund's business, financial condition, results of
operations and prospectus may have changed since that date.
REPORTS TO MEMBERS
The Fund will furnish to its members annual reports containing
audited financial statements and such other periodic reports as it may
determine to furnish or as may be required by law. Neither the Fund nor the
Portfolio intends to hold annual meetings of their Unitholders.
FINANCIAL STATEMENTS
The following comprise the financial statements of the Fund:
o Report of Independent Auditors;
o Statement of Assets and Liabilities; and
o Notes to Financial Statements.
The following comprise the financial statements of the Portfolio:
o Report of Independent Auditors
o Statement of Assets and Liabilities; and
o Notes to Financial Statements.
REPORT OF INDEPENDENT AUDITORS
To the Members and Board of Directors
Excelsior Venture Investors III, LLC
We have audited the accompanying statement of assets and liabilities of
Excelsior Venture Investors III, LLC (the "Fund") as of October 6, 2000.
This financial statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Excelsior Venture
Investors III, LLC at October 6, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
New York, New York
October 9, 2000
------------------------------------------------------------------------------
Excelsior Venture Investors III, LLC
Statement of Assets and Liabilities
------------------------------------------------------------------------------
October 6, 2000
------------------------------------------------------------------------------
ASSETS:
Cash...................................................... $ 110,000
Deferred offering costs................................... 132,800
------------------------------------------------------------------------------
TOTAL ASSETS........................................ 242,800
-----------------
------------------------------------------------------------------------------
LIABILITIES:
Offering costs payable.................................... 132,800
-----------------
------------------------------------------------------------------------------
TOTAL LIABILITIES................................... 132,800
-----------------
------------------------------------------------------------------------------
NET ASSETS.................................................. $ 110,000
=================
MEMBERSHIP INTERESTS OUTSTANDING............................ 220
=================
NET ASSET VALUE PER UNIT.................................... $ 500
-----------------
==============================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT OCTOBER 6, 2000:
Paid-in capital........................................... $ 110,000
-----------------
NET ASSETS........................................... $ 110,000
=================
==============================================================================
Notes to Financial Statements are an integral part of this Statement.
Excelsior Venture Investors III, LLC
Notes to Financial Statements
NOTE 1 - ORGANIZATION
Excelsior Venture Investors III, LLC (the "Fund") is a
non-diversified, closed-end management investment company which
has registered under the Investment Company Act of 1940, as
amended, and has registered its securities for sale under the
Securities Act of 1933. The Fund was established as a Delaware
limited liability company on June 1, 2000. The Fund is authorized
to offer 400,000 of units of membership interests ("units") with
no par value. The minimum subscription is $25,000. The Fund
intends to achieve its investment objective of long-term capital
appreciation by investing its assets in Excelsior Venture Partners
III, LLC (the "Portfolio"), a separate, closed-end non-diversified
investment company that has elected to be treated as a business
development company, or "BDC", under the Investment Company Act.
Certain costs incurred and to be incurred in connection with the
organization and initial offering of shares of the Fund are
estimated at $297,800 Each member's share of these costs will be
deducted from his or her capital contribution on or shortly after
the final subscription closing. The Fund has no operations to
date, other than the sale to David Fann, President and Co-CEO of
the Fund, Douglas Lindgren, Co-CEO and CIO of the Fund, and Alan
Braverman, Executive Vice President of the Fund, of 74, 73, and 73
Units, respectively, on October 6, 2000.
NOTE 2 - OFFERING COSTS
The Fund estimates incurring offering expenses of $297,800,
comprised of $165,000 for legal and consulting fees, $30,000 for
printing, $30,000 for advertising and marketing, $52,800 in
registration, and $20,000 in other offering costs.
NOTE 3 - CONTINGENT LIABILITIES
The Company has entered into an agreement with Charles Schwab &
Co., Inc. ("Schwab" or the "Distributor") whereby Schwab will pay
the organization expenses of the Fund if the Fund receives less
than $75,000,000 in subscriptions from its initial public offering
of units. In the event the Fund does receive subscriptions
totaling $75,000,000 or more, the Fund will pay its own
organization expenses, and each member's share of these costs will
be deducted from his or her capital contribution on or shortly
after the final subscription closing. The Fund estimates
organization expenses to be $10,000 for legal fees.
NOTE 4 - AGREEMENTS
The U.S. Trust Company serves as investment adviser to both the
Fund (the "Fund's Adviser") and to the Portfolio (the "Investment
Adviser"). The Fund's Adviser will be responsible for investing
assets not invested in the Portfolio. In return for its services
and expenses which the Fund's Adviser assumes under the Investment
Advisory Agreement, the Fund will pay the Fund's Adviser, on a
quarterly basis, an advisory fee at an annual rate equal to 0.1%
of the Fund's net assets that are not represented by the Fund's
investment in the Portfolio. Any Fund assets invested in the
Portfolio will not be subject to an advisory fee paid by the Fund,
however the Fund will be allocated its pro rata share of the
management fee expense paid by the Portfolio. The Portfolio will
pay the Investment Adviser, on a quarterly basis, a management fee
at an annual rate equal to 2.00% of the Portfolio's average
quarterly net assets through the fifth anniversary of the final
subscription closing date and 1.00% of net assets thereafter. In
addition to the management fee, the Investment Adviser is entitled
to allocations and distributions equal to the Incentive Carried
Interest. The Incentive Carried Interest is an amount equal to 20%
of the Portfolio's cumulative realized capital gains on all direct
investments determined net of cumulative realized and unrealized
losses on all investments of any type. The Incentive Carried
Interest will be determined annually as of the end of each fiscal
year. U.S. Trust Company is a Connecticut state bank and trust
company and is a wholly owned subsidiary of U.S. Trust
Corporation, a registered bank holding company. U.S. Trust
Corporation is a wholly owned subsidiary of Schwab.
Pursuant to an Administration, Accounting and Investor Services
agreement, the Fund retains PFPC Inc. ("PFPC"), an indirect,
majority-owned subsidiary of PNC Financial Services Group Inc.
f/k/a PNC Bank Corp., as Administrator, Accounting and Investor
Servicing Agent. In addition, PFPC serves as transfer agent and
PFPC Trust Company serves as the Fund's custodian.
The Fund's Adviser or an affiliate will pay the Distributor from
its own assets an amount equal to 0.02% of the total of all
subscriptions received from this offering. Pursuant to the
Distribution Agreement, the Distributor may enter into agreements
with one or more financial intermediaries ("Selling Agents")
relating to the purchase of units through such Selling Agents
acting as brokers or agents for their customers. The Fund's
Adviser or an affiliate will pay the Distributor an on-going fee
for the sale of units and the provision of ongoing investor
services in an amount equal to the annual rate of 0.45% of the
average quarterly net asset value of all outstanding units held by
investors introduced to the Fund by the Distributor through the
fifth anniversary of the final subscription closing date and at
the annual rate of 0.22% thereafter, subject to elimination upon
all such fees totaling 6.5% of the gross proceeds received by the
Company from this offering.
REPORT OF INDEPENDENT AUDITORS
To the Members and Board of Directors
Excelsior Venture Partners III, LLC
We have audited the accompanying statement of assets and liabilities of
Excelsior Venture Partners III, LLC (the "Fund") as of July 28, 2000. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Excelsior Venture
Partners III, LLC at July 28, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG, LLP
New York, New York
July 31, 2000
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Excelsior Venture Partners III, LLC
Statement of Assets and Liabilities
------------------------------------------------------------------------------
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July 28, 2000
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ASSETS:
Cash.................................................... $ 500
Deferred offering costs................................. 1,356,200
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TOTAL ASSETS...................................... 1,356,700
-----------------
------------------------------------------------------------------------------
LIABILITIES:
Offering costs payable.................................. 1,356,200
-----------------
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TOTAL LIABILITIES................................. 1,356,200
-----------------
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NET ASSETS................................................ $ 500
=================
MEMBERSHIP INTERESTS OUTSTANDING.......................... 1
=================
NET ASSET VALUE PER UNIT.................................. $ 500
-----------------
==============================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT JULY 28, 2000:
Paid-in capital......................................... $ 500
-----------------
NET ASSETS......................................... $ 500
=================
==============================================================================
Notes to Financial Statements are an integral part of this Statement.
EXCELSIOR VENTURE PARTNERS III, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Excelsior Venture Partners III, LLC (the "Company") is a
non-diversified, closed-end management investment company which
has elected to be treated as a business development company under
the Investment Company Act, and which has registered its
securities for sale under the Securities Act of 1933. The Company
was established as a Delaware limited liability company on
February 18, 2000 and maintains a fiscal year end of October 31.
The Company is authorized to offer an unlimited number of units of
membership interests ("units") with no par value. The minimum
subscription is $100,000.
Certain costs incurred and to be incurred in connection with the
initial offering of shares of the Company are estimated at
$1,356,200. Each member's share of these costs will be deducted
from his or her capital contribution on or shortly after the final
subscription closing. The Company has no operations to date, other
than the sale to David Fann, President and Co-CEO of the Company,
of one unit on July 7, 2000.
NOTE 2 - OFFERING COSTS
The Company estimates incurring offering expenses of $1,356,200,
comprised of $1,025,000 for legal and consulting, $30,000 for
printing, $50,000 for advertising and marketing, $231,200 in
registration, and $20,000 in other offering costs.
NOTE 3 - CONTINGENT LIABILITIES
The Company has entered into an agreement with Charles Schwab &
Co., Inc. ("Schwab" or the "Distributor") whereby Schwab will pay
the organization expenses of the Company if the Company receives
less than $300,000,000 in subscriptions from its initial public
offering of units. In the event the Company does receive
subscriptions totaling $300,000,000 or more, the Company will pay
its own organization expenses, and each member's share of these
costs will be deducted from his or her initial capital
contribution on or shortly after the final subscription closing.
The Company estimates organization expenses to be $50,000,
comprised of $10,000 for audit fees and $40,000 for legal and
consulting fees.
NOTE 4 - AGREEMENTS
In return for its services and expenses which the Investment
Adviser assumes under the Investment Advisory Agreement, the
Company will pay the Investment Adviser, on a quarterly basis, a
management fee at an annual rate equal to 2.00% of the Company's
average quarterly net assets through the fifth anniversary of the
final closing date and 1.00% of net assets thereafter. In addition
to the management fee, the Investment Adviser is entitled to
allocations and distributions equal to the Incentive Carried
Interest. The Incentive Carried Interest is an amount equal to 20%
of the Company's cumulative realized capital gains on all direct
investments determined net of cumulative realized and unrealized
losses on all investments of any type. The Incentive Carried
Interest will be determined annually as of the end of each
calendar year.
Pursuant to an Administrative, Accounting and Investor Services
Agreement, the Company retains PFPC Inc. ("PFPC"), an indirect,
majority-owned subsidiary of PNC Financial Services Group Inc.
f/k/a PNC Bank Corp. as Administrator. In addition, PFPC Trust
Company serves as the Fund's custodian, and PFPC serves as
transfer agent.
The Investment Adviser or an affiliate will pay the Distributor
from its own assets an amount equal to 0.02% of the total of all
subscriptions received in this offering. Pursuant to the
Distribution Agreement, the Distributor may enter into agreements
with one or more financial intermediaries ("Selling Agents")
relating to the purchase of units through such Selling Agents
acting as brokers or agents for their customers. The Investment
Adviser or an affiliate will pay the Distributor an on-going fee
for the sale of units and the provision of ongoing investor
services in an amount equal to the annual rate of 0.45% of the
average quarterly net asset value of all outstanding units held by
investors introduced to the Company by the Distributor through the
fifth anniversary of the final subscription closing date and at
the annual rate of 0.22% thereafter, subject to elimination upon
all such fees totaling 6.5% of the gross proceeds received by the
Company from this offering.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
Investment Restrictions....................................................B-2
Until ninety days after the date of this prospectus, all dealers effecting
transactions in the Units, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition
to the obligations of dealers to deliver a prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
APPENDIX A
RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS AS SET FORTH BELOW
ARIZONA
Arizona residents must represent in writing that their investment
in Units of the Fund does not represent more than ten percent of their net
worth less the value of their investments in limited partnership interests
and must have one of the following: (a) an annual gross income of at least
$75,000 and a net worth of at least $75,000 exclusive of home, car and home
furnishings; (b) a net worth of at least $225,000 exclusive of home, car
and home furnishings; or (c) in the case of sales to qualified pension or
profit sharing plans or trusts, Keogh plans or individual retirement
accounts, that the net worth and income requirements set forth in items (a)
or (b) of this paragraph are met by the fiduciary account or by the donor
who directly or indirectly supplies the monies for the purchase of the
securities.
MINNESOTA
To invest in Units of the Fund, Minnesota residents must qualify
as an accredited investor as that term is defined pursuant to Rule 501 of
the Securities Act of 1933, as amended.
NEBRASKA
To invest in Units of the Fund, Nebraska residents must meet one
of the following: (a) individual annual taxable income of at least $200,000
in each of the two most recent years or joint income with spouse in excess
of $300,000 in each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least $1,000,000.
NEW HAMPSHIRE
To invest in Units of the Fund, New Hampshire residents must meet
one of the following: (a) annual taxable income of at least $50,000 and a
net worth exclusive of home, car and home furnishings of at least $125,000;
or (b) a net worth exclusive of home, car and home furnishings of at least
$250,000.
OKLAHOMA
To invest in Units of the Fund, Oklahoma residents must qualify as
an accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933, as amended.
TEXAS
To invest in Units of the Fund, Texas residents must qualify as an
accredited investor as that term is defined pursuant to Rule 501 of the
Securities Act of 1933, as amended.
WEST VIRGINIA
To invest in Units of the Fund, West Virginia residents must meet
one of the following: (a) individual annual taxable income of at least
$200,000 in each of the two most recent years or joint income with spouse
in excess of $300,000 in each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least $1,000,000.
Appendix B
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
EXCELSIOR VENTURE INVESTORS III, LLC
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the
"Agreement") of Excelsior Venture Investors III, LLC, a Delaware limited
liability company (the "Company"), is made as of the __th day of September,
2000, by and among the initial member and the other parties who shall
hereafter be admitted as members and whose names and addresses are listed
from time to time as members on Schedule A hereto as members (each, a
"Member" and collectively, the "Members") and has been executed for the
purpose of providing for the operation of the Company pursuant to the
provisions of the Delaware Limited Liability Company Act.
Accordingly, in consideration of the mutual covenants contained
herein, the Members agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following
meanings and all such terms which relate to accounting matters shall be
interpreted in accordance with generally accepted accounting principles in
effect from time to time except as otherwise specifically provided herein:
"Act" means the Delaware Limited Liability Company Act, as at any
time now existing or in the future.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Fiscal Period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which
such Member is obligated to restore or is deemed to be obligated to
restore pursuant to Treasury Regulations under Section 704 of the
Code; and
(ii) Debit to such Capital Account the items
described in Treasury Regulations Sections 1.704-l(b)(2)(ii)(d)(4),
(5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treasury Regulations Section
1.704-l(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Affiliate" shall mean an affiliated person, as that term is
defined in the Investment Company Act, of an Investment Adviser or any
officer, director, employee or member of an investment committee of such
affiliated person.
"Agreement" means this Limited Liability Company Operating
Agreement as originally executed and as amended, modified, supplemented or
restated from time to time.
"Applicable Rate" shall mean a rate per annum equal, at the time of
determination, to the sum of (i) the highest "prime rate" then published in
the "Money Rates" section of The Wall Street Journal or in such successor
publication as shall be acceptable to the Board of Managers and (ii) two
percent (2%).
"Appropriate Officer" means an officer of the Company appointed in
accordance with Section 4.7(d), who has not resigned, been removed or
become incapacitated.
"Attribution Rules" shall have the meaning specified in Section 3.21.
"Board of Managers" shall mean those natural persons who at any
given time are serving as Managers of the Company in accordance with this
Agreement.
"Capital Accounts" shall have the meaning specified in Section 7.2.
"Capital Commitment" shall mean, for any Member, the amount set
forth opposite his, her or its name on Schedule A hereto, as amended from
time to time (i) to take account of Capital Contributions made by Members
and (ii) as otherwise provided in this Agreement.
"Capital Contribution" shall mean with respect to any Member, the
amount contributed by such Member to the capital of the Company pursuant to
this Agreement.
"Capital Investment" shall mean, with respect to any Member, the
Capital Contribution of such Member net of the return to such Member by the
Company of any portion thereof.
"Closing" shall have the meaning specified in Section 7.1(a).
"Closing Date" shall have the meaning specified in Section 7.1(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time (or any corresponding provision of succeeding law).
"Communications Act" shall mean the Communications Act of 1934, as
amended.
"Company" means Excelsior Venture Investors III, LLC, a Delaware
limited liability company.
"Company Expenses" means any expenses incurred by the Company
during a Fiscal Period including, but not limited to, fees and expenses of
the Board of Managers; fees and expenses of the Investment Adviser;
expenses of registering the Units for sale under federal and state
securities laws and other expenses in connection with the offering of the
Units; interest; taxes; fees and expenses of the Company's legal counsel
and independent accountants; fees and expenses of the Company's
administrator, transfer agent and custodian; expenses of printing and
mailing Unit certificates (if any), reports to Members, notices to Members,
proxy statements; reports to regulatory bodies; brokerage and other
expenses in connection with the execution, recording and settlement of
portfolio security transactions; expenses in connection with the
acquisition or disposition of portfolio securities or the registration of
privately issued portfolio securities; costs of third party evaluations or
appraisals of the Company (or its assets) or its investments; expenses of
membership in investment company and other trade associations; expenses of
fidelity bonding and other insurance premiums; expenses of Members'
meetings; fees payable to the National Association of Securities Dealers,
Inc. (the "NASD"), if any, in connection with the offering of its Units;
indemnification costs and expenses; fees and expenses of counsel to the
members of the Board of Managers that are not interested persons of the
Company (within the meaning of the Investment Company Act); and all of the
Company's other business and operating expenses.
"Disinterested Manager" shall mean any member of the Board of
Managers that is not an "interested person" of the Company as such term is
defined in the Investment Company Act, as the same may be amended from time
to time.
"FCC" shall have the meaning specified in Section 3.21.
"Final Subscription Closing Date" shall mean the date of the final
closing of the offering of the Company's Units not later than December 31,
2000 or such later date, not later than May 11, 2000, as determined by the
Board of Managers.
"Fiscal Period" means the period commencing on the Closing Date,
and thereafter each period commencing on the day immediately following the
last day of the preceding Fiscal Period, and ending at the close of
business on the first to occur of the following dates:
(i) December 31 of such period; and
(ii) any other day as determined in the sole and absolute
discretion of the Board of Managers.
"Fiscal Year" means the period commencing on February 18, 2000 and
ending on the first October 31st following the Closing Date (or such
earlier October 31st as the Appropriate Officers may determine), and
thereafter each period commencing on November 1st of each year and ending
on October 31st of each year (or on the date of a final distribution
pursuant to Section 13.2), unless the Board of Managers shall designate
another fiscal year for the Company.
"40 Act Majority of Members" means the lesser of (a) the holders of
67% or more of the outstanding Units present at a meeting of Members at
which the holders of more than 50% of the outstanding Units are present in
person or by proxy or (b) more than 50% of the outstanding Units.
"Government Security" shall have the meaning specified in Section
2(a)(16) of the Investment Company Act of 1940, as amended, and with a
remaining maturity of one year or less.
"Indemnified Liabilities" shall have the meaning specified in
Section 11.2(a).
"Indemnified Person" shall have the meaning specified in Section
11.2(a).
"Incapacity" shall mean as to any Person, the entry of an order for
relief in a bankruptcy proceeding ("bankruptcy"), entry of an order of
incompetence or insanity or the death, dissolution or termination (other
than by merger or consolidation), as the case may be, of such Person.
"Interest" shall mean a Member's rights and interest in the
Company.
"Interested Manager" shall mean any member of the Board of Managers
that is an "interested person" of the Company as such term is defined in
the Investment Company Act, as the same may be amended from time to time.
"Investment Adviser" means any Person who is party to an Investment
Advisory Agreement with the Company.
"Investment Advisory Agreement" means any agreement between or
among the Company and any Person or Persons that provides for the provision
of investment advisory services by such Person to the Company and the
payment therefor as in effect from time to time.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Investment Proceeds" shall have the meaning specified in Section
8.2.
"Majority in Interest of the Members" means Members who in the
aggregate own more than 50% of the outstanding Units.
"Manager" shall mean a member of the Board of Managers of the
Company. Each Manager shall be a manager within the meaning of the Act,
afforded the limitation of liability accorded to managers thereunder.
"Media or Common Carrier Company" shall have the meaning specified
in Section 3.21.
"Member" means any Person admitted to the Company as a member of
the Company pursuant to the provisions of this Agreement and named as a
member of the Company in the books and records of the Company, including
any Person admitted as a Substituted Member, in such Person's capacity as a
member of the Company. "Members" means two or more Persons acting in their
capacity as members of the Company.
"Net Loss" shall mean the net loss of the Company with respect to a
Fiscal Period, as determined for federal income tax purposes, provided that
such loss shall be decreased by the amount of all income during such period
that is exempt from federal income tax and increased by the amount of all
expenditures made by the Company during such period that are not deductible
for federal income tax purposes and that do not constitute capital
expenditures.
"Net Profit" shall mean the net income of the Company with respect
to a Fiscal Period, as determined for federal income tax purposes, provided
that such income shall be increased by the amount of all income during such
period that is exempt from federal income tax and decreased by the amount
of all expenditures made by the Company during such period that are not
deductible for federal income tax purposes and that do not constitute
capital expenditures.
"Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning set forth in
Treasury Regulations Section 1.752-l(a)(2).
"Ownership Rules" shall have the meaning specified in Section 3.21.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning set
forth in Treasury Regulations Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall have the meaning set forth
in Treasury Regulations Section 1.704-2(i).
"Partnership Minimum Gain" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(2).
"Pass-Through Member" shall have the meaning set forth in Section
10.5.
"Permitted Transfer" shall have the meaning specified in Section
9.2(a).
"Person" means any natural person, individual, corporation,
partnership, trust, estate, limited liability company, custodian,
unincorporated organization or association or any other entity.
"Portfolio" means Excelsior Venture Partners III, LLC.
"Prospectus" shall mean the prospectus of the Company as included
in the most recent effective registration statement of the Company under
the Securities Act of 1933, as amended, and the Investment Company Act as
such prospectus may be amended, supplemented or modified from time to time.
"Regulatory Allocations" shall have the meaning set forth in
Section 7.3(c).
"Short-Term Investments" means liquid investments in
interest-bearing bank accounts, money market mutual funds, U.S. treasury
securities and/or certificates of deposit, commercial paper and other
short-term securities.
"Subscription Agreement" means a contract for the purchase of
Units.
"Substituted Member" means any Person admitted to the Company as a
Member pursuant to the provisions of Section 9.5 and shown as a Member in
the books and records of the Company.
"Supermajority of Members" means Members who in the aggregate own
more than 67% of the outstanding Units.
"Tax Matters Member" shall have the meaning set forth in Section
10.5.
"Transfer" shall have the meaning specified in Section 9.2(a).
"Treasury Regulations" shall mean the income tax regulations,
including temporary regulations, promulgated under the Code, as the same
may be amended hereafter from time to time (including corresponding
provisions of succeeding income tax regulations).
"Unit" means the unlimited number of common equity interests of the
Company and are the increment by which Interests of Members are measured;
and includes fractions of Units as well as whole Units. Units may be
subdivided into such number of equal, indivisible shares as the Appropriate
Officers may determine.
ARTICLE II
GENERAL PROVISIONS
2.1 Formation. Excelsior Venture Partners Fund III, LLC was
formed as a limited liability company under the laws of the State of
Delaware by the filing of the Certificate of Formation on the 1st day of
June, 2000 pursuant to the Act. The Company filed an Amended Certificate on
the 30th day of August, 2000 changing the name of the Company to Excelsior
Venture Investors III, LLC. Except as expressly provided herein to the
contrary, the rights and obligations of the Members and the administration
and termination of the Company shall be governed by the Act.
2.2 Name. The name of the Company is "Excelsior Venture
Investors III, LLC." The name of the Company may be changed from time to
time by the Board of Managers.
2.3 Purpose. The Company has been formed initially,
primarily for the purpose of acting as a vehicle for collective investment,
and may engage in any legal activity whatsoever, without limitation.
2.4 Principal Place of Business. The Company shall maintain
its office and principal place of business at, and its business shall be
conducted from, 114 West 47th Street, New York, New York 10036, or such
place or places inside or outside the United States as the Board of
Managers may determine.
2.5 Registered Office and Registered Agent. The address of
the Company's registered office and registered agent for service of process
in the State of Delaware is The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. The address of the
Company's registered office and registered agent for service of process in
the State of Delaware of the Company may be changed from time to time by
the Board of Managers.
2.6 Term. The Company will terminate and dissolve as set
forth herein on the final distribution of its assets as provided in Article
XIII, or the dissolution prior thereto pursuant to the provisions hereof.
2.7 Title to Company Property. All property owned by the
Company, whether real or personal, tangible or intangible, shall be owned
by the Company as an entity, and no Member or Manager, individually, shall
have title to or any interest in such property.
2.8 No State Law Partnership. The Members intend that the
Company not be a partnership (including a limited partnership) or joint
venture and that no Member or Manager be a partner or joint venturer of any
other Member or Manager for any purposes other than applicable tax laws.
This Agreement may not be construed to suggest otherwise. Notwithstanding
the foregoing, the Members intend that the Company shall be treated as a
partnership for tax purposes.
2.9 No Liability of Members. All debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and
no Member or Manager shall be obligated personally for any such debt,
obligation or liability of the Company solely by reason of being a Member
or Manager.
ARTICLE III
MEMBERS; CAPITAL STRUCTURE; AND MEETINGS
3.1 Members. The name, address and Capital Commitment of
each initial Member is as set forth on Schedule A hereto. From time to
time, the books and records of the Company shall, and Schedule A hereto
shall, be amended to reflect the name, address and Capital Commitment of
each Member (including, as permitted by this Agreement, adding the name,
address and Capital Contribution of each additional Member who is admitted
or becomes a Substituted Member pursuant to the transfer of Interests and
deleting the name, address and Capital Commitment of Persons ceasing to be
Members). The Members shall have the management and voting rights set forth
in this Agreement and provided under the Act and the Investment Company Act
and shall have all rights to any allocations and to any distributions as
may be authorized and set forth under this Agreement and under the Act.
3.2 Capital Structure.
(a) Subject to the terms of this Agreement, the Company
is authorized to issue common equity interests in the Company designated as
"Units," which shall constitute an unlimited number of limited liability
company interests under the Act. Other than as set forth in this Agreement,
each Unit shall be identical in all respects with each other Unit. Units
may be subdivided into such number of equal, indivisible shares as the
Appropriate Officers may determine. The relative rights, powers,
preferences, duties, liabilities and obligations of Members shall be as set
forth herein.
(b) The Company is authorized to issue Units to any
Person at such prices per Unit as may be determined by the Board of
Managers or a duly authorized committee thereof and in exchange for either
capital contributions or the provision of property, services or otherwise,
as may be determined by the Board of Managers. The number of Units issued
to Members shall be listed in the membership records of the Company, which
shall be amended from time to time by the Company as required to reflect
issuances of Units to new Members, changes in the number of Units held by
Members and to reflect the addition or cessation of Members. The number of
Units held by each Member shall not be affected by any (i) issuance by the
Company of Units to other Members or (ii) change in the Capital Account of
such Member (other than such changes to reflect additional Capital
Contributions from such Member in exchange for new Units). Subject to the
requirements of the Investment Company Act, the Company is authorized to
issue options or warrants to purchase Units, restricted Units, Unit
appreciation rights, phantom Units and other securities convertible,
exchangeable or exercisable for Units, on such terms as may be determined
by the Board of Managers or a duly authorized committee thereof.
(c) In the sole discretion of the Board of Managers, the
issued and outstanding Units may be represented by certificates. In
addition to any other legend required with respect to a particular class,
group or series of Units, each such certificate shall bear the following
legend:
THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY
NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT COMPLYING WITH THE
PROVISIONS OF THE LIMITED LIABILITY COMPANY OPERATING AGREEMENT BY
AND AMONG THE MEMBERS OF EXCELSIOR VENTURE INVESTORS III, LLC (THE
"COMPANY"), AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH
IS ON FILE WITH THE COMPANY. IN ADDITION TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SUCH AGREEMENT, NO TRANSFER OF THE INTERESTS
REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER (THE "1933 ACT"), AND ALL APPLICABLE STATE SECURITIES
LAWS OR ALL APPLICABLE NON-U.S. SECURITIES LAWS OR (B) IF SUCH
TRANSFER IS PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND PURSUANT TO SUCH EXEMPTION UNDER
APPLICABLE STATE OR NON-U.S. SECURITIES LAWS, THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND
BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT.
3.3 Changes to Capital Structure. Additional Persons may be
admitted as Members, and additional Units or other equity interests may be
created and issued from time to time; the terms of admission or issuance
may provide for the creation of different classes, groups or series of
membership interests having different rights, powers and duties, which
rights, powers and duties may be senior, pari passu or junior to the
rights, powers and duties of the Units, as determined by the Board of
Managers. Any creation of any new class, group or series of units or other
equity interests shall be reflected in a supplemental exhibit to this
Agreement indicating such rights, powers and duties.
3.4 No Management Responsibility. No Member, in such
capacity, shall participate in the management or control of the business of
or transact any business for the Company, but may exercise the voting
rights and powers of a Member set forth in this Agreement. All management
responsibility is vested in the Board of Managers. The Members hereby
consent to the taking of any action by the Board of Managers, Appropriate
Officers and Investment Adviser contemplated under this Agreement or
otherwise permitted under the Act.
3.5 No Authority to Act. No Member, in such capacity, shall
have the power to represent, act for, sign for, or to bind the Company. All
authority to act on behalf of the Company is vested in the Board of
Managers, Appropriate Officers and the Investment Adviser. The Members
consent to the exercise by the Board of Managers, Appropriate Officers and
the Investment Adviser of the powers conferred on them under this Agreement
or otherwise permitted under the Act.
3.6 No Preemptive Rights. Holders of Units will have no
preemptive rights with respect to the issuance of any membership or other
equity interest in the Company or any other securities of the Company
convertible into, or carrying rights or options to purchase any such
membership or other equity interest.
3.7 Redemption or Repurchase Rights. Except as otherwise
provided in this Agreement, the Company shall not redeem or repurchase any
Member's Units and no Member shall have the right to withdraw from the
Company or to receive any return of any Capital Commitment.
3.8 Member Meetings. Unless required by the Act or other
applicable law, the Company is not required to hold annual or other regular
meetings of Members. Special meetings of the Members may be called to
consider any matter requiring the consent of all or any of the Members
pursuant to this Agreement and as otherwise determined by the Board of
Managers. Special meetings of the Members may be called by the Board of
Managers or by Members who are the holders of not less than 66 2/3 % of the
outstanding Units.
3.9 Place of Meetings. The Board of Managers may designate
any place, either within or outside of the State of Delaware, as the place
of meeting for any annual meeting or for any special meeting called by the
Managers. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive offices of
the Company. Members may participate in a meeting in person, by proxy or by
means of a conference telephone or similar communications equipment by
which all persons participating in the meeting can hear and speak to each
other at the same time, and any such participation in a meeting shall
constitute presence in person of such Member at such meeting.
3.10 Notice of Members' Meetings.
(a) Written notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose for which the
meeting is called shall be delivered not less than ten days nor more than
ninety days before the date of the meeting, either personally, by
facsimile, electronic mail or by postal mail, by or at the direction of the
Board of Managers or Members calling the meeting to each Member of record
entitled to vote at such meeting.
(b) Notice to Members, if mailed by post, shall be
deemed delivered as to any Member when deposited in the United States mail,
addressed to the Member, with postage prepaid, but, if two successive
letters mailed to the last-known address of any Member are returned as
undeliverable, no further notices to such Member shall be necessary until
another address for such Member is made known to the Company. Notice to
Members, if by facsimile or by electronic mail, shall be deemed delivered
upon receipt of a confirmation of transmission.
(c) At an adjourned meeting, the Company may transact
any business which might have been transacted at the original meeting
without additional notice.
3.11 Waiver of Notice.
(a) When any notice is required to be given to any
Member of the Company under the provisions of this Agreement, a waiver
thereof in writing signed by the Person entitled to such notice, whether
before, at, or after the time stated therein, shall be equivalent to the
giving of such notice.
(b) By attending a meeting, a Member:
(i) Waives objection to lack of notice or defective
notice of such meeting unless the Member, at the beginning of the
meeting, objects to the holding of the meeting or the transacting
of business at the meeting; and
(ii) Waives objection to consideration at such meeting
of a particular matter not within the purpose or purposes described
in the meeting notice unless the Member objects to considering the
matter when it is presented.
3.12 Record Dates. For the purpose of determining the
Members who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any distribution, or for the
purpose of any other action, the Managers may fix a date and time not more
than ninety (90) days prior to the date of any meeting of Members or other
action as the date and time of record for the determination of Members
entitled to vote at such meeting or any adjournment thereof or to be
treated as Members of record for purposes of such other action, and any
Member who was a Member at the date and time so fixed shall be entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Member of record for purposes of such other action, even though he has
since that date and time disposed of his Units, and no Member becoming such
after that date and time shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Member of record for purposes
of such other action.
3.13 Voting Record. The Person having charge of the
membership records of the Company shall make, at least two days before such
meeting of Members, a complete record of the Members entitled to vote at
each meeting of Members or any adjournment thereof, with the address of
each. The record, for a period of two days prior to such meeting, shall be
kept on file at the principal executive offices of the Company, and shall
be subject to inspection by any Member for any proper purpose germane to
the meeting at any time during usual business hours; provided, however,
that such Member shall have made a demand to view such records not less
than 5 business days after receipt of notice of such meeting, properly
delivered to the Company and setting forth in reasonable detail the purpose
for which such Member desires to view such information. The original
membership records shall be the prima facie evidence as to who are the
Members entitled to examine the record or transfer books or to vote at any
meeting of Members.
3.14 Voting; Quorum of Members; Vote Required. Except as
otherwise set forth herein, each Member shall be entitled to one vote per
Unit and a proportionate fractional vote for each fractional Unit upon all
matters upon which Members have the right to vote based upon the Units of
the Company as set forth in the membership records of the Company as of the
applicable record date. The presence, in person or by proxy, of Members
owning more than 50% of the Units at the applicable record date for the
action to be taken constitutes a quorum for the transaction of business. If
a quorum is present, the affirmative vote, in person or by proxy, of the
owners of more than 50% of the Units then outstanding and represented in
person or by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the Members, unless the vote of a greater
proportion or number or voting by classes is required by the Act, the
Investment Company Act or this Agreement. If a quorum is not represented at
any meeting of the Members, such meeting may be adjourned by an Appropriate
Officer.
The Members shall have the following voting rights:
(a) to the extent required by the Investment Company Act
or as otherwise provided for herein, the right to elect Managers by the
affirmative vote of a plurality of votes cast;
(b) as provided herein, the right to remove Managers for
cause by the affirmative vote of a Supermajority of Members at a meeting of
Members duly called for such purpose;
(c) whenever the Company as an investor in the Portfolio
is requested to vote on matters pertaining to the Portfolio, the Company
shall call a meeting of the Members for the purpose of voting on such
matters, and the Company shall vote for or against such matters
proportionately to the instructions to vote for or against such matters
received from the Members, with Units for which the Company receives no
voting instructions voted in the same proportion as the Units for which the
Company receives voting instructions;
(d) to the extent required by the Investment Company
Act, the right to approve any proposed investment advisory agreement or to
disapprove and terminate any such existing agreement by the affirmative
vote of a 40 Act Majority of Members; provided, however, in the case of
approval that such agreement is also approved by a majority of Managers who
are not parties to such contract or "interested persons" of any such party
as such term is defined in the Investment Company Act, as the same may be
amended from time to time;
(e) to the extent required by the Investment Company
Act, the right to ratify the appointment of the independent accountants of
the Company by the affirmative vote of more than 50% of the Units then
outstanding and represented in person or by proxy at the meeting and
entitled to vote; provided, however, that such appointment is approved by a
majority of the Disinterested Managers;
(f) to the extent required by the Investment Company
Act, the right to terminate the Company's independent accountants by the
affirmative vote of a 40 Act Majority of Members;
(g) extension of the time of termination and dissolution
of the Company to the extent provided in Section 2.6 hereof by the
affirmative vote of a Majority in Interest of the Members;
(h) to the extent required by the Investment Company
Act, the right to consent to the dissolution of the Company pursuant to
Section 13.1 by the affirmative vote of a 40 Act Majority of Members;
(i) to the extent required by Section 13.2, the
selection of a liquidator by the affirmative vote of a Majority in Interest
of the Members;
(j) to the extent required by Section 14.1 or 14.3, the
right to approve certain amendments to this Agreement by the affirmative
vote of a Majority in Interest of the Members; and
(k) so long as the Company is subject to the provisions
of the Investment Company Act, the right to approve any other matters that
the Investment Company Act requires to be approved by the Members by the
affirmative vote of Members as specified in the Investment Company Act.
3.15 No Consent Required. Notwithstanding the foregoing, no
vote, approvals, or other consent shall be required of the Members to amend
this Agreement in any of the following respects: (i) to reflect any change
in the amount or character of the Capital Contribution of any Member; (ii)
to admit an additional Member or a Substituted Member or withdraw a Member
in accordance with the terms of this Agreement; (iii) to correct any false
or erroneous statement, or to make a change in any statement in order that
such statement shall accurately represent the agreement among the Members
in this Agreement; (iv) to reflect any change that is necessary to qualify
the Company as a limited liability company under the laws of any state or
that is necessary or advisable in the opinion of the Board of Managers to
assure that the Company will not be treated as a publicly traded
partnership or otherwise treated as a corporation for federal income tax
purposes; (v) to reflect any change in the name or principal place of
business of the Company; (vi) to make any other change or amendment that
does not require the vote, approval or consent of Members under the
Investment Company Act, the Act or expressly hereunder, provided that such
change or Amendment has been approved by a majority of the Board of
Managers and a majority of the Disinterested Managers.
3.16 Limitations on Requirements for Consents.
Notwithstanding any other provisions of this Agreement, but subject to the
requirements of the Investment Company Act, in the event that counsel for
the Company or counsel designated by Members holding not less than 10% of
the Units owned by all Members shall have delivered to the Company an
opinion to the effect that either the existence of a particular consent
right or particular consent rights, or the exercise thereof, will violate
the provisions of the Act or the laws of the other jurisdictions in which
the Company is then formed or qualified, will adversely affect the limited
liability of the Members, or will adversely affect the classification of
the Company as a partnership for federal or state income tax purposes, then
notwithstanding the other provisions of this agreement, the Members shall
no longer have such right, or shall not be entitled to exercise such right
in the instant case, as the case may be.
3.17 Informal Action by Members. Any action that may be
taken by Members at a meeting of Members may be taken without a meeting
without prior notice and without a vote if consent in writing setting forth
the action to be taken is signed by the Members holding not less than the
minimum percentage of Units that would be necessary to authorize or take
such action at a meeting at which all the Members were present and voted,
with prompt written notice thereof delivered to all Members. Written
consent by the Members has the same force and effect as a vote of such
Members held at a duly held meeting of the Members and may be stated as
such in any document.
3.18 Voting by Ballot. Voting on any question or in any
election may be by voice vote unless the presiding officer shall order or
any Member shall demand that voting be by ballot.
3.19 No Cumulative Voting. No Members shall be entitled to
cumulative voting in any circumstance.
3.20 Representations and Warranties of Members;
Indemnification.
(a) Each Member hereby represents and warrants to the
Company and each other Member as follows:
(i) In each case to the extent applicable, such
Member is duly incorporated or organized, validly existing
and in good standing under the laws of the jurisdiction of
its incorporation or organization and has full power and
authority to execute and deliver this Agreement and to
perform its obligations hereunder. All requisite actions
necessary for the due authorization, execution, delivery and
performance of this Agreement by such Member have been duly
taken.
(ii) Such Member has duly executed and
delivered this Agreement. This Agreement constitutes a valid
and binding obligation of such Member enforceable against
such Member in accordance with its terms (except as may be
limited by bankruptcy, insolvency, or similar laws of
general application and by the effect of general principles
of equity, regardless of whether considered at law or in
equity).
(iii) Such Member's authorization, execution,
delivery and performance of this Agreement does not and will
not (i) conflict with, or result in a breach, default or
violation of (A) to the extent applicable, the certificate
or articles of incorporation, by-laws or other
organizational documents of such Member, (B) any material
contract or agreement to which that Member is a party or is
otherwise subject, or (C) any law, order, judgment, decree,
writ, injunction or arbitration award to which that Member
is subject; or (ii) require any consent, approval, or
authorization from filing, or registration with or notice
to, any governmental authority or other Person, other than
those that have already been obtained.
(iv) Such Member is familiar with the proposed
business, financial condition, properties, operations and
prospects of the Company, and has asked such questions and
conducted such due diligence concerning such matters and
concerning its acquisition of any membership interests as it
has desired to ask and conduct, and all such questions have
been answered to its full satisfaction. Such Member has such
knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of an
investment in the Company. Such Member understands that
owning membership interests involves various risks,
including the restrictions on transferability set forth in
this Agreement, lack of any public market for such
membership interests, the risk of owning its membership
interests for an indefinite period of time and the risk of
losing its entire investment in the Company. Such Member is
able to bear the economic risk of such investment; is
acquiring its membership interests for investment and solely
for its own beneficial account and not with a view to or any
present intention of directly or indirectly selling,
transferring, offering to sell or transfer, participating in
any distribution or otherwise disposing of all or a portion
of its membership interests.
(b) Each Member hereby indemnifies the Company from and
against and agrees to hold the Company free and harmless from any and all
claims, losses, damages, liabilities, judgments, fines, settlements,
compromises, awards, costs, expenses or other amounts (including without
limitation any attorney fees, expert witness fees or related costs) arising
out of or otherwise related to a breach of any of the representations and
warranties of such Member as set forth in this Section 3.20.
(c) such Member shall not transfer, sell, or offer to
sell such Member's Units without compliance with the conditions and
provisions of this Agreement;
(d) if such Member assigns all or any part of such
Member's Units, then until such time as one or more assignees thereof are
admitted to the Company as a Substituted Member with respect to the entire
Interest so assigned, the matters to which any holder thereof would
covenant and agree if such holder were to execute this Agreement as a
Member shall be and remain true;
(e) such Member shall notify the Managers immediately if
any representations or warranties made herein or in any Subscription
Agreement should be or become untrue; and
(f) such Member shall not take any action that would
have the effect of causing the Company (i) to be treated as a publicly
traded partnership for purposes of Section 7704(b) of the Code or (ii)
otherwise to be treated as a corporation for federal income tax purposes.
3.21 Media and Common Carrier Restrictions. A "Media or Common
Carrier Company" shall mean any Person in whom the Company has acquired or
is proposing to acquire any direct or indirect interest that directly or
indirectly owns, controls or operates a broadcast radio or television
station, a cable television system, a "daily newspaper" (as such term is
defined in the Attribution Rules and/or the Ownership Rules), a multipoint
multichannel distribution system, a local multipoint distribution system,
an open video system, a commercial mobile radio service or any other
communications facility the ownership of which is subject to regulation by
the Federal Communications Commission ("FCC") under (i) the Communications
Act; (ii) the Attribution Rules; or (iii) the Ownership Rules. For purposes
of this Section 3.21, "Attribution Rules" shall mean the ownership
attribution rules of the FCC, including, but not limited to, 47 C.F.R.
ss.ss. 20.6(d); 21.912, Note 1; 73.3555, Note 2(g); 76.501, Note 2(g);
76.15000(g); 101.10333(e); Attribution Reconsideration Order, 58 Rad. Reg.
2d (P & F) 604 (1985); Further Attribution Reconsideration Order, 1 FCC
Rcd. 802 (1986); and "Ownership Rules" shall mean the multiple and
cross-ownership rules of the FCC including, but not limited to, 47 C.F.R.
ss.ss. 20.6(a); 21.912; 73.3555; 74.931(h); 76.1501 and 101.1003(a) and any
other regulations or written policies of the FCC which limit or restrict
ownership in Media or Common Carrier Companies, all as the same may be
amended or supplemented from time to time.
(a) If the Company acquires an interest in a Media
Company and if as a result of the Attribution Rules, a Member or a Media
Company would, but for the last clause of this Section 3.21(a) be in
violation of:
(i) the Ownership Rules, or
(ii) the restrictions on ownership or participation in
broadcast licenses by aliens imposed by Section 310(b) of the
Communications Act or the policies and decisions of the FCC
thereunder, or
(iii) the FCC's policy preventing persons from having
"meaningful" cross-interests in certain broadcast station
combinations, newspaper/broadcast station combinations, or cable
system/television station combinations serving the same market in
situations where such combinations would violate the Ownership Rules
if all such interests were attributable under the Attribution Rules,
then:
no Member nor any officer, director, member or partner of any Member nor
any person who owns more than 5% of any class of equity securities of any
Member shall, without the consent of the Investment Adviser: be an employee
of the Company whose functions directly or indirectly relate to the media
or common carrier business of any Media or Common Carrier Company; serve in
any material capacity as an independent contractor or agent with respect to
the media or common carrier business of such Media or Common Carrier
Company; communicate on matters pertaining to the day-to-day operations of
any Media or Common Carrier Company with (A) an officer, director, partner,
agent, representative or employee of such Media or Common Carrier Company,
or (B) the Investment Adviser; perform any services for the Company that
materially relate to any Media or Common Carrier Company; become actively
involved in the management or operation of any Media or Common Carrier
Company; or become actively involved in the management or operation of the
media businesses.
<PAGE>
ARTICLE IV
MANAGEMENT OF COMPANY
4.1 Board of Managers. The governing body of the Company
shall be the Board of Managers, which shall have the power to control the
management and policies of the Company. The maximum number of managers
shall initially be set at four (4), and may be increased or decreased by
action of the Board of Managers provided that at no time shall the number
of Managers be set at less than three (3) nor more than ten (10). The
Managers shall be set forth in Schedule B hereto or in the official records
of the Company. The Managers shall hold office until their successors are
approved and elected, unless they are sooner removed pursuant to Section
4.4, or sooner resign pursuant to Section 4.3 or sooner are incapacitated
pursuant to Section 4.5, as the case may be. Managers may succeed
themselves in office. No reduction in the number of Managers shall have the
effect of removing any Manager from office unless specially removed
pursuant to Section 4.4 at the time of such decrease. Subject to the
requirements of the Investment Company Act, the Board of Managers may
designate successors to fill vacancies created by an authorized increase in
the number of Managers, the resignation of a Manager pursuant to Section
4.3, the removal of a member of the Board of Managers pursuant to Section
4.4 or the incapacity of a Manager pursuant to Section 4.5. In the event
that no Managers remain, the Appropriate Officers shall continue the
business of the Company and shall perform all duties of the Managers under
this Agreement and shall as soon as practicable call a special meeting of
Members for the purpose of approving and electing Managers. When Managers
are subject to election by Members, Managers are elected by a plurality of
the Units voting at the meeting. Managers may, but need not be, admitted to
the Company as Members to act in their capacity as Managers.
4.2 Disinterested Managers. Subject to the requirements of
the Investment Company Act, at least a majority of the members of the Board
of Managers shall be Disinterested Managers. If at any time the number of
Disinterested Managers is less than a majority, action shall be taken
pursuant to Section 4.1 or Section 4.4 to restore the number of
Disinterested Managers to at least a majority.
4.3 Resignation by a Manager. A Manager may voluntarily
resign from the Board of Managers upon the giving of notice thereof to the
Company, such resignation to take effect upon receipt of such notice by the
Company or such later date as set forth in such notice.
4.4 Removal of a Manager; Designation of a Successor
Manager.
(a) Any Manager may be removed either: (i) for cause by
the action of at least two-thirds of the remaining Managers, including in
the case of a Disinterested Manager a majority of the remaining
Disinterested Managers; (ii) by failure to be re-elected by the Members at
a meeting of Members duly called by the Managers for such purpose; or (iii)
for cause by the affirmative vote of a Supermajority of Members. The
removal of a Manager shall in no way derogate from any rights or powers of
such Manager, or the exercise thereof, or the validity of any actions taken
pursuant thereto, prior to the date of such removal.
(b) Subject to Section 4.2, the remaining Managers shall
designate a successor Manager to fill any vacancy existing in the number of
Managers fixed pursuant to Section 4.2 resulting from removal of a Manager.
Any such successor Manager shall hold office until his or her successor has
been approved and elected.
(c) Any removal of a Manager shall not affect any rights
or liabilities of the removed Manager that matured prior to such removal.
4.5 Incapacity of a Manager.
(a) In the event of the Incapacity of a Manager, the
business of the Company shall be continued with the Company property by the
remaining Managers. The remaining Managers shall, within 90 days, call a
meeting of the Board of Managers for the purpose of designating a successor
Manager. Any such successor Manager shall hold such office until his or her
successor has been approved and elected. The Managers shall make such
amendments to the certificate of formation and execute and file for
recordation such amendments or other documents or instruments as are
necessary and required by the Act or this Agreement to reflect the fact
that such Incapacitated Manager has ceased to be a Manager and the
appointment of such successor Manager.
(b) In the event of the Incapacity of all Managers, an
Appropriate Officer shall as promptly as practicable convene a meeting of
Members for the purpose of electing new Managers nominated by the
Investment Adviser. Upon the Incapacity of a Manager, the Manager shall
immediately cease to be a Manager.
(c) Any such termination of a Manager shall not affect
any rights or liabilities of the Incapacitated Manager that matured prior
to such Incapacity.
4.6 Continuation. In the event of the withdrawal, removal or
retirement of a Manager, the Company shall not be dissolved and the
business of the Company shall be continued by the remaining Managers.
4.7 Board of Managers Powers. Subject to the terms hereof,
the Board of Managers shall have full and complete discretion in the
management and control of the affairs of the Company, shall make all
decisions affecting Company affairs and shall have all of the rights,
powers and obligations of a managing member of a limited liability company
under the Act and otherwise as provided by law. The Board of Managers shall
provide overall guidance and supervision with respect to the operations of
the Company, shall perform all duties imposed on directors by the
Investment Company Act, and shall monitor the activities of the Appropriate
Officers, Investment Advisers and any administrator to the Company and
distributor of the Company's securities. Except as otherwise expressly
provided in this Agreement, the Board of Managers is hereby granted the
right, power and authority to do on behalf of the Company all things which,
in its sole judgment, are necessary or appropriate to manage the Company's
affairs and fulfill the purposes of the Company. Any determination as to
what is in the interests of the Company made by the Managers in good faith
shall be conclusive. In construing the provisions of this Agreement, the
presumption shall be in the favor of a grant of power to the Managers. The
powers of the Managers include, by way of illustration and not by way of
limitation, the power and authority from time to time to do the following:
(a) invest the assets of the Company in such investments
as are consistent with the Company's purpose and employ one or more
Investment Advisers to do the same;
(b) incur all expenses permitted by this Agreement;
(c) to the extent that funds are available, cause to be
paid all expenses, debts and obligations of the Company;
(d) appoint and dismiss such Persons to serve as
officers of the Company ("Appropriate Officers") with such powers and
authority as may be provided to such Persons by the Board of Managers or by
this Agreement;
(e) employ and dismiss from employment such agents,
employees, managers, accountants, attorneys, consultants and other Persons
necessary or appropriate to carry out the business and affairs of the
Company, whether or not any such Persons so employed are affiliated persons
of any Manager, and to pay such compensation to such Persons as is
competitive with the compensation paid to unaffiliated Persons in the area
for similar services;
(f) subject to the indemnification provisions in this
Agreement, pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or settle, upon such terms it deems sufficient, any
obligation, suit, liability, cause of action or claim, including tax
audits, either in favor of or against the Company;
(g) enter into any sales, distribution, agency, or
dealer agreements, and escrow agreements, with respect to the sale of Units
and provide for the distribution of such Units by the Company through one
or more Persons (which may be affiliated persons of a Manager or Managers),
or otherwise; borrow money and issue multiple classes of senior
indebtedness or a single class of Interests senior to the Units to the
extent permitted by the Investment Company Act and repay, in whole or in
part, any such borrowing or indebtedness and repurchase or retire, in whole
or in part, any such Interests senior to the Units; and in connection with
such loans or senior instruments to mortgage, pledge, assign or otherwise
encumber any or all properties or assets owned by the Company, including
any income therefrom, to secure such borrowing or provide repayment
thereof;
(h) establish and maintain accounts with financial
institutions, including federal or state banks, brokerage firms, trust
companies, savings and loan institutions or money market funds;
(i) make temporary investments of Company capital in
Government Securities;
(j) to the extent permitted by the Investment Company
Act, form or cause to be formed one or more small business investment
companies under the Small Business Investment Fund Act of 1958, as amended;
(k) establish valuation principles and periodically
apply such principles to the Company's investment portfolio;
(l) to the extent permitted by the Investment Company
Act, designate and appoint one or more agents for the Company who shall
have such authority as may be conferred upon them by the Board of Managers
and who may perform any of the duties of, and exercise any of the powers
and authority conferred upon, the Board of Managers hereunder including,
but not limited to, designation of one or more agents as authorized
signatories on any bank accounts maintained by the Company;
(m) prosecute, protect, defend, or cause to be protected
and defended, or abandon, any patents, patent rights, copyrights, trade
names, trademarks and service marks, and any applications with respect
thereto, that may be held by the Company;
(n) take all reasonable and necessary actions to protect
the secrecy of and the proprietary rights with respect to any know-how,
trade secrets, secret processes or other proprietary information and to
prosecute and defend all rights of the Company in connection therewith;
(o) subject to the other provisions of this Agreement,
to enter into, make and perform such contracts, agreements and other
undertakings, and to do such other acts, as it may deem necessary or
advisable for, or as may be incidental to, the conduct of the business
contemplated by this Agreement, including, without in any manner limiting
the generality of the foregoing, contracts, agreements, undertakings, and
transactions with any Member, Manager, Appropriate Officer or Investment
Adviser or with any other person, firm, or corporation having any business,
financial, or other relationship with any Member, Manager, Appropriate
Officer or Investment Adviser, provided, however, such transactions with
such Persons and entities (i) shall only be entered into to the extent
permitted under the Investment Company Act and (ii) shall be on terms no
less favorable to the Company than are generally afforded to unrelated
third parties in comparable transactions;
(p) purchase, rent or lease equipment for Company
purposes;
(q) purchase and maintain, at the Company's expense,
liability and other insurance to protect the Company's assets from third
party claims; and cause the Company to purchase or bear the cost of any
insurance covering any potential liabilities of the Members, Managers,
Appropriate Officers, Investment Adviser or agents of the Company, or
officers, employees, directors, members or partners of the Investment
Adviser or any agent of the Company as well as the potential liabilities of
any Person serving at the request of the Investment Adviser as a director
of or adviser to any company in which the Portfolio makes an investment,
other than Government Securities;
(r) cause to be paid any and all taxes, charges and
assessments that may be levied, assessed or imposed upon any of the assets
of the Company;
(s) make or caused to be made any election on behalf of
the Company under the Code and other tax laws and supervise the preparation
and filing of all tax and information returns that the Company may be
required to file;
(t) take any action that may be necessary or appropriate
for the continuation of the Company's valid existence as a limited
liability company under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Members or to enable the Company to conduct the business
in which it is engaged;
(u) admit Members to the Company in accordance with
Section 7.1; admit an assignee of a Member's Interest to be a Substituted
Member in the Company, pursuant to and subject to the terms of Section 9.5,
without the consent of any Member; admit additional Persons as members by
creating and issuing Units or other equity interests from time to time with
terms of admission or issuance providing for the creation of different
classes, groups or series of membership interests having different rights,
powers and duties, which rights, powers and duties may be senior, pari
passu or junior to the rights, powers and duties of the Units, as
determined by the Board of Managers without the consent of Members;
(v) value the assets of the Company from time to time
pursuant to and consistent with the policies of the Company with respect
thereto as in effect from time to time;
(w) borrow money or otherwise incur indebtedness to fund
loans and other investments subject to the provision of applicable law and
this Agreement; each Member expressly agrees that any such borrowing may be
secured by the assets of the Company and that its Capital Account may be
pledged by the Company to secure any such borrowing or indebtedness;
(x) delegate all or any portion of its rights, powers
and authority to any committee or subset of the Board of Managers, or to
any Investment Adviser, Appropriate Officer or agent of the Company,
subject to the control and supervision of the Managers; and
(y) perform all normal business functions, and otherwise
operate and manage the business and affairs of the Company, in accordance
with and as limited by this Agreement.
4.8 Annual and other Regular Meetings of the Board of
Managers. An annual meeting of the Board of Managers shall be held without
notice other than this provision. The Board of Managers may provide, by
resolution, the time and place, either within or without the State of
Delaware, for the holding of the annual meeting and any additional regular
meetings without notice other than such resolution.
4.9 Special Meetings of the Board of Managers. Special
meetings of the Board of Managers may be called by an Appropriate Officer
or the Chairman of the Board of Managers, or, if no such Chairman exists,
at the request of any two Managers. The person or persons authorized to
call special meetings of the Board of Managers may fix any place, either
within or without the State of Delaware, as the place for holding any
special meeting of the Board of Managers called by them.
4.10 Notice of Meetings of the Board of Managers. Written
notice of any special meeting of the Board of Managers shall be given as
follows:
(a) By mail to each Manager at the Manager's mailing
address at least five business days prior to the meeting; or
(b) By personal delivery, e-mail or facsimile
transmission at least three business days prior to the meeting to each
Manager.
If mailed by post, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with
postage thereon prepaid. If notice be given by e-mail or facsimile
transmission such notice shall be deemed to be delivered when the e-mail or
facsimile transmission is transmitted by the sender.
(c) Any Manager may waive notice of any meeting. The
attendance of a Manager at any meeting shall constitute a waiver of notice
of such meeting, except where a Manager attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of
Managers need be specified in the notice or waiver of notice of such
meeting.
4.11 Quorum for Board of Managers Meetings. A majority of
the number of Managers shall constitute a quorum for the transaction of
business at any meeting of the Board of Managers, but if less than such
majority is present at a meeting, a majority of the Managers present may
adjourn the meeting from time to time without further notice.
4.12 Manner of Acting for Board of Managers. Except as
otherwise required by the Act, the Investment Company Act or this Agreement
the act of the majority of the Managers present at a meeting at which a
quorum is present shall be the act of the Board of Managers. Each Manager
shall be entitled to one vote upon all matters submitted to the Board of
Managers.
4.13 Written Consent by Board of Managers. Unless otherwise
required by the Investment Company Act, any action required or permitted to
be taken at any meeting of the Board of Managers or by a committee thereof
may be taken without a meeting, without prior notice and without a vote if
the members of the Board of Managers or such committee that would be
required to approve such action at a meeting consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of
the Board of Managers or such committee.
4.14 Participation by Electronic Means by Board of Managers.
Any Manager may participate in a meeting of the Board of Managers or any
committee thereof in person or by means of conference telephone or similar
communications equipment by which all persons participating in the meeting
can hear and speak to each other at the same time. Except for purposes of
the Investment Company Act, such participation shall constitute presence in
person at the meeting.
4.15 Committees of Managers. By resolution adopted by the
Board of Managers, the Board of Managers may designate two or more Managers
to constitute a committee, any of which shall have such authority in the
management of the Company as the Board of Managers shall designate.
4.16 Manager Presumption of Assent. A Manager of the Company
who is present at a meeting of the Board of Managers at which action on any
matter taken shall be presumed to have assented to the action taken unless
a dissent shall be entered in the minutes of the meeting or unless the
Manager files a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Manager who voted in favor of such action.
4.17 Manager Power to Bind Company. Unless the Board of
Managers consists of one Manager, no Manager (acting in his capacity as
such) shall have any authority to bind the Company to any third party with
respect to any matter except pursuant to a resolution expressly authorizing
such action which resolution is duly adopted by the Board of Managers by
the affirmative vote required for such matter pursuant to the terms of this
Agreement.
4.18 Liability of the Managers. No Manager shall be (i)
personally liable for the debts, obligations or liabilities of the Company,
including any such debts, obligations or liabilities arising under a
judgement decree or order of a court; (ii) obligated to cure any deficit in
any Capital Account; (iii) required to return all or any portion of any
Capital Contribution; or (iv) required to lend any funds to the Company.
4.19 Reliance by Third Parties. Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of
the Board of Managers, the Appropriate Officers and the Investment Adviser
of the Company herein set forth.
4.20 Appointment of Auditors. Subject to the approval or
ratification of the Members and the Disinterested Managers, if and to the
extent required under the Investment Company Act, the Board of Managers, in
the name and on behalf of the Company, is authorized to appoint independent
certified public accountants for the Company.
4.21 Contracts with Affiliates. The Board of Managers may,
on behalf of the Company subject to approval by a majority of the Managers
who do not have an interest in the contract and a majority of the
Disinterested Managers and to compliance with the Investment Company Act,
enter into contracts for goods or services with any affiliate of a Manager,
Member, Appropriate Officer, Investment Adviser or any other person,
provided that the charges for such goods or services do not exceed those
charged by unaffiliated Persons in the area for similar goods and
services.
4.22 Obligations of the Managers. The Managers shall devote
such time and effort to the Company business as, in their judgment, may be
necessary or appropriate to oversee the affairs of the Company.
4.23 Other Business of Managers. Any Manager and any
affiliate of any Manager may engage in or possess any interest in other
business ventures of any kind, nature or description, independently or with
others, whether such ventures are competitive with the Company or
otherwise. Neither the Company nor any Member shall have any rights or
obligations by virtue of this Agreement or the company relationship created
hereby in or to such independent ventures or the income or profits or
losses derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Company, shall not be deemed wrongful
or improper. Neither the Managers nor any affiliate of any Manager shall be
obligated to present any investment opportunity to the Company.
4.24 Limitations on Board of Managers and Appropriate Officers.
(a) Notwithstanding anything expressed or implied to the
contrary in this Agreement (other than Article IX), the Board of Managers
and the Appropriate Officers shall not authorize or otherwise cause or
allow the Company to purchase all or any portion of any Member's Interest
(or any attributes thereof).
(b) Notwithstanding anything expressed or implied to the
contrary in this Agreement, the Board of Managers and the Appropriate
Officers shall not (i) participate in the establishment of a secondary
market (or the substantial equivalent thereof) with respect to the
Interests for purposes of Treasury Regulation Section 1.7704-1(d)(1) or
(ii) take any action that would have the effect of causing the Company (A)
to be treated as a publicly traded partnership for purposes of Section
7704(b) of the Code or (B) otherwise to be treated as a corporation for
federal income tax purposes.
ARTICLE V
OFFICERS
5.1 Appropriate Officers. The day-to-day management and
operation of the Company and its business shall be the responsibility of
the Appropriate Officers of the Company, subject to the supervision and
control of the Board of Managers. The Appropriate Officers shall, subject
to the supervision and control of the Board of Managers, exercise all
powers necessary and convenient for the purposes of the Company, on behalf
and in the name of the Company. Notwithstanding anything to the contrary
contained herein, the acts of an Appropriate Officer in carrying on the
business of the Company as authorized herein shall bind the Company.
The Appropriate Officers of the Company shall be chosen by
the Board of Managers and shall include a President, a Secretary and a
Treasurer. The Board of Managers may also choose a Chairman of the Board of
Managers (who must be a Manager) and the following additional Appropriate
Officers: a Chief Executive Officer, a Chief Financial Officer, a Chief
Operating Officer, and one or more Vice Presidents (and, in the case of
each Vice President, with such descriptive title, if any, as the Board of
Managers shall determine), Assistant Secretaries, Assistant Treasurers and
other officers. Any number of offices may be held by the same person,
unless otherwise prohibited by law. The officers of the Company need not be
Members of the Company nor, except in the case of the Chairman of the
Board, need such officers be Managers of the Company.
5.2 Election of Officers. The Board of Managers shall elect
the officers of the Company who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Managers; and all officers of the Company
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the
Board of Managers may be removed at any time, with or without cause, by the
affirmative vote of the Board of Managers or upon the Incapacity of such
officer. Any vacancy occurring in any office of the Company shall be filled
by the Board of Managers. The salaries of all officers of the Company shall
be fixed by the Board of Managers. The Board of Managers may delegate such
duties to any such officers or other employees, agents and consultants of
the Company as the Board of Managers deems appropriate, including the
power, acting individually or jointly, to represent and bind the Company in
all matters, in accordance with the scope of their respective duties.
5.3 Voting Securities Owned by the Company. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Company may be executed in
the name of and on behalf of the Company by the President or any Vice
President or any other officer authorized to do so by the Board of Managers
and any such officer may, in the name of and on behalf of the Company, take
all such action as any such officer may deem advisable to vote in person or
by proxy at any meeting of security holders of any entity in which the
Company may own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Company might have
exercised and possessed if present. The Board of Managers may, by
resolution, from time to time confer like powers upon any other person or
persons.
5.4 Chairman of the Board of Managers. The Chairman of the
Board of Managers, if there be one, shall preside at all meetings of the
Members and of the Board of Managers. The Chairman of the Board of Managers
shall be selected from time to time by the Board of Managers. The Chairman
of the Board of Managers shall possess the same power as the President to
sign all contracts, certificates and other instruments of the Company which
may be authorized by the Board of Managers. During the absence or
disability of the President, the Chairman of the Board of Managers shall
exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Managers shall also perform such other duties and
may exercise such other powers as may from time to time be assigned by this
Agreement or by the Board of Managers.
5.5 President. The President shall, subject to the control
of the Board of Managers and, if there be one, the Chairman of the Board of
Managers, have general supervision of the business of the Company and shall
see that all orders and resolutions of the Board of Managers are carried
into effect. The President or, when authorized by this Agreement, the Board
of Managers or the other officers of the Company shall execute all bonds,
mortgages, contracts, documents and other instruments of the Company. In
the absence or disability of the Chairman of the Board of Managers, or if
there be none, the President, shall preside at all meetings of the Members
and the Board of Managers. Unless the Board of Managers shall otherwise
designate, the President shall be the Chief Executive Officer of the
Company. The President shall also perform such other duties and may
exercise such other powers as may from time to time be assigned to such
officer by this Agreement or by the Board of Managers.
5.6 Vice Presidents. At the request of the President or in
the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Managers), the
Vice President, or the Vice Presidents if there is more than one (in the
order designated by the Board of Managers), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Each Vice President shall
perform such other duties and have such other powers and duties as the
Board of Managers, the Chairman of the Board of Managers or the President
from time to time may prescribe. The Vice President shall act under the
supervision of the President. If there be no Chairman of the Board of
Managers and no Vice President, the Board of Managers shall designate the
officer of the Company who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
5.7 Secretary. The Secretary shall attend all meetings of
the Board of Managers and all meetings of Members and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Managers when required. The Secretary shall give, or cause to be given,
notice of all meetings of the Members and special meetings of the Board of
Managers, and shall perform such other duties as may be prescribed by the
Board of Managers, the Chairman of the Board of Managers or the President,
under whose supervision the Secretary shall act. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
Members and special meetings of the Board of Managers, and if there be no
Assistant Secretary, then either the Board of Managers or the President may
choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Company, if any, and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested
by the signature of the Secretary or by the signature of any such Assistant
Secretary. The Secretary may give general authority to any other officer to
affix the seal of the Company and to attest to the affixing by such
officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to
be kept or filed are properly kept or filed, as the case may be.
5.8 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Company in such depositories as may be designated by the Board of
Managers. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Managers, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Managers,
at its regular meetings, or when the Board of Managers so requires, an
account of all transactions as Treasurer and of the financial condition of
the Company. If required by the Board of Managers, the Treasurer shall give
the Company a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Managers for the faithful performance of the
duties of the office of the Treasurer and for the restoration to the
Company, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Company.
5.9 Assistant Secretaries. Assistant Secretaries, if there
be any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Managers, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the
Secretary.
5.10 Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Managers, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Managers, an Assistant Treasurer
shall give the Company a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Managers for the faithful
performance of the duties of the office of Assistant Treasurer and for the
restoration to the Company, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging
to the Company.
5.11 Other Officers. Such other officers as the Board of
Managers may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Managers, the Chairman
of the Board of Managers or the President. The Board of Managers may
delegate to any other officer of the Company the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE VI
INVESTMENT ADVISER
6.1 Investment Adviser. The Investment Adviser, subject to
the control and supervision of the Board of Managers and the terms and
conditions of the Investment Advisory Agreement, is hereby granted the
power and authority from time to time to do the following: manage and
control the investments of the Company, including, but not limited to, the
power to make all investment decisions regarding the Company's investments
in the Portfolio and Government Securities, and among other things, to
find, evaluate, structure, monitor, sell and liquidate, upon dissolution or
otherwise, such investments, and to enter into, execute, amend, supplement,
acknowledge, and deliver any and all contracts, agreements, or other
instruments for the performance of such functions, including the investment
and reinvestment of all or part of the Company's assets, execution of
Portfolio and Government Securities transactions, and any or all related
administrative functions. The grant of power and authority to the
Investment Adviser under this Section 6.1 in no way limits the rights,
powers or authority of the Board of Managers under this Agreement, the Act
or as otherwise provided by law.
6.2 Investments
(a) Subject to the disclosure and reporting requirements
contained in Article X or elsewhere in this Agreement, except as any Member
may be entitled to under applicable law, the Investment Adviser may keep
confidential from the Members any information known by the Investment
Adviser relating to investments made or being considered by the Company.
(b) Any and all rights, including voting rights,
pertaining to the Portfolio shall be vested exclusively in the Company and
may be exercised only by the Investment Adviser acting in accordance with
the terms of this Agreement and the Investment Advisory Agreement or by the
Company pursuant to the act of an Appropriate Officer or the Board of
Managers.
6.3 Covenants of Investment Adviser. The Investment Adviser
covenants, warrants and agrees with the Company and each of the Members
that the Investment Adviser will not:
(a) purchase all or any portion of any Member's Interest
(or any attributes thereof);
(b) participate in the establishment of a secondary
market (or the substantial equivalent thereof) with respect to the
Interests for purposes of Treasury Regulation Section 1.7704-1(d)(1); or
(c) take any action that would have the effect of
causing the Company (i) to be treated as a publicly traded partnership for
purposes of Section 7704(b) of the Code or (ii) otherwise to be treated as
a corporation for federal income tax purposes.
ARTICLE VII
CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS AND ALLOCATIONS
7.1 Capital Contributions.
(a) The initial Member or Members are as set forth on
Schedule A hereto. Additional Persons making Capital Commitments shall be
admitted as Members and added to Schedule A at one or more closings (each
a"Closing"), each such Closing to be held on such date as may be determined
by the Appropriate Officers (the date of the first such Closing being
referred to as the "Closing Date"). Members not making Capital Commitments
may be admitted to the Company at any time by the act of the Managers.
(b) Capital Contributions by the Members shall be made
in dollars by wire transfer of federal funds to an account or accounts of
the Company as specified by the Company or in such other manner as the
Company may direct. No Member shall be entitled to any interest or
compensation by reason of his, her or its Capital Contribution or by reason
of being a Member. No Member shall be required to lend any funds to the
Company.
(c) At each Closing, Schedule A hereto shall be amended
appropriately to reflect the Capital Commitments of the Members, and the
Appropriate Officers shall take any appropriate action in connection
therewith. Further, the Appropriate Officers shall cause Schedule A hereto
to be amended from time to time to reflect the transfer of a Member's
Interests, the admission and withdrawal of Members and changes in Capital
Commitments, which are accomplished in accordance with the provisions
hereof.
(d) Negative Capital Accounts. Except as may be required
by law, no Member shall be required to reimburse the Company for any
negative balance in such Member's Capital Account.
7.2 Capital Accounts. A capital account ("Capital Account")
shall be established and maintained on the Company's books with respect to
each Member, in accordance with the provisions of Treasury Regulations
Section 1.704-1(b), including the following:
(a) Each Member's Capital Account shall be increased by:
(i) the amount of that Member's Capital Contribution; (ii) the amount of
Net Profit (or items thereof) allocated to that Member; and (iii) any other
increases required by the Treasury Regulations.
(b) Each Member's Capital Account shall be decreased by:
(i) the amount of Net Loss (or items thereof) allocated to that Member;
(ii) all cash amounts distributed to that Member pursuant to this
Agreement, other than any amount required to be treated as a payment for
property or services for federal income tax purposes; (iii) the fair market
value of any property distributed in kind to that Member (net of any
liabilities secured by such distributed property that such Member is
considered to assume or take subject to for federal income tax purposes);
and (iv) any other decreases required by the Treasury Regulations.
(c) All provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with the Code and
Treasury Regulations thereunder and shall be interpreted and applied in a
manner consistent with such law. The Managers shall make any necessary
modifications to this Section 7.2 in the event unanticipated events occur
that might otherwise cause this Agreement not to comply with such law or
any changes thereto.
7.3 Allocations to Capital Accounts.
(a) Member Allocations. Except as provided in this
Agreement, all Net Profit (and items thereof) and all Net Loss (and items
thereof) shall be allocated to the Members in proportion to their Capital
Investments.
(b) Additional Rule. In furtherance and not in
limitation of Section 7.3(a), and except as otherwise provided in this
Agreement, the Board of Managers may, in its sole and absolute discretion,
allocate Net Profit (and items thereof) and Net Loss (and items thereof)
for any Fiscal Period in a manner that the Board of Managers deems
necessary or appropriate in order to effectuate the intended economic
sharing arrangement of the Members as reflected in Article VIII.
(c) Regulatory and Related Allocations. Notwithstanding
anything expressed or implied to the contrary in this Agreement, the
following special allocations shall be made in the following order:
(i) Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Period, each
Member shall be specially allocated items of Company income and
gain for such Fiscal Period (and, if necessary, subsequent Fiscal
Periods) in an amount equal to such Member's share of the net
decrease in such Partnership Minimum Gain, as determined in
accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
the Members pursuant thereto. The items to be so allocated shall be
determined in accordance with Treasury Regulations Section 1.704-2.
This Section 7.3(c)(i) is intended to comply with the minimum gain
chargeback requirements in such Treasury Regulations and shall be
interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as
otherwise provided in Treasury Regulations Section 1.704-2, if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to Partner Nonrecourse Debt during any Fiscal Period,
each Member shall be specially allocated items of Company income
and gain for such Fiscal Period (and, if necessary, subsequent
Fiscal Periods) in an amount equal to such Member's share, if any,
of the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Member's Partner Nonrecourse Debt, as
determined in accordance with Treasury Regulations Section
1.704-2(i). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury
Regulations Section 1.704-2. This Section 7.3(c)(ii) is intended to
comply with the minimum gain chargeback requirements in such
Treasury Regulations and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event any
Member unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) with respect to such Member's
Capital Account, items of Company income and gain shall be
specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Member as
quickly as possible; provided, however, that an allocation pursuant
to this Section 7.3(c)(iii) shall be made only if and to the extent
that such Member would have an Adjusted Capital Account Deficit
after all other allocations provided for in this Section 7.3 have
been tentatively made as if this Section 7.3(c)(iii) were not in
this Agreement. This Section 7.3(c)(iii) is intended to constitute
a "qualified income offset" within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(iv) Gross Income Allocation. In the event any Member
has an Adjusted Capital Account Deficit, items of Company income
and gain shall be specially allocated to such Member in an amount
and manner sufficient to eliminate such Member's Adjusted Capital
Account Deficit as quickly as possible; provided, however, that an
allocation pursuant to this Section 7.3(c)(iv) shall be made only
if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in
this Section 7.3 (other than Section 7.3(c)(iii)) have been
tentatively made as if this Section 7.3(c)(iv) were not in this
Agreement.
(v) Nonrecourse Deductions. Any Nonrecourse
Deductions for any Fiscal Period shall be allocated to the Members in
proportion to their respective Capital Contributions.
(vi) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Period shall be allocated to
the Member who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse
Deductions are attributable in accordance with Treasury Regulations
Section 1.704-2.
(vii) Loss Allocation Limitation. No allocation of Net
Loss (or items thereof) shall be made to any Member to the extent that
such allocation would create or increase an Adjusted Capital
Account Deficit with respect to such Member.
(d) Curative Allocations. The allocations set forth in
Section 7.3(c) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations under Section 704 of the Code.
Notwithstanding any other provision of this Article VII (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into
account in allocating other Company items of income, gain, loss, deduction
and expense among the Members so that, to the extent possible, the net
amount of such allocations of other Company items and the Regulatory
Allocations shall be equal to the net amount that would have been allocated
to the Members pursuant to this Section 7.3 if the Regulatory Allocations
had not occurred.
(e) Section 754 Adjustments. Pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(m), to the extent an adjustment to
the adjusted tax basis of any Company asset under Section 734(b) or Section
743(b) of the Code is required to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Treasury Regulations.
(f) Transfer of or Change in Interests. The Managers are
authorized to adopt any convention or combination of conventions likely to
be upheld for federal income tax purposes regarding the allocation and/or
special allocation of items of Company income, gain, loss, deduction and
expense with respect to a newly issued Interest, a transferred Interest and
a redeemed Interest. Upon admission as a Substituted Member, a transferee
of an Interest shall succeed to the Capital Account of the transferor
Member to the extent it relates to the transferred Interest.
(g) Certain Expenses. Syndication and organization
expenses, as defined in Section 709 of the Code (and, to the extent
necessary as determined in the sole and absolute discretion of the
Managers, any other items) shall be allocated to the Capital Accounts of
the Members so that, as nearly as possible, the cumulative amount of such
syndication and organization expenses (and other items, if relevant)
allocated with respect to each dollar of Capital Commitment for each Member
is the same amount.
(h) Allocation Periods and Unrealized Items. Subject to
applicable Treasury Regulations and other applicable law and
notwithstanding anything expressed or implied to the contrary in this
Agreement, the Managers may, in their sole and absolute discretion,
determine allocations to Capital Accounts based on an annual, quarterly or
other period and/or on realized and unrealized net increases or net
decreases (as the case may be) in the fair market value of Company
property.
7.4 Tax Allocations.
(a) Items of Company income, gain, loss, deduction and
expense shall be allocated, for federal, state and local income tax
purposes, among the Members in the same manner as the Net Profit (and items
thereof) and Net Loss (and items thereof) of which such items are
components were allocated pursuant to Section 7.3; provided, however, that
tax allocations shall be made in accordance with Section 704(c) of the Code
and the Treasury Regulations promulgated thereunder, to the extent so
required thereby.
(b) Allocations pursuant to this Section 7.4 are solely
for federal, state and local income tax purposes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account
or share of Net Profit (and items thereof) or Net Loss (and items thereof).
(c) The Members are aware of the tax consequences of the
allocations made by this Section 7.4 and hereby agree to be bound by the
provisions of this Section 7.4 in reporting their shares of items of
Company income, gain, loss, deduction and expense.
7.5 Determinations by Managers. All matters concerning the
computation of Capital Accounts, the allocation of Net Profit (and items
thereof) and Net Loss (and items thereof), the allocation of items of
Company income, gain, loss, deduction and expense for tax purposes and the
adoption of any accounting procedures not expressly provided for by the
terms of this Agreement shall be determined by the Managers in their sole
and absolute discretion. Such determination shall be final and conclusive
as to all the Members. Notwithstanding anything expressed or implied to the
contrary in this Agreement, in the event the Managers shall determine, in
their sole and absolute discretion, that it is prudent to modify the manner
in which the Capital Accounts, or any debits or credits thereto, are
computed in order to effectuate the intended economic sharing arrangement
of the Members as reflected in Article VIII, the Managers may make such
modification without the approval of Members.
ARTICLE VIII
WITHDRAWALS AND DISTRIBUTIONS OF CAPITAL
8.1 Withdrawals and Distributions in General. No Member
shall be entitled to withdraw any amount from any Capital Account other
than as provided in this Agreement.
8.2 Distributions. After provision for Company Expenses and
establishment of working capital and other reserves as the Appropriate
Officers shall deem appropriate, the Managers may cause all cash and other
property received by the Company in respect of its investments in any
Fiscal Period (collectively, "Investment Proceeds") to be distributed to
the Members of record on the record date set by the Managers with respect
to such distribution, in proportion to such Member's Capital Investment. A
Manager, in its capacity as a Manager, shall not be entitled to any
distributions.
8.3 Restrictions on Distributions. Notwithstanding anything
expressed or implied to the contrary in this Agreement, no distribution
shall be made if, as determined in the sole and absolute discretion of the
Managers, (i) such distribution would violate any contract or agreement to
which the Company is then a party or any law, rule, regulation, order or
directive of any governmental authority then applicable to the Company or
(ii) the amount to be distributed pursuant to this Article VIII would be
immaterial.
8.4 Deemed Sale of Assets. Subject only to the requirements
of the Investment Advisers Act of 1940, as amended, for all purposes of
this Agreement, (i) any property (other than United States dollars) that is
distributed in kind to one or more Members with respect to a Fiscal Period
(including, without limitation, any such in kind property that is
distributed upon the dissolution and winding up of the Company) shall be
deemed to have been sold for cash equal to its fair market value, (ii) the
unrealized gain or loss inherent in such property shall be treated as
recognized gain or loss for purposes of determining the Net Profit and Net
Loss, (iii) such gain or loss shall be allocated pursuant to Section 7.4
for such Fiscal Period and (iv) such in kind distribution shall be made
after giving effect to such allocation.
8.5 Withholding. Notwithstanding anything expressed or
implied to the contrary in this Agreement, the Appropriate Officers are
authorized to take any action that they determine to be necessary or
appropriate to cause the Company to comply with any withholding requirement
with respect to any allocation, payment or distribution by the Company to
any Member or other Person. All amounts so withheld, and, in the manner
determined by the Appropriate Officers, amounts withheld with respect to
any allocation, payment or distribution by any Person to the Company, shall
be treated as distributions to the applicable Members under the applicable
provision of this Agreement. If any such withholding requirement with
respect to any Member exceeds the amount distributable to such Member under
this Agreement, or if any such withholding requirement was not satisfied
with respect to any amount previously allocated, paid or distributed to
such Member, such Member or any successor or assignee with respect to such
Member's Interest hereby indemnifies and agrees to hold harmless the other
Members and the Company for such excess amount or such withholding
requirement, as the case may be (including any interest, additions and
penalties).
8.6 Interest. No interest shall be paid or credited to the
Members with respect to their Capital Contributions, their Capital Accounts
or upon any undistributed funds left on deposit with the Company.
ARTICLE IX
WITHDRAWAL OF MEMBERS; TRANSFER OF INTERESTS; ADMISSION
OF SUBSTITUTED MEMBERS; EFFECT OF DEATH, ETC.
9.1 Withdrawal of Members
(a) The Managers may (but shall not be required to)
terminate the Interest of any Member and cause that Member to withdraw from
the Company at any time upon at least five days' prior written notice upon
(i) the request of such Member; or (ii) a determination by the Managers
that the continued participation of that Member in the Company might
adversely affect the Company by jeopardizing the treatment of the Company
as a partnership for federal income tax purposes, involve the Company in
any litigation arising out of or relating to the participation of that
Member in the Company or subject the Company to restrictions or other
adverse consequences as a result of applicable laws or regulations. In the
event that the Managers terminate a Member's Interest, that Member shall
immediately withdraw from the Company and cease to be a Member of the
Company. Such withdrawal shall occur automatically upon termination without
the necessity of any further act by the Member or any other Person. The
date of termination shall be the effective date of withdrawal of the
terminated Member.
(b) (i) The Company shall pay to the terminated Member
90% of the amount of the terminated Member's Capital Account balance
(determined in accordance with the next sentence) within 90 days of
termination or as soon thereafter as the Company shall have sufficient
funds available and shall pay the remainder upon completion of that year's
audit. The amount of the terminated Member's Capital Account shall be
determined not more than ten days prior to the date of termination in the
case of a termination pursuant to Section 9.1(a)(i) and not more than three
days prior to the date of termination in the case of a termination pursuant
to Section 9.1(a)(ii). Such amounts paid to a terminated Member shall not
be entitled to interest for any period after the date of termination.
(c) From and after the effective date of withdrawal of a
Member, such withdrawn Member shall cease to be a Member of the Company for
all purposes and the Units of a withdrawn Member shall not be included in
calculating the Units of the Members required to take any action under this
Agreement.
9.2 General Provisions Relating to Transfers of Interests.
(a) Transfers. A Member may not transfer, assign, sell,
pledge, hypothecate or otherwise dispose of any of the attributes of his,
her or its Interest (collectively, a "Transfer"), in whole or in part, to
any Person except as follows (a "Permitted Transfer"):
(i) as permitted by the operation of law pursuant to the
death, bankruptcy, insolvency or dissolution of the Member;
(ii) in connection with the transfer to a family trust
or other similar entity that does not result in a change in
beneficial ownership; or
(iii) a Transfer meeting the conditions in Section
9.2(b).
Any attempted transfer of Interests, other than in strict
accordance with this Article IX, shall be null and void and of no force or
effect whatsoever, and the purported transferee shall have no rights as a
Member.
(b) Conditions to Transfers. A Member shall be entitled
to make a Transfer of all or any portion of its Interests pursuant to
Section 9.2(a)(iii) only upon the Managers' determination, which
determination the Managers shall make in their sole and absolute
discretion, that the Transfer meets each of the following conditions:
(i) such Transfer, itself or together with any other
Transfers, would not result in the Company being treated as a
publicly traded partnership within the meaning of Section 7704(b)
of the Code or otherwise being treated as a corporation for federal
income tax purposes;
(ii) such Transfer does not require the registration or
qualification of such Interests pursuant to any applicable federal
or state securities or "blue sky" laws;
(iii) such Transfer does not result in a violation of
other laws ordinarily applicable to such transactions;
(iv) the transferor and purported transferee each shall
have represented to the Manager in writing that such Transfer was
not effected through a broker-dealer or matching agent that makes a
market in Interests or that provides a readily available, regular
and ongoing opportunity to Members to sell or exchange their
Interests;
(v) the transferor shall reaffirm, and the purported
transferee shall affirm, in writing his, her or its agreement to
indemnify as described in Section 9.4;
(vi) such Transfer would not result in employee benefit
plans (as defined in Section 3(3) of ERISA or Code Section 4975(e))
and other benefit plan investors (as defined in Section
2510.3-101(f) of the Department of Labor Regulations under ERISA),
directly or indirectly owning, in the aggregate, 25% or more of the
Interests (as determined in accordance with such regulations);
(vii) no facts are known to the Managers that cause the
Managers to conclude that such transfer will have a material
adverse effect on the Company; and
(viii) the transferee has agreed in writing to become a
Member to and subject to all of the terms, obligations and
limitations of this Agreement.
(c) The Managers may reasonably interpret, and are
hereby authorized to take such action as they deem necessary or desirable
to effect, the provisions of this Section 9.2. The Managers may, in their
sole and absolute discretion, amend the provisions of this Section 9.2 in
such manner as may be necessary or desirable (or eliminate or amend such
provisions to the extent they are no longer necessary or desirable) to
preserve the status of the Company as a partnership for federal income tax
purposes.
9.3 Effect of Transfers. Upon any Permitted Transfer, the
transferee of the transferred Interest shall be entitled to receive the
distributions and allocations to which the transferring Member would be
entitled with respect to such transferred Interest, but shall not be
entitled to exercise any of the other rights of a Member with respect to
such transferred Interest, including, without limitation, the right to
vote, unless and until such transferee is admitted to the Company as a
Substituted Member pursuant to Section 9.5.
9.4 Transfer Indemnity. Each Member hereby agrees to
indemnify and hold harmless the Company, the Investment Adviser, the
Managers, each Appropriate Officer and each other Member (and any successor
or assign of any of the foregoing) from and against all costs, claims,
damages, liabilities, losses and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any Transfer made in
contravention of the provisions of this Agreement or any misrepresentation
made by such Member in connection with any purported Transfer.
9.5 Substituted Members. No transferee of a transferred
Interest shall be admitted as a Member ("Substituted Member") until each of
the following conditions has been satisfied:
(a) the written consent of the Managers, which may be
withheld or granted in the sole and absolute discretion of the Managers;
(b) the execution and delivery to the Company of a
counterpart of this Agreement by the Substituted Member or its agent or
attorney-in-fact;
(c) receipt by the Company of other written instruments
that are in form and substance satisfactory to the Managers (as determined
in their sole and absolute discretion);
(d) payment by the Substituted Member to the Company of
an amount determined by the Managers to be equal to the costs and expenses
incurred in connection with such assignment, including, without limitation,
costs incurred in preparing and filing such amendments to this Agreement as
may be required;
(e) the updating of the books and records of the Company
and Schedule A hereto to reflect the Person's admission as a Substituted
Member;
(f) if required by the Managers in their sole and
absolute discretion, execution and affirmation to an instrument by the
terms of which such Person acknowledges that the relevant transfer of
Interests have not been registered under the Securities Act of 1933, as
amended, or any applicable state securities laws, and covenants, represents
and warrants that such Person acquired the relevant Interests for
investment only and not with a view to the resale or distribution thereof;
and
(g) any other similar information or documentation as
the Managers may request.
9.6 Effect of Death, Etc. The death, retirement, withdrawal,
expulsion, disability, incapacity, incompetency, bankruptcy, insolvency or
dissolution of a Member, or the occurrence of any other event under the Act
that terminates the continued membership of a Member as a member of the
Company, shall not cause the Company to be dissolved and its affairs to be
wound up so long as the Company has at least one Member at all times. Upon
the occurrence of any such event, the business of the Company shall be
continued without dissolution. The legal representatives, if any, of a
Member shall succeed as assignee to the Member's Interest upon death,
incapacity, incompetency, bankruptcy, insolvency or dissolution of a
Member, but shall not be admitted as a Substituted Member except under the
provisions of Section 9.5 of this Agreement and with the written consent of
the Managers, which written consent the Managers may withhold in their sole
and absolute discretion. The Units held by such legal representative of a
Member shall not be included in calculating the Units of the Members
required to take any action under this Agreement.
ARTICLE X
BOOKS AND RECORDS; REPORTS TO MEMBERS; TAX MATTERS
10.1 Books and Records. In compliance with Section 31 of the
Investment Company Act, the books and records of the Company, and a list of
the names and residences, business or mailing addresses and Interests of
all Members, shall be maintained at the principal executive offices of the
Company or such other location as the Managers' may approve. The Company
shall not be required to provide any documentation or other information to
Members except that which it is required to provide under the Investment
Company Act, the Act or other applicable law. Each Member shall have the
right to obtain from the Company from time to time upon reasonable demand
for any proper purpose reasonably related to the Member's interest as a
Member of the Company, and upon paying the costs of collection, duplication
and mailing, the documents and other information which the Company is
required to provide under the Investment Company Act, the Act or other
applicable law. Any demand by a Member pursuant to this section shall be in
writing and shall state the purpose of such demand. The Company may
maintain such other books and records and may provide such financial or
other statements as the Managers or the Appropriate Officers in their
discretion deem advisable.
10.2 Annual Reports to Current Members. Within 60 days after
the end of each Fiscal Year or as soon thereafter as practicable, the
Company shall have prepared and distributed to the Members, at the expense
of the Company, an annual report containing a summary of the year's
activity and such financial statements and schedules as may be required by
law or as the Managers may otherwise determine.
10.3 Accounting; Tax Year.
(a) The books and records of the Company shall be kept
on the cash basis or the accrual basis, as determined by the Managers in
their sole and absolute discretion. The Company shall report its operations
for tax purposes on the cash method or the accrual method, as determined by
the Managers in their sole and absolute discretion. The taxable year of the
Company shall be the calendar year, unless the Managers shall designate
another taxable year for the Company that is a permissible taxable year
under the Code.
(b) The books and records of the Company shall be
audited by the Company's independent accountants as of the end of each
Fiscal Year, commencing with the first partial Fiscal Year, of the Company.
10.4 Filing of Tax Returns. The Appropriate Officers shall
prepare and file, or cause the Company's accountants to prepare and file, a
federal information tax return and any required state and local income tax
and information returns for each taxable year of the Company. The Managers
have sole and absolute discretion as to whether or not to prepare and file
(or cause its accountants to prepare and file) composite, group or similar
state, local and foreign tax returns on behalf of the Members where and to
the extent permissible under applicable law. Each Member hereby agrees to
execute any relevant documents (including a power of attorney authorizing
such a filing), to furnish any relevant information and otherwise to do
anything necessary in order to facilitate any such composite, group or
similar filing. Any taxes paid by the Company in connection with any such
composite, group or similar filing shall be treated as an advance to the
relevant Members (with interest being charged thereon) and shall be
recouped by the Company out of any distributions subsequently made to such
relevant Members. Such advances may be funded by Company borrowing. Both
the deduction for interest payable by the Company with respect to any such
borrowing, and the corresponding income from interest received by the
Company from the relevant Members, shall be specifically allocated to such
Members.
10.5 Tax Matters Member. The Investment Adviser shall be
designated as the tax matters member of the Company (the "Tax Matters
Member") as provided in Section 6231(a)(7) of the Code. Each Person (for
purposes of this provision, a "Pass-Through Member") that holds or controls
an Interest on behalf of, or for the benefit of another Person or Persons,
or which Pass-Through Member is beneficially owned (directly or indirectly)
by another Person or Persons shall, within 30 days following receipt from
the Tax Matters Member of a notice or document, convey such notice or other
document in writing to all holders of beneficial interests in the Company
holding such Interest through such Pass-Through Member. In the event the
Company becomes the subject of an income tax audit by any federal, state or
local authority, to the extent the Company is treated as an entity for
purposes of such audit, including administrative settlement and judicial
review, the Tax Matters Member shall be authorized to act for, and its
decision shall be final and binding upon, the Company and each Member. The
Company shall bear all expenses incurred in connection with any such audit,
investigation, settlement or review.
10.6 Tax Information for Current and Former Members. Within
90 days after the end of each taxable year of the Company or as soon
thereafter as practicable, the Company shall prepare and distribute to each
Member (and, to the extent necessary, to each former Member (or such
Member's legal representatives)), at the expense of the Company, a report
setting forth in sufficient detail such information as shall enable such
Member or former Member (or such Member's legal representatives) to prepare
its respective federal, state and local income tax returns in accordance
with the laws, rules and regulations then prevailing. The Company shall
also provide Schedules K-1 to Members as soon as practicable after the end
of each taxable year of the Company.
ARTICLE XI
LIABILITY AND INDEMNIFICATION
11.1 Liability of the Members and Managers. Except for the
obligations hereunder and under the Subscription Agreements, the liability
of the Members shall be limited to the maximum extent permitted by the Act.
In no event shall the Members be obligated to make Capital Contributions in
excess of their respective Capital Commitments. If a Member is required
under the Act to return to the Company or pay, for the benefit of creditors
of the Company, amounts previously distributed to such Member, the
obligation of such Member to return or pay any such amount to the Company
shall be the obligation of such Member and not the obligation of the
Managers. The liability of the Managers shall be limited to the maximum
extent permitted by the Act.
11.2 Indemnification.
(a) No Manager, Appropriate Officer, Member, Investment
Adviser to the Company, distributor or selling agent of or for the Units or
any of their respective affiliates, shareholders, partners, officers,
directors, members, employees, agents and representatives (each an
"Indemnified Person") shall have any liability, responsibility or
accountability in damages or otherwise to any Member or the Company for,
and the Company agrees, to the fullest extent permitted by law, to
indemnify, pay, protect and hold harmless each Indemnified Person from and
against, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, all
reasonable costs and expenses of attorneys, defense, appeal and settlement
of any and all suits, actions or proceedings instituted or threatened
against the Indemnified Persons or the Company) and all costs of
investigation in connection therewith which may be imposed on, incurred by,
or asserted against the Indemnified Persons or the Company in any way
relating to or arising out of, or alleged to relate to or arise out of, any
action or inaction on the part of the Company, on the part of the
Indemnified Persons when acting on behalf of the Company or otherwise in
connection with the business or affairs of the Company or the Portfolio, or
on the part of any brokers or agents when acting on behalf of the Company
or the Portfolio (collectively, the "Indemnified Liabilities"); provided
that the Company shall not be liable to any Indemnified Person for any
portion of any Indemnified Liabilities which results from such Indemnified
Person's willful misfeasance, bad faith or gross negligence in the
performance of his, her or its duties or by reason of his, her or its
reckless disregard of his, her or its obligations and duties. The
indemnification rights provided for in this Section 11.2(a) shall survive
the termination of the Company or this Agreement. Any indemnification
rights provided for in this Section 11.2(a) shall be retained by any
removed, resigned or withdrawn Manager, Member, Appropriate Officer,
Investment Adviser, distributor or selling agent and its constituent
Indemnified Persons. Any indemnification rights provided for in this
Section 11.2(a) shall also be retained by any Person who has acted in the
capacity of officer, director, partner, employee, agent, stockholder or
affiliate of an Indemnified Person after such Persons shall have ceased to
hold such positions.
(b) The right of any Indemnified Person to the
indemnification provided herein shall be cumulative of, and in addition to,
any and all rights to which such Indemnified Person may otherwise be
entitled by contract or as a matter of law or equity and shall extend to
such Indemnified Person's successors, assigns and legal representatives.
(c) The provision of advances from Company funds to an
Indemnified Person for legal expenses and other costs incurred as a result
of any legal action or proceeding is permissible if (i) such suit, action
or proceeding relates to or arises out of, or is alleged to relate to or
arise out of, any action or inaction on the part of the Indemnified Person
in the performance of its duties or provision of its services on behalf of
the Company or otherwise in connection with the business or affairs of the
Company or the Portfolio; and (ii) the Indemnified Person undertakes to
repay any funds advanced pursuant to this Section 11.2(c) in any case in
which such Indemnified Person would not be entitled to indemnification
under Section 11.2 (a). If advances are permissible under this Section
11.2(c), the Indemnified Person shall furnish the Company with an
undertaking as set forth in clause (ii) of this paragraph and shall
thereafter have the right to bill the Company for, or otherwise request the
Company to pay, at any time and from time to time after such Indemnified
Person shall become obligated to make payment therefor, any and all amounts
for which such Indemnified Person believes in good faith that such
Indemnified Person is entitled to indemnification under Section 11.2(a)
with the approval of the Managers who are not seeking such indemnification,
or if all Managers are seeking such indemnification, the Investment
Adviser, which approval shall not be unreasonably withheld. The person
granting such approval may, but shall not be required unless otherwise
provided by applicable law, prior to approval require an opinion of counsel
to be in effect that such Indemnified Person is likely to be entitled to
indemnification. The Company shall pay any and all such bills and honor any
and all such requests for payment within sixty (60) days after such bill or
request is received by the Company, and the Company's rights to repayment
of such amounts shall be secured by the Indemnified Person's Interest in
the Company, if any, or by such other security as the Managers, or if all
Managers are seeking indemnification, the Investment Adviser may require.
In the event that a final judicial (or binding arbitration) determination
is made that the Company is not so obligated in respect of any amount paid
by it to a particular Indemnified Person, such Indemnified Person will
refund such amount within sixty (60) days of such final determination, and
in the event that a final determination is made that the Company is so
obligated in respect to any amount not paid by the Company to a particular
Indemnified Person, the Company will pay such amount to such Indemnified
Person within sixty (60) days of such final determination, in either case
together with interest (at the lesser of (x) the Applicable Rate and (y)
the maximum rate permitted by applicable law) from the date paid by the
Company until repaid by the Indemnified Person or the date it was obligated
to be paid by the Company until the date actually paid by the Company to
the Indemnified Person.
(d) With respect to the liabilities of the Company, all
such liabilities:
(1) shall be liabilities of the Company as an
entity, and shall be paid or otherwise satisfied from the Company's
assets; and
(2) except to the extent otherwise required by
law, shall not in any event be payable in whole or in part by any
Member, Manager, Appropriate Officer, Investment Adviser,
distributor or selling agent, or by any director, officer, trustee,
employee, agent, shareholder, beneficiary, member or partner of any
of them.
(e) The Managers may cause the Company, at the Company's
expense, to purchase insurance to insure the Indemnified Persons against
liability hereunder (including liability arising in connection with the
operation of the Company), including, without limitation, for a breach or
an alleged breach of their responsibilities hereunder.
ARTICLE XII
COMPENSATION AND REIMBURSEMENT
12.1 Investment Adviser.
(a) Reimbursement for Company Expenses. The Company
shall reimburse any Investment Adviser for Company Expenses incurred by
such Investment Adviser and its affiliates in connection with the
organization of the Company, the Company's offer and sale of Units and the
ongoing operations of the Company, subject to the terms and conditions of
the Investment Advisory Agreement between the Company and such Investment
Adviser.
(b) Advisory Fee. The Company may pay any Investment
Adviser an investment advisory fee as set forth in, and subject to the
terms and conditions of, the Investment Advisory Agreement with such
Investment Adviser. The approval of any contract or agreement pursuant to
which a Person serves as an Investment Adviser to the Company shall be
subject to the applicable requirements of the Investment Company Act.
12.2 Board of Managers. As compensation for services
rendered to the Company, the Company may pay each Manager who is not an
officer, director or employee of any Investment Adviser or its affiliates
such amounts as may be determined from time to time by the Disinterested
Managers. Subject to compliance with the Investment Company Act, the Board
of Managers may establish pensions, profit sharing, Unit purchase and other
retirement, incentive or benefit plans for Managers.
12.3 Distributor, Selling Agents, Administrator, Custodian
and Other Persons. As compensation for services rendered to the Company or
its Members, the Company may pay each distributor, selling agent,
administrator, transfer agent, custodian, accountant, attorney and other
agent or independent contractor duly engaged by or on behalf of the Company
to provide such services. The approval of any contract or agreement
pursuant to which a Person serves as a principal underwriter to the Company
shall be subject to the applicable requirements of the Investment Company
Act.
ARTICLE XIII
DISSOLUTION AND TERMINATION
13.1 Dissolution. The Company shall be dissolved upon the
occurrence of any of the following:
(a) the election by the Managers to dissolve the Company
prior to the expiration of its terms, subject, to the extent required by
the Investment Company Act, to the consent of the Members;
(b) voluntary bankruptcy, liquidation or other
dissolution of the Company;
(c) the sale or other disposition at any one time of all
or substantially all of the assets of the Company; and
(d) dissolution required by operation of law.
Except as otherwise determined by the Managers in their sole discretion,
the Company shall not be subject to dissolution at the election of Members.
Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate
until the assets of the Company have been distributed as provided in
Section 13.2 and the certificate of formation of the Company has been
canceled.
13.2 Liquidation. On dissolution of the Company, a
liquidator (who shall be selected by the Board of Managers, if still
constituted, and otherwise shall be a Person proposed and approved by a
Majority in Interest of the Members) and who may be any Investment Adviser
or any of its affiliates, shall cause to be prepared a statement setting
forth the assets and liabilities of the Company as of the date of
dissolution, and such statement shall be furnished to all of the Members.
Then, those Company assets that the liquidator determines should be
liquidated shall be liquidated as promptly as possible, but in an orderly
and business-like manner to maximize proceeds. Assets that the liquidator
determines to distribute in kind shall be so distributed in a manner
consistent with applicable law. If the liquidator determines that an
immediate sale at the time of liquidation of all or part of the Company
assets would be unduly disadvantageous to the Members, the liquidator may,
either defer liquidation and retain the assets for a reasonable time, or
distribute the assets to the Members in kind. The liquidator shall then
wind up the affairs of the Company and distribute the proceeds of the
Company by the end of the calendar year of the liquidation (or, if later,
within 90 days after the date of such liquidation) in the following order
or priority:
(a) to the payment of the expenses of liquidation and to
creditors (including Members who are creditors, to the extent permitted by
law) in satisfaction of liabilities of the Company other than liabilities
for distributions to Members, in the order of priority as provided by law;
(b) to the setting up of any reserves that the
liquidator may deem necessary or appropriate for any anticipated
obligations or contingencies of the Company or of the liquidator arising
out of or in connection with the operation or business of the Company. Such
reserves may be paid over by the liquidator to an escrow agent or trustee
proposed and approved by the liquidator to be disbursed by such escrow
agent or trustee in payment of any of the aforementioned obligations or
contingencies and, if any balance remains at the expiration of such period
as the liquidator shall deem advisable, to be distributed by such escrow
agent or trustee in the manner hereinafter provided; then
(c) to the Members or their legal representatives in
accordance with the positive balances in their respective Capital Accounts,
as determined after taking into account all adjustments to Capital Accounts
for all periods.
13.3 Termination. The liquidator shall comply with any
requirements of the Act or other applicable law pertaining to the winding
up of a limited liability company, at which time the Company shall stand
terminated.
ARTICLE XIV
AMENDMENTS
14.1 Proposal of Amendments. Except as otherwise specified
in this Agreement, any amendment to this Agreement may be proposed by any
Manager, by the Investment Adviser or by Members who, in aggregate, own not
less than 10% of the Units owned by all such Members. The Person or Persons
proposing such amendment shall submit to the Board of Managers: (i) the
text of such amendment; (ii) a statement of the purpose of such amendment;
and (iii) in the case of an amendment so proposed by the Members, an
opinion of counsel reasonably acceptable to the Managers obtained by the
Members proposing such amendment to the effect that such amendment is
permitted by the Investment Company Act, the Act and the laws of any other
jurisdiction where the Company is qualified to do business, will not impair
the limited liability of the Managers or Members, and will not adversely
affect the classification of the Company as a partnership for federal and
state income tax purposes. To the extent required by the Investment Company
Act, the Board of Managers shall, within 40 days after receipt from Members
of a proposal under clause (iii) of this Section 14.1 and the required
opinion, give notification to all Members of such proposed amendment, of
such statement of purpose, and of such opinion of counsel, together with
the views, if any, of the Board of Managers and the Investment Adviser with
respect to such proposed amendment. All amendments validly proposed by
Members pursuant to clause (iii) of this Section 14.1 or proposed by
Managers or the Investment Adviser but requiring the approval of Members
shall be submitted to the Members for a vote no less than 10 days nor more
than 90 days after the date of mailing of notice of the proposed amendment
and will be adopted if approved (i) in the case of an amendment the
adoption of which is recommended by the Board of Managers, an affirmative
vote of a Majority in Interest of the Members, or (ii) in the case of an
amendment the adoption of which has not been recommended by the Board of
Managers, an affirmative vote of a Supermajority of Members, in each case
subject to the approval of any greater number of Members as may be required
by this Agreement or applicable law.
14.2 Amendments to Be Adopted Solely by the Board of
Managers. Subject to Section 14.3, the Board of Managers may, without the
consent of any Member, amend any provision of this Agreement as set forth
in Section 3.15, and execute whatever documents may be required in
connection therewith.
14.3 Amendments Not Allowable.
(a) Unless approved by a Majority in Interest of the
Members affected thereby, no amendment to this Agreement shall be permitted
if the effect of such amendment would be to:
(i) impair the limited liability of Members provided
for in Section 11.1; or
(ii) adversely affect in any way the federal income
tax status of the Company as a partnership.
(b) Subject to Section 3.15(iii), unless approved by a
40 Act Majority of Members and a Majority of the Disinterested Managers, no
amendment shall be permitted if the effect of such amendment would be to
increase the amounts distributable to the Investment Adviser and decrease
the amounts distributable to the other Members.
ARTICLE XV
POWER OF ATTORNEY
15.1 Power of Attorney. Each Member hereby irrevocably
constitutes and appoints each Manager and each Appropriate Officer, and
their respective designees, as such Member's true and lawful agents and
attorneys-in-fact, with full power and authority in such Member's name,
place, and stead, to make, execute, acknowledge, deliver, swear to, file
and record the following documents and instruments in accordance with the
other provisions of this Agreement;
(a) this Agreement and a certificate of formation, a
certificate of doing business under fictitious name and any other
instrument or filing which the Board of Managers or the Appropriate
Officers of the Company consider necessary or desirable to carry out the
purposes of this Agreement or the business of the Company or that may be
required under the laws of any state or local government, or of any other
jurisdiction;
(b) any and all amendments, restatements, cancellations,
or modifications of the instruments described in Section 15.1(a);
(c) any and all instruments related to the admission,
removal, or withdrawal of any Member; and
(d) all documents and instruments that may be necessary
or appropriate to effect the dissolution and termination of the Company,
pursuant to the terms hereof.
15.2 Irrevocability. The foregoing power of attorney is
coupled with an interest and such grant shall be irrevocable. Such power of
attorney shall survive the subsequent Incapacity of any such Member or the
transfer of any or all of such Member's Units.
15.3 Priority of Agreement. In the event of any conflict
between provisions of this Agreement or any amendment hereto and any
documents executed, acknowledged, sworn to, or filed by any Manager or
Appropriate Officer under this power of attorney, this Agreement and its
amendments shall govern.
15.4 Exercise of Power. This power of attorney may be
exercised by any Manager or Appropriate Officer either by signing
separately as attorney-in-fact for each such Member or by a single
signature of any Manager or Appropriate Officer acting as attorney-in-fact
for all Members.
ARTICLE XVI
MISCELLANEOUS
16.1 Certificate of Formation. On each subsequent change in
the Company specified in the Act, the Managers shall to the extent required
by the Act cause to be executed and acknowledged an amended certificate of
formation pursuant to the provisions of the Act, which will be duly filed
as prescribed by Delaware law.
16.2 Delaware Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed
and interpreted according to, the laws of Delaware subject to the
provisions of the Investment Company Act.
16.3 Counterparts. This Agreement may be executed in
counterparts, and all counterparts so executed shall constitute one
agreement that shall be binding on all the parties hereto. Any counterpart
of this Agreement that has attached to it separate signature pages which
altogether contain the signatures of all Members or their attorneys-in-fact
shall for all purposes be deemed a fully executed instrument.
16.4 Binding upon Successors and Assigns. Subject to and
unless otherwise provided in this Agreement, each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the successors, successors-in-title, heirs and
assigns of the respective parties hereto.
16.5 Notices. Any notice, offer, consent, or demand
permitted or required to be made under this Agreement to any party hereto
shall be given in writing signed by the Person giving such notice either by
(i) personal delivery or (ii) by registered or certified mail, postage
prepaid, addressed to that party at the respective address shown on the
Company's books and records, or to such other address as that party shall
indicate by proper notice to the Board of Managers, in the same manner as
provided above. All notices shall be deemed effective upon receipt or five
days after the date of mailing in accordance with the above provisions.
16.6 Severability. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be invalid
or unenforceable, the remainder of this Agreement and the application of
such provision to other Persons or circumstances shall not be effected
thereby, but shall be enforced to the maximum extent possible under
applicable law.
16.7 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the
subject hereof and supersedes all prior agreements or understandings,
written or oral, between the parties with respect thereto.
16.8 Headings, Etc. The headings in this Agreement are
inserted for convenience of reference only and shall not affect
interpretation of this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall
include the singular and the plural, and pronouns stated in either the
masculine or the neuter genders shall include the masculine, the feminine
and the neuter.
16.9 Legends. If certificates are issued evidencing a
Member's Units, each such certificate shall bear such legends as may be
required by applicable federal and state laws, or as may be deemed
necessary or appropriate by the Board of Managers to reflect restrictions
upon transfer contemplated herein.
16.10 Waiver of Partition. Except as may otherwise be
provided by law in connection with the winding up, liquidation and
dissolution of the Company, each Member hereby irrevocably waives any and
all rights that it may have to maintain an action for partition of any of
the Company's property.
16.11 Survival of Certain Provisions. All indemnities and
reimbursement obligations made pursuant to this Agreement shall survive
dissolution and liquidation of the Company until the expiration of the
longest applicable statute of limitations (including extensions and
waivers) with respect to the matter for which a party would be entitled to
be indemnified or reimbursed, as the case may be.
EXECUTED ______________ at _________
---------------------------------
Initial Member
MEMBERS
(All Members now and hereafter
admitted as Members of the Company
pursuant to powers of attorney now
and hereafter executed in favor of,
and delivered to, the Managers or
Appropriate Officers)
By: _____________________________
Attorney-in-Fact
SCHEDULE A
EXCELSIOR VENTURE INVESTORS III, LLC
Schedule of Members
As of September __, 2000
Name Address Capital Commitment
---- ------- ------------------
David I. Fann c/o United States Trust $37,000
Company of New York
114 West 47th Street
New York, New York 10036
Douglas A. Lindgren c/o United States Trust $36,500
Company of New York
114 West 47th Street
New York, New York 10036
Alan M. Braverman c/o United States Trust $36,500
Company of New York
114 West 47th Street
New York, New York 10036
SCHEDULE B
EXCELSIOR VENTURE INVESTORS III, LLC
Schedule of Managers
As of September __, 2000
Name
John C. Hover, II
Gene M. Bernstein
Stephen V. Murphy
Victor F. Imbimbo, Jr.
Appendix C
EXCELSIOR VENTURE
INVESTORS III, LLC
------------------
SUBSCRIPTION
BOOKLET
--------------------------
EXCELSIOR VENTURE INVESTORS III, LLC
SUBSCRIPTION INSTRUCTIONS
This booklet contains documents which must be executed and returned if you
wish to invest in Excelsior Venture Investors III, LLC (the "Company"). You
should consult with an attorney, accountant, investment advisor or other
advisor regarding an investment in the Company and its suitability for you.
All Subscription Documents must be completed correctly and thoroughly or
they will not be accepted. If you wish to invest, please complete, sign and
return this Subscription Booklet and retain the Company's prospectus.
If you have any questions concerning these Subscription Documents or would
like assistance completing them, please contact your investment advisor.
INSTRUCTIONS FOR INDIVIDUALS (SUBSCRIPTIONS THROUGH A RETIREMENT PLAN,
INCLUDING IRAS AND 401KS, MUST BE MADE PURSUANT TO THE "INSTRUCTIONS FOR
ENTITIES OTHER THAN INDIVIDUALS," BELOW)
1. Fill out and sign page [ ].
NOTE: By executing page [ ], the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
2. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed below under the heading COMPANY
ADDRESS.
3. Follow the instructions listed below under the heading PAYMENT OF CAPITAL
CONTRIBUTION.
INSTRUCTIONS FOR ENTITIES OTHER THAN INDIVIDUALS (TRUSTS, CORPORATIONS,
CUSTODIANS, IRAS ETC.)
1. Direct the appropriate personnel to answer the Questionnaire found on
page [ ] by initialing in the spaces provided.
2. Appropriate personnel should fill out and sign page [ ].
NOTE: By executing page [ ], the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
3. IF THE INVESTOR IS A PARTNERSHIP, please complete Exhibit A and
attach to it a copy of the Investor's partnership agreement or other
governing instruments; IF THE INVESTOR IS A CUSTODIAN, TRUSTEE OR
AGENT, please complete Exhibit B and attach to it a copy of the
Investor's trust declaration or other governing instrument; IF THE
INVESTOR IS A CORPORATION, please complete Exhibit C and attach to it
a copy of the Investor's Articles of Incorporation and By-laws or
other governing instruments; IF THE INVESTOR IS A LIMITED LIABILITY
COMPANY, please complete Exhibit D and attach to it a copy of the
Investor's operating agreement or other governing instruments.
4. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed below under the heading COMPANY
ADDRESS.
5. Follow the instructions listed below under the heading PAYMENT OF CAPITAL
CONTRIBUTION.
COMPANY ADDRESS:
Excelsior Venture Investors III, LLC
114 West 47th Street
New York, NY 10036
Attention: Katherine Hunsley
PAYMENT OF CAPITAL CONTRIBUTION
If you maintain an account with U.S. Trust, you may elect to have your
payment deducted from your designated U.S. Trust account by checking the
appropriate box on the Execution Page, or you may make your payment by wire
or check on or before the date of the closing of the Company. If you do not
maintain a U.S. Trust account, payment must be made by wire or check on or
before the date of the closing of the Company. If you elect to have your
payment deducted directly from your designated U.S. Trust account, the
Company will notify U.S. Trust of the date and time of the proposed closing
at least three business days prior to the proposed closing date. On, or
before, the proposed closing date, monies will be deducted from your
designated U.S. Trust account and transmitted to the escrow account
maintained by PNC Bank, Delaware, as Escrow Agent, pending closing. As
explained in the prospectus, if subscriptions for at least $50,000,000 have
not been received by the Termination Date (as defined in the prospectus),
the offering will terminate and funds will be returned to investors. Please
carefully follow the instructions listed below to insure proper payment.
To Pay By Check:
Make payable to: PNC Bank, Delaware, as Escrow Agent, for Excelsior
Venture Investors III, LLC
Send to: PFPC Inc.
c/o Excelsior Venture Investors III, LLC
103 Bellevue Parkway
Wilmington, DE 19809
Attention: Lisa Sparco
To Pay By Wire:
IT IS IMPERATIVE THAT YOU INCLUDE YOUR NAME (OR, IF YOU ARE WIRING MONEY ON
BEHALF OF AN ENTITY, THE NAME OF THE ENTITY) IN THE REFERENCE LINE OF THE
WIRE INSTRUCTIONS.
Wire to: PNC Bank, Delaware ABA #: 031100089
FBO: PNC Bank, Delaware, as Escrow Agent
for Excelsior Venture Investors III, LLC
Account #: 56-0401-4748
Reference: [Insert Investor's name here]
THE COMPANY IS NOT AVAILABLE FOR INVESTMENT TO RESIDENTS OF ALABAMA,
ARKANSAS, KANSAS, MAINE, MASSACHUSETTS, MISSISSIPPI AND MISSOURI.
SCHEDULE A CONTAINS ADDITIONAL INFORMATION AND REQUIREMENTS FOR RESIDENTS
IN CERTAIN OTHER STATES.
See next page for tear-out prepared instructions to deliver to your
bank/financial institution.
WIRING INSTRUCTIONS
___________________________ Insert your
___________________________ Bank/Financial
___________________________ Institution name
___________________________ and address here.
Dear Sir/Madam:
Please wire _________________ (insert your dollar amount) from
my account number __________________ (insert your account number) and send
the proceeds to:
PNC Bank, Delaware
ABA #: 031100089
FBO: PNC Bank, Delaware as Escrow Agent for
Excelsior Venture Investors III, LLC
Account #: 56-0401-4748
Reference:
Sincerely,
Investor Signature _________________________
Print name _________________________
Address _________________________
Daytime Telephone # _________________________
SUBSCRIPTION AGREEMENT
Excelsior Venture Investors III, LLC
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Ladies and Gentlemen:
Reference is made to the prospectus dated ___________, 2000
(the "Prospectus") with respect to the offering of units of membership
interest ("Units") in Excelsior Venture Investors III, LLC (the "Company").
Capitalized terms used but not defined herein shall have the respective
meanings given them in the Prospectus.
The undersigned subscribing investor (the "Investor") hereby
agrees as follows:
1. Subscription for the Units.
(a) The Investor agrees to become a Member of the Company and
agrees to make a capital contribution to the Company in the amount set
forth on the Execution Page of this Subscription Agreement under the
heading "Capital Commitment" on the terms and conditions described herein
and in the Prospectus.
(b) The Investor acknowledges and agrees that it is not
entitled to cancel, terminate or revoke this subscription or any agreements
or power of attorney of the Investor hereunder, except as otherwise set
forth in this Section 1(b), the Prospectus or applicable law, and such
subscription and agreements and power of attorney shall survive (i) changes
in the transaction, documents and instruments described in the Prospectus
which in the aggregate are not material or which are contemplated by the
Prospectus and (ii) the death or disability of the Investor; provided,
however, that if the Company shall not have accepted this subscription on
or before December 31, 2000, subject to extension by the Company's Board of
Managers (the date of any such acceptance of this subscription the "Closing
Date"), this subscription, all agreements of the Investor hereunder and the
power of attorney granted hereby shall be cancelled and this Subscription
Agreement will be returned to the Investor.
(c) The Investor hereby irrevocably constitutes and appoints
each member of the Company's Board of Managers and the appropriate officers
of the Company (and any designee of, substitute for or successor to any of
them) as the Investor's true and lawful attorney in the Investor's name,
place and stead, (i) to receive and pay over to the Company on behalf of
the Investor, to the extent set forth in this Subscription Agreement, all
funds received hereunder, (ii) to execute, complete or correct, on behalf
of the Investor, all documents to be executed by the Investor in connection
with the Investor's subscription for Units, including, without limitation,
filling in or amending amounts, dates, and other pertinent information and
(iii) to make, execute, acknowledge, deliver, swear to, file and record:
(A) this Agreement and a certificate of formation, a certificate of doing
business under fictitious name and any other instrument or filing which the
Board of Managers or the appropriate officers of the Company consider
necessary or desirable to carry out the purposes of this Subscription
Agreement, the Operating Agreement or the business of the Company or that
may be required under the laws of any state or local government or of any
other jurisdiction; (B) any and all amendments, restatements,
cancellations, or modifications of the instruments described in (A) above;
(C) any and all instruments related to the admission, removal, or
withdrawal of any Member; and (D) all documents and instruments that may be
necessary or appropriate to effect the dissolution and termination of the
Company. This power of attorney shall be deemed coupled with an interest,
shall be irrevocable and shall survive any transfer of some or all of the
Investor's Units.
2. Certain Acknowledgments and Agreements of the Investor.
The Investor understands and acknowledges that the subscription
for the Units contained herein may be accepted or rejected, in whole or in
part, by the Company in its sole and absolute discretion. No subscription
shall be deemed accepted until the subscription has actually been accepted
and, if necessary, any subsequent acts have been taken which shall be
deemed an acceptance of this Agreement by the Company for all purposes. The
Investor understands that Skadden, Arps, Slate, Meagher & Flom LLP acts as
counsel only to the Company, the Investment Adviser and Investment
Sub-Adviser and no attorney-client relationship exists between Skadden,
Arps, Slate, Meagher & Flom LLP and any other person solely by reason of
such person making an investment in the Company.
3. Representations and Warranties of the Investor.
The Investor, for the Investor and for the Investor's heirs,
personal representatives, successors and assigns, makes the following
representations, declarations and warranties with the intent that the same
may be relied upon in determining the suitability of the undersigned as an
investor in the Company. The following representations, warranties and
agreements shall survive the Closing Date.
(a) The Investor has received, read carefully and understands
the Prospectus and all exhibits thereto and has consulted the Investor's
own attorney, accountant or investment advisor with respect to the
investment contemplated hereby and its suitability for the Investor. Any
special acknowledgment set forth below with respect to any statement
contained in the Prospectus shall not be deemed to limit the generality of
this representation and warranty.
(b) The value of the Investor's total assets (exclusive of the
Investor's principal residence) less the Investor's total liabilities is at
least $500,000. The amount that the Investor is subscribing for does not
exceed 10% of the Investor's total assets less the Investor's total
liabilities.
(c) The Investor understands and acknowledges that (i) the
Investor must bear the economic risk of the Investor's investment in the
Units until the termination of the Company; (ii) the Investor has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else any of the Units which the
Investor hereby subscribes to purchase or any part thereof, and the
Investor has no present plans to enter into any such contract, undertaking,
agreement or arrangement; (iii) the Units cannot be sold or transferred
without the prior written consent of the Company, which shall be granted or
may be withheld in accordance with the terms of the Operating Agreement and
will be withheld if transfer would subject the Company to adverse tax
consequences; (iv) there will be no public market for the Units; and (v)
any disposition of the Units may result in unfavorable tax consequences to
the Investor.
(d) The Investor is aware and acknowledges that (i) the Company
has no operating history; (ii) the Units involve a substantial degree of
risk of loss of the Investor's entire investment and there is no assurance
of any income from such investment; (iii) any federal and/or state income
tax benefits which may be available to the Investor may be lost through the
adoption of new laws or regulations or changes to existing laws and
regulations or changes in the interpretation of existing laws and
regulations; (iv) the Investor, in making its investment, is relying solely
upon the advice of the Investor's personal tax advisor with respect to the
tax aspects of an investment in the Company; and (v) because there are
substantial restrictions on the transferability of the Units it may not be
possible for the undersigned to liquidate its investment readily in any
event, including in case of an emergency.
(e) If the Investor is a corporation, limited liability
company, trust, partnership or other entity, the statements made by the
Investor in Paragraph 7 hereto are true, correct and complete in all
material respects.
(f) If the Investor is a natural person, the Investor is at
least 21 years of age and the Investor has adequate means of providing for
all of his or her current and foreseeable needs and personal contingencies
and has no need for liquidity in this investment, and if the Investor is an
unincorporated association, all of its members who are U.S. Persons (as
defined in subsection (m) of this Section 3) are at least 21 years of age.
(g) The Investor has evaluated the risks of investing in the
Units, and has determined that the Units are a suitable investment for the
Investor. The Investor can bear the economic risk of this investment and
can afford a complete loss of its investment. In evaluating the suitability
of an investment in the Units, the Investor has not relied upon any advice,
representations or other information (whether oral or written) other than
as set forth in the Prospectus and exhibits thereto, and independent
investigations made by the Investor or representative(s) of the Investor
that are not affiliated with the Company. The Investor has reviewed the
eligibility requirements of Schedule A, attached to this Agreement, and to
the extent applicable, meets all suitability and eligibility requirements
described therein.
(h) The Investor is knowledgeable and experienced in evaluating
investments and experienced in financial and business matters and is
capable of evaluating the merits and risks of investing in the Units. The
aggregate amount of the investments of the Investor in, and the Investor's
commitments to, all similar investments that are illiquid is reasonable in
relation to the Investor's net worth.
(i) The Investor maintains its domicile, and is not merely a
transient or temporary resident, at the residence address shown on the
signature page of this Subscription Agreement.
(j) The representations, warranties, agreements, undertakings
and acknowledgments made by the Investor in this Subscription Agreement are
made with the intent that they be relied upon by the Company, Charles
Schwab & Co., Inc. (the "Distributor") and any selling agent in determining
its suitability as a purchaser of the Units, and shall survive its
purchase. In addition, the Investor undertakes to notify the Company
immediately of any change in any representation, warranty or other
information relating to the Investor set forth herein.
(k) The Investor, if it is a corporation, limited liability
company, trust, partnership or other entity, is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and the execution, delivery and performance by it of this
Subscription Agreement and the Operating Agreement are within its powers,
have been duly authorized by all necessary corporate or other action on its
behalf, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as disclosed in writing to
the Company), and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of its certificate
of incorporation, By-laws or other comparable organizational documents or
any agreement, judgment, injunction, order, decree or other instrument to
which the Investor is a party or by which the Investor or any of the
Investor's property is bound. This Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(l) If the Investor is a natural person, the execution,
delivery and performance by the Investor of this Subscription Agreement and
the Operating Agreement are within the Investor's legal right, power and
capacity, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as disclosed in writing to
the Company), and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of any agreement,
judgment, injunction, order, decree or other instrument to which the
Investor is party or by which the Investor or any of his or her property is
bound. This Subscription Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(m) The Investor is a United States citizen if an individual,
and if an entity is organized under the laws of the United States or a
state thereof or is otherwise a U.S. Person(1) as defined below or as
otherwise defined in Rule 902 under the U.S. Securities Act of 1933, as
amended.
--------
(1)For purposes of this representation, a U.S. Person is (i) a natural
person who is a citizen of or resident in the United States; (ii) a
partnership or corporation organized or incorporated under the laws of
the United States; (iii) an estate of which any executor or
administrator is a U.S. person; (iv) a trust of which any trustee is a
U.S. person; (v) an agency or branch of a foreign entity located in the
United States; (vi) a non- discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person; (vii) a discretionary account
or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated or (if an individual) resident
in the United States; and (viii) a partnership or corporation if (A)
organized or incorporated under the laws of any foreign jurisdiction;
and (B) formed by one or more of the above and/or one or more natural
persons resident in the U.S. principally for the purpose of investing in
securities not registered under the Securities Act, unless it is
organized or incorporated and owned, by accredited investors (as defined
in Rule 501(a)) who are not natural persons, estates or trusts;
provided, however, that the term "U.S. Person" shall not include any
person or entity that is not treated as a U.S. Person for purposes of
the Internal Revenue Code of 1986, as amended.
(n) By purchase of Units, the Investor represents to the
Investment Adviser, the Investment Sub-Adviser, the Board of Managers, the
Distributor and the Company that the Investor has neither acquired nor will
transfer, assign or market any Units the Investor purchases (or any
interest therein) on or through an "established securities market" or a
"secondary market" (or the substantial equivalent thereof) within the
meaning of section 7704(b) of the Internal Revenue Code of 1986, as
amended, including, without limitation, an over-the-counter-market or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations. Further, the Investor agrees that, if it determines to transfer
or assign any of its Units or any interest therein pursuant to the
provisions of the Operating Agreement, it will cause its proposed
transferee to agree to the transfer restrictions set forth herein and to
make the representations set forth above.
(o) The Investor has evaluated the Prospectus and has
determined that the Investor is and will be in a financial position
appropriate to enable the Investor to realize to a significant extent the
benefits described in the Prospectus.
(p) The Investor is not a charitable remainder trust.
4. Indemnification. The Investor recognizes that the offer of
the Units was made in reliance upon the Investor's representations and
warranties set forth in Paragraph 3 above and the acknowledgments and
agreements set forth in Paragraph 2 above. The Investor agrees to provide,
if requested, any additional information that may reasonably be required to
determine the eligibility of the Investor to purchase the Units. The
Investor hereby agrees to indemnify the Company, each member of the Board
of Managers of the Company, the Investment Adviser, the Investment
Sub-Adviser, the Distributor and any of their affiliates and controlling
persons and each other member and any successor or assign of the foregoing
and to hold each of them harmless from and against any loss, damage or
liability (including attorney's fees) due to or arising out of a breach of
any representation, warranty, acknowledgment or agreement of the Investor
contained in this Subscription Agreement or in any other document provided
by the Investor to the Company in connection with the Investor's investment
in the Units. Notwithstanding any provision of this Agreement, the Investor
does not waive any rights granted to it under applicable securities laws.
5. General. This Agreement (i) shall be binding upon the
Investor and the heirs, personal representatives, successors and assigns of
the Investor, (ii) shall be governed, construed and enforced in accordance
with the laws of the State of Delaware, without reference to any principles
of conflicts of law (except insofar as affected by the state securities or
"blue sky" laws of the jurisdiction in which the offering described herein
has been made to the Investor), (iii) shall survive the admission of the
Investor to the Company as a Member, and (iv) shall, if the Investor
consists of more than one person, be the joint and several obligation of
all such persons.
6. Assignment. The Investor agrees that neither this
Subscription Agreement nor any rights which may accrue to the Investor
hereunder may be transferred or assigned.
7. Suitability. If the Investor is a corporation, limited
liability company, trust, partnership or other entity, the truth,
correctness and completeness of the information supplied by the Investor in
the attached Investor Questionnaire for Entities is warrantied pursuant to
Paragraph 3(e) hereof.
8. Arbitration. ANY CLAIM, CONTROVERSY, DISPUTE OR DEADLOCK
ARISING UNDER THIS AGREEMENT (COLLECTIVELY, A "DISPUTE") SHALL BE SETTLED
BY ARBITRATION, IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE NASD,
EXCEPT IN THE EVENT THAT THE NASD IS UNWILLING TO ACCEPT JURISDICTION OF
THE MATTER, SUCH ARBITRATION SHALL BE HELD IN ACCORDANCE WITH THE RULES AND
REGULATIONS OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). ALL
ARBITRATIONS SHALL BE HELD IN SAN FRANCISCO, CALIFORNIA. ANY ARBITRATION
AND AWARD OF THE ARBITRATORS, OR A MAJORITY OF THEM, SHALL BE FINAL AND THE
JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY STATE OR FEDERAL
COURT HAVING JURISDICTION. NO PUNITIVE DAMAGES ARE TO BE AWARDED.
Schedule A
RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS SET FORTH BELOW
ARIZONA
To invest in Units of the Company, Arizona residents must represent that
their investment in Units of the Company does not represent more than ten
percent of their net worth less the value of their investments in limited
partnership interests and have one of the following: (a) an annual gross
income of at least $75,000 and a net worth of at least $75,000 exclusive of
home, car and home furnishings; (b) a net worth of at least $225,000
exclusive of home, car and home furnishings; or (c) in the case of sales to
qualified pension or profit sharing plans or trusts, Keogh plans or
individual retirement accounts, that the net worth and income requirements
set forth in items (a) or (b) of this paragraph are met by the fiduciary
account or by the donor who directly or indirectly supplies the monies for
the purchase of the securities.
MINNESOTA
To invest in Units of the Company, Minnesota residents must qualify as
an accredited investor as that term is defined under Rule 501 of the
Securities Act of 1933, as amended, and as set forth in Schedule B attached
hereto.
NEBRASKA
To invest in Units of the Company, Nebraska residents must meet one of
the following: (a) individual annual taxable income of at least $200,000 in
each of the two most recent years or joint income with spouse in excess of
$300,000 in two each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least $1,000,000.
NEW HAMPSHIRE
To invest in Units of the Company, New Hampshire residents must meet one
of the following: (a) annual taxable income of at least $50,000 and a net
worth exclusive of home, car and home furnishings of at least $125,000; or
(b) a net worth exclusive of home, car and home furnishings of at least
$250,000.
OKLAHOMA
To invest in Units of the Company, Oklahoma residents must qualify as an
accredited investor as that term is defined under Rule 501 of the
Securities Act of 1933, as amended, and set forth in Schedule B attached
hereto.
TEXAS
To invest in Units of the Company, Texas residents must qualify as an
accredited investor as that term is defined under Rule 501 of the
Securities Act of 1933, as amended, and set forth in Schedule B attached
hereto.
WEST VIRGINIA
To invest in Units of the Company, West Virginia residents must meet one
of the following: (a) individual annual taxable income of at least $200,000
in each of the two most recent years or joint income with spouse in excess
of $300,000 in each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least $1,000,000.
Schedule B
DEFINITION OF ACCREDITED INVESTOR
"Accredited investor" shall mean any person who comes within any of the
following categories, or who the issuer reasonably believes comes within
any of the following categories, at the time of the sale of the securities
to that person:
a. A bank, or any savings and loan association or other institution
acting in its individual or fiduciary capacity; a broker or dealer;
an insurance company; an investment company or a business development
company under the Investment Company Act of 1940, as amended; a Small
Business Investment Company licensed by the U.S. Small Business
Administration; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees if
the plan has total assets in excess of $5 million; an employee
benefit plan whose investment decision is being made by a plan
fiduciary, which is either a bank, savings and loan association,
insurance company or registered investment adviser, or an employee
benefit plan whose total assets are in excess of $5,000,000 or a
self-directed employee benefit plan whose investment decisions are
made solely by persons that are "accredited investors;"
b. A private business development company under the Investment Advisers
Act of 1940;
c. Any corporation, partnership, limited liability company,
Massachusetts or similar business trust or organization described in
Section 501(c)(3) of the Internal Revenue Code that has total assets
in excess of $5,000,000, and was not formed for the specific purpose
of acquiring the Units;
d. Any trust, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000 and
whose purchase is directed by a sophisticated person;
e. Any director, executive officer, or general partner of the Company;
f. Any natural person with:
i. a net worth, (including residence, personal property and other
assets in excess of total liabilities) taken together with the net
worth of the Investor's spouse, exceeds $1,000,000;
ii. individual gross income in excess of $200,000 (or joint income
with spouse in excess of $300,000) in each of the two previous
years and a reasonable expectation of gross individual income in
excess of $200,000 (or joint income with spouse in excess of
$300,000) this year; or
g. Any entity in which all of the equity holders are accredited investors.
INVESTOR QUESTIONNAIRE FOR ENTITIES
EXAMPLES OF ENTITIES INCLUDE, BUT ARE NOT LIMITED TO, TRUSTS, CORPORATIONS,
LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.
ENTITIES (NON-INDIVIDUALS): PLEASE COMPLETE THIS QUESTIONNAIRE.
1. Legal form of entity (corporation, partnership, trust,
etc.):____________________________________________________
Investor entity was organized under the laws of the state
of_____________________.
2. The fiscal year-end of the Investor is ______________.
(Month/Day)
3. The Investor acknowledges that in evaluating the suitability of an
investment in the Units, the Investor has not relied upon any advice,
representations or other information (whether oral or written) other
than as set forth in the Prospectus and exhibits thereto, and
independent investigations made by the Investor or representatives of
the Investor that are not affiliated with the Company.
4. Please indicate whether or not the Investor is a U.S. pension trust or
governmental plan qualified under section 401(a) of the Code or a U.S.
tax-exempt organization qualified under section 501(c)(3) of the Code.
____ Yes ____ No
EXCELSIOR VENTURE INVESTORS III, LLC
EXECUTION PAGE
IN WITNESS WHEREOF, THE UNDERSIGNED INVESTOR HAS EXECUTED THIS SUBSCRIPTION
AGREEMENT.
Mr., Mrs. Jr., Sr., II, III, IV, Esq., CPA
Ms., Dr.
-----------------------------------------------------------
(Investor/Contact Name)
RESIDENCE
Address: Telephone: ( )
------------------------------ --------------------------
Fax: ( )
------------------------------------------ --------------------------------
City: State: E-Mail:
------------------------ -- ------------------------------
MAILING ADDRESS (IF OTHER THAN RESIDENCE)
Title: Telephone: ( )
----------------------------------- --------------------------
Company Name: Fax: ( )
---------------------------- --------------------------------
Address: E-Mail:
--------------------------------- -----------------------------
-------------------------------------------------------------------------------
City: State: Zip:
---------------------------------- ---------- ----------
Investor Name:
----------------------------------------------------------------
U.S. Trust Account Number:
----------------------------------------------------
Investor Type
o Individual o Rights of Survivorshipo Trust o Partnership
o Tenants in Common o Corporatio o L.L.C.
o Other:
----------------------------------------------------------------------
Social Security/Tax ID No: Signature:
--------------- --------------------------
Print Name and Title (if applicable):
-------------------------------------
State in which this Agreement was signed: Date of Execution:____, 20__
-------
-------------------------------------------------------------------------------
CAPITAL COMMITMENT: $ (Must be a multiple of $500 equal to or greater
---------- than $25,000.)
Method of Payment: o Debit U.S. Trust Account o Wire o Check
-------------------------------------------------------------------------------
WIRE PAYMENT INFORMATION FOR INVESTOR (FOR COMPANY DISTRIBUTIONS). IF
DISTRIBUTIONS ARE TO BE WIRED TO THE U.S. TRUST ACCOUNT NUMBER LISTED
ABOVE, CIRCLE "YES" BELOW AND LEAVE THE REMAINDER BLANK.
U.S. Trust Account: Yes or No
Bank Name: Bank Officer:
------------------------------- -----------------------
Address: Telephone:
--------------------------------- ---------------------------
Investor Account Number: ABA Number:
----------------- -------------------------
-------------------------------------------------------------------------------
EXHIBIT A
CERTIFICATE OF PARTNERSHIP INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE PARTNERSHIPS.
CERTIFICATE OF (the "Partnership")
--------------------------------------------
(Name of Partnership)
The undersigned, constituting all of the partners of the Partnership who
must consent to the proposed investment by the Partnership hereby certify
as follows:
1. That the Partnership commenced business on _________ and was established
pursuant to a Partnership Agreementated __________________ (the "Agreement").
2. That a true and correct copy of the Agreement is attached hereto and
that, as of the date hereof, the Agreement has not been amended (except as
to any attached amendments) or revoked and is still in full force and
effect.
3. That, as the partners of the Partnership, we have the authority to
determine, and have determined, (i) that the investment in, and the
purchase of an interest in Excelsior Venture Investors III, LLC is of
benefit to the Partnership and (ii) to make such investment on behalf of
the Partnership.
4. That is authorized to execute all necessary documents in
---------------
connection with our investment in Excelsior Venture Investors III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the partners
of the Partnership this day of __________, ___, and declare that it is truthful
and correct.
(Name of Partnership)
By:
-------------------------------------
Partner
By:
-------------------------------------
Partner
By:
-------------------------------------
Partner
(Attach extra signature pages if necessary)
EXHIBIT B
CERTIFICATE OF TRUST INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE TRUSTS.
CERTIFICATE OF (the "Trust")
----------------------------------
(Name of Trust)
The undersigned, constituting all of the Trustees of the Trust, hereby
certify as follows:
1. That the Trust was established pursuant to a Trust
Agreement dated (the "Agreement").
----------
2. That a true and correct copy of the Agreement is attached hereto and
that as of the date hereof, the Agreement has not been amended (except as
to any attached amendments) or revoked and is still in full force and
effect.
3. That, as the Trustee(s) of the Trust, we have determined that the
investment in, and the purchase of, an interest in Excelsior Venture
Investors III, LLC is of benefit to the Trust and have determined to make
such investment on behalf of the Trust.
4. That is authorized to execute, on behalf of the Trust, any
----------------
and all documents in connection with the Trust's investment in Excelsior
Venture Investors III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the
Trustee(s) of the Trust this day of , , and declare that it is truthful and
correct.
(Name of Trust)
By:
----------------------------------
Trustee
By:
----------------------------------
Trustee
By:
----------------------------------
Trustee
(Attach extra signature pages if necessary)
EXHIBIT C
CERTIFICATE OF CORPORATE INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE CORPORATIONS.
CERTIFICATE OF (the "Corporation")
--------------------------------------
(Name of Corporation)
The undersigned, being the duly elected and acting Secretary or Assistant
Secretary of the Corporation, hereby certifies as follows:
1. That the Corporation commenced business on and was incorporated
---------
under the laws of the State of on
--------- ----------------------------------
2. That a true and correct copy of the Articles of Incorporation and By
Laws of the Corporation is attached hereto and that, as of the date hereof,
the Articles of Incorporation and By Laws have not been amended (except as
to any attached amendments) or revoked and are still in full force and
effect.
3. That the Board of Directors of the Corporation has determined, or
appropriate officers under authority of the Board of Directors have
determined, that the investment in, and purchase of, Units in Excelsior
Venture Investors III, LLC is of benefit to the Corporation and has
determined to make such investment on behalf of the Corporation. Attached
hereto is a true, correct and complete copy of resolutions of the Board of
Directors (or an appropriate committee thereof) of the Corporation duly
authorizing this investment, and said resolutions have not been revoked,
rescinded or modified and remain in full force and effect.
4. That the following named individuals are duly elected officers of the
Corporation, who hold the offices set opposite their respective names and
who are duly authorized to execute any and all documents in connection with
the Corporation's investment in Excelsior Venture Investors III, LLC, and
that the signatures written opposite their names and titles are their
correct and genuine signatures.
Name Title Signature
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Corporation this day of , , and declare that it
is truthful and correct.
(Name of Corporation)
By:
----------------------------------
Name:
Title:
EXHIBIT D
CERTIFICATE OF LIMITED LIABILITY COMPANY INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE LIMITED LIABILITY COMPANIES.
CERTIFICATE OF (the "Limited Liability Company")
-------------------------
(Name of Limited Liability Company)
The undersigned, being a duly elected and acting Manager of the Limited
Liability Company, hereby certifies as follows:
1. That the Limited Liability Company commenced business on and was
------
organized under the laws of the State of on
---------- -----------------------
2. That a true and correct copy of the Limited Liability Company Agreement
is attached hereto and that, as of the date hereof, the Limited Liability
Company Agreement has not been amended (except as to any attached
amendments) or revoked and is still in full force and effect.
3. That the Managers of the Limited Liability Company have determined that
the investment in, and purchase of, Units in Excelsior Venture Investors
III, LLC is of benefit to the Limited Liability Company and has determined
to make such investment on behalf of the Limited Liability Company.
Attached hereto is a true, correct and complete copy of resolutions of the
Managers (or an appropriate committee thereof) of the Limited Liability
Company duly authorizing this investment, and said resolutions have not
been revoked, rescinded or modified and remain in full force and effect.
4. That the following named individuals are duly elected managers of the
Limited Liability Company, who hold the offices set opposite their
respective names and who are duly authorized to execute any and all
documents in connection with the Limited Liability Company's investment in
Excelsior Venture Investors III, LLC, and that the signatures written
opposite their names and titles are their correct and genuine signatures.
Name Title Signature
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Limited Liability Company this day of , , and
declare that it is truthful and correct.
(Name of Limited Liability Company)
By:
---------------------------
Name:
Title:
The information in this statement of additional information is not complete
and may be changed. No person may sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This statement of additional information is not an offer to sell
these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 8, 2000
EXCELSIOR VENTURE INVESTORS III, LLC
STATEMENT OF ADDITIONAL INFORMATION
Excelsior Venture Investors III, LLC (the "Fund") is a newly
organized, closed-end, non-diversified investment management company. This
statement of additional information relating to units of membership
interest of the Fund does not constitute a prospectus, but should be read
in conjunction with the prospectus relating hereto dated November__, 2000.
This statement of additional information does not include all information
that a prospective investor should consider before purchasing units, and
investors should obtain and read the prospectus prior to purchasing such
units. A free copy of the prospectus may be obtained by calling the Fund at
(212) 852-3125. You may also obtain a copy of the prospectus on the
Securities and Exchange Commission's web site (http://www.sec.gov).
Capitalized terms used but not defined in this statement of additional
information have the meanings ascribed to them in the prospectus.
TABLE OF CONTENTS
Page
Investment Restrictions...................................................B-2
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may
not, without the approval of the holders of a majority of the outstanding
Units:
(1) invest 25% or more of the value of its total assets in any
one industry;
(2) issue senior securities or borrow money other than as
permitted by the Investment Company Act;
(3) make loans of money or property to any person, except
through loans of portfolio securities, the purchase of fixed
income securities consistent with the Fund's investment
objective and policies or the entry into repurchase
agreements;
(4) underwrite the securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities or the sale of its own securities the Fund may be
deemed to be an underwriter;
(5) purchase or sell real estate or interests therein provided
that the Fund may hold and sell any real estate acquired in
connection with its investment in portfolio securities; or
(6) purchase or sell commodities or commodity contracts for any
purposes except as, and to the extent, permitted by
applicable law without the Fund becoming subject to
registration with the Commodities Futures Trading Commission
as a commodity pool.
"Majority of the outstanding" means (i) 67% or more of the Units
present at a meeting, if the holders of more than 50% of the outstanding
Units are present or represented by proxy, or (ii) more than 50% of the
outstanding Units, whichever is less.
In addition to the foregoing fundamental investment policies, the
Fund is also subject to the following non-fundamental restrictions and
policies, which may be changed by the Managers. The Fund may not:
(1) Make any short sale of securities except in conformity with
applicable laws, rules and regulations and unless, giving
effect to such sale, the market value of all securities sold
short does not exceed 25% of the value of the Fund's total
assets and the Fund's aggregate short sales of a particular
class of securities does not exceed 25% of the then
outstanding securities of that class. The Fund may also make
short sales "against the box" without respect to such
limitations. In this type of short sale, at the time of the
sale, the Fund owns or has the immediate and unconditional
right to acquire at no additional cost the identical
security.
(2) Purchase securities of open-end or closed-end investment companies
Notwithstanding any of the foregoing investment restrictions, the
Fund may invest without limitation in Portfolio Units.
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Part A: Financial Statements of the Fund
Report of Independent Auditors.
Statement of Assets and Liabilities.
Notes to Financial Statements
Financial Statements of the Portfolio
Report of Independent Auditors
Statement of Assets and Liabilities
Notes to Financial Statements
Part B: Not applicable.
2. Exhibits
(a) (1) Certificate of Formation of Limited Liability
Company filed June 1, 2000.*
(2) Certificate of Amendment filed August 30, 2000.**
(3) Form of Limited Liability Company Operating
Agreement.
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate of the Fund's Units, the
rights of holders of which are defined in Exhibit(a)(3).
(e) Not applicable.
(f) Not applicable.
(g) Form of Investment Advisory Agreement between the Fund
and U.S. Trust Company.
(h) (1) Form of Distribution Agreement between the Fund
and Charles Schwab & Co., Inc.
(2) Form of Selling Agent Agreement among Charles
Schwab & Co., Inc., the Fund and
the selling agents.
(i) Not applicable.
(j) (1) Form of Custodian Agreement between the Fund and
PFPC Trust Company.
(2) Form of Administration, Accounting and Investor
Services Agreement between the
Fund and PFPC Inc.
(3) Form of Escrow Agreement among the Fund, PNC Bank,
Delaware and PFPC Inc.
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate, Meagher
and Flom LLP.
(m) Not applicable.
(n) (1) Form of opinion and consent of Skadden, Arps,
Slate, Meagher and Flom LLP as to certain tax
matters.
(2) Consent of Ernst & Young, LLP independent auditors.
(o) Not applicable.
(p) (1) Form of Subscription Agreement for investment
in Units of the Fund.
(2) Agreement with respect to Seed Capital.
(q) Not applicable.
(r) (1) Code of Ethics of the Fund.
(2) Code of Ethics of U.S. Trust Company, and the
selling agents.
(3) Code of Ethics of the Distributor.
(s) (1) Power of Attorney.*
(2) Power of Attorney.**
*Incorporated by reference to the Fund's registration statement on Form N-2
(File No. 333-38550), filed on June 5, 2000.
**Incorporated by reference to the Fund's amended registration statement on
Form N-2 (File No. 333-38550), filed on September 20, 2000.
Item 25. MARKETING ARRANGEMENTS
See the Form of Distribution Agreement and Form of Selling Agent
Agreement to be filed as Exhibits 2(h)(1) and (2) as well as the Fund's
prospectus under the caption "Selling Arrangements."
Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, payable by
the Fund, in connection with the issuance and distribution of the
securities covered by this registration statement.
Securities and Exchange Commission fees........ $52,800
Printing....................................... $60,000
Legal fees and expenses........................ $175,000
Miscellaneous.................................. $20,000
------
Total............... $307,800
* To be provided by amendment.
Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Upon conclusion of the public offering of the Fund's shares, it is
anticipated that no person will be controlled by or under common control
with the Fund.
Item 28. NUMBER OF HOLDERS OF SECURITIES AS OF NOVEMBER 8, 2000
Title of Class Number of Record Holders
Units of Membership Interest, without par value 3
Item 29. INDEMNIFICATION
The Fund's Investment Advisory Agreement provides for
indemnification by the Fund of the Fund's Adviser, from any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees
and expenses) not resulting from willful misfeasance, bad faith or gross
negligence in the performance by the Fund's Adviser of its duties
thereunder or the reckless disregard of its obligations and duties under
the Fund's Investment Advisory Agreement.
By subscribing for Units, each member agrees to indemnify and hold
harmless the Fund, the Fund's Adviser, the members of the Board of
Managers, each appropriate officer and each other member and any successor
or assign of any of the foregoing, from and against all losses, claims,
damages, liabilities, costs and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any transfer made by that
member in violation of the Operating Agreement or any misrepresentation
made by that member in connection with any purported transfer. A similar
indemnification is required to be made by a permitted transferee. The
Operating Agreement provides that the members of the Board of Managers
shall not be personally liable to the Fund for the debts, obligations or
liabilities of the Fund; obligated to cure any deficit in any capital
account; required to return all or any portion of any capital contribution;
or required to lend any funds to the Fund. The Operating Agreement also
provides that no member of the Board of Managers, appropriate officer,
member, investment adviser, distributor or selling agent of or for the
Units of the Fund, or any of their respective affiliates, shareholders,
partners, officers, directors, members, employees, agents and
representatives shall have any liability, responsibility, or accountability
in damages or otherwise to any member or the Fund for any action or
inaction on the part of the Fund or otherwise in connection with the
business or affairs of the Fund or any Portfolio Company. The Operating
Agreement contains provision for the indemnification, to the extent
permitted by law, of the Board of Managers, appropriate officers, members,
investment advisers, distributor or selling agent and any of their
respective affiliates, shareholders, partners, officers, directors,
members, employees, agents and representatives by the Fund, but not by the
members individually, against any liability and expense to which any of
them may become liable which arises out of or in connection with the
performance of their activities on behalf of the Fund. The rights of
indemnification and exculpation provided under the Operating Agreement do
not provide for indemnification to which the indemnified person would
otherwise be subject to as a result of their willful misfeasance, bad
faith, gross negligence or reckless disregard of their duties under the
Operating Agreement.
Pursuant to the Distribution Agreement and the Selling Agent
Agreement, the Fund agrees to indemnify the Distributor and Selling Agent
against certain civil liabilities, including liabilities under the federal
securities laws.
Item 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
U.S. Trust Company, the Fund's Investment Adviser, provides asset
management, private banking and fiduciary services. For the names and
principal businesses of the directors and certain senior executive officers
of U.S. Trust Company, including those who are engaged in any other
business, profession, vocation or employment of a substantial nature, see
the Fund's prospectus under the caption "Management."
Item 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Fund will be maintained at the
office of PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809.
Item 32. MANAGEMENT SERVICES
Except as described in the Prospectus under the caption
"Management," the Fund is not a party to any management service related
contract.
Item 33. UNDERTAKINGS
The Fund undertakes to suspend the offering of its common shares
until it amends its prospectus if (1) subsequent to the effective date of
its registration statement, the net asset value declines more than 10
percent from its net asset value as of the effective date of the
registration statement or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the prospectus.
The Fund additionally undertakes, pursuant to Rule 415 under the
Securities Act, as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(b) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(c) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Fund undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any statement of additional
information.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on the 8th day of November, 2000.
EXCELSIOR VENTURE INVESTORS III, LLC
By: /s/ David I. Fann
-------------------------------
David I. Fann, Co-Chief Executive
Officer and President
(principal executive officer)
Each person whose signature appears below hereby appoints David I.
Fann his true and lawful attorney-in-fact, with full power of such
attorney-in-fact to sign on his behalf, individually and in each capacity
stated below, any and all amendments (including post-effective amendments)
to the registration statement of Excelsior Venture Investors III, LLC and
to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David I. Fann Co-Chief Executive Officer and President November 8, 2000
------------------------------------ (principal executive officer)
David I. Fann
/s/ Douglas A. Lindgren* Co-Chief Executive Officer and November 8, 2000
------------------------------------ Chief Investment Officer
Douglas A. Lindgren (principal executive officer)
/s/ Brian F. Schmidt* Chief Financial Officer November 8, 2000
----------------------------------- (principal financial and accounting
Brian F. Schmidt officer)
/s/ John C. Hover* Manager November 8, 2000
-----------------------------------
John C. Hover II
/s/ Gene M. Bernstein* Manager November 8, 2000
-----------------------------------
Gene M. Bernstein
/s/ Steven V. Murphy* Manager November 8, 2000
-----------------------------------
Steven V. Murphy
/s/ Victor F. Imbimbo, Jr.* Manager November 8, 2000
-----------------------------------
Victor F. Imbimbo, Jr.
*by: /s/ David I. Fann
--------------------
David I. Fann,
Attorney-in-Fact
</TABLE>
SIGNATURES
Excelsior Venture Partners III, LLC has duly caused this
registration statement on Form N-2 of Excelsior Venture Investors III, LLC
(File No. 333-38550) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on
the 8th day of November, 2000.
EXCELSIOR VENTURE PARTNERS III, LLC
By: /s/ David I. Fann
---------------------------------
David I. Fann, Co-Chief Executive
Officer and President
(principal executive officer)
Each person whose signature appears below hereby appoints David I.
Fann his true and lawful attorney-in-fact, with full power of such
attorney-in-fact to sign on his behalf, individually and in each capacity
stated below, any and all amendments (including post-effective amendments)
to the registration statement of Excelsior Venture Investors III, LLC and
to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act, this
registration statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ David I. Fann Co-Chief Executive Officer and President November 8, 2000
--------------------------- (principal executive officer)
David I. Fann
/s/ Douglas A. Lindgren * Co-Chief Executive Officer and November 8, 2000
--------------------------- Chief Investment Officer
Douglas A. Lindgren (principal executive officer)
/s/ Brian F. Schmidt* Chief Financial Officer November 8, 2000
--------------------------- (principal financial and accounting officer)
Brian F. Schmidt
/s/ John C. Hover II* Manager November 8, 2000
--------------------------
John C. Hover II
/s/ Gene M. Bernstein* Manager November 8, 2000
---------------------------
Gene M. Bernstein
/s/ Stephen V. Murphy* Manager November 8, 2000
----------------------------
Stephen V. Murphy
/s/ Victor F. Imbimbo, Jr.* Manager November 8, 2000
----------------------------
Victor F. Imbimbo, Jr.
*by: /s/ David I. Fann
----------------------------
David I. Fann
Attorney-in-Fact
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
EXHIBITS
TO
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 |X|
Pre-Effective Amendment No. 3 |X|
Post-Effective Amendment No. |_|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT FUND
ACT OF 1940 |X|
Amendment No. 3 |X|
EXCELSIOR VENTURE INVESTORS III, LLC
(Exact Name of Registrant as Specified in Charter)
EXHIBIT INDEX
Exhibit No. Exhibit
(a) (1) Certificate of Formation of Limited Liability
Company filed June 1, 2000.*
(2) Certificate of Amendment filed August 30, 2000.*
(3) Form of Limited Liability Company Operating
Agreement.
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate of the Fund's Units, the
rights of holders of which are defined
in Exhibit(a)(3).
(e) Not applicable.
(f) Not applicable.
(g) Form of Investment Advisory Agreement between the
Fund and U.S. Trust Company.
(h) (1) Form of Distribution Agreement between the
Fund and Charles Schwab & Co., Inc.
(2) Form of Selling Agent Agreement among Charles
Schwab & Co., Inc., the Fund and the selling
agents.
(i) Not applicable.
(j) (1) Form of Custodian Agreement between the
Fund and PFPC Trust Company.
(2) Form of Administration, Accounting and Investor
Services Agreement between the Fund and PFPC
Inc.
(3) Form of Escrow Agreement among the Fund, PNC
Bank, Delaware and PFPC Inc.
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate, Meagher
and Flom LLP.
(m) Not applicable.
(n) (1) Form of opinion and consent of Skadden, Arps,
Slate, Meagher and Flom LLP as to certain tax
matters.
(2) Consent of Ernst & Young, LLP independent
auditors.
(o) Not applicable.
(p) (1) Form of Subscription Agreement for investment
in Units of the Fund.
(2) Form of opinion and consent of Skadden, Arps,
Slate, Meagher and Flom LLP as to certain tax
matters.
(q) Not applicable.
(r) (1) Code of Ethics of the Fund.
(2) Code of Ethics of U.S. Trust Company,
and the selling agents.
(3) Code of Ethics of the Distributor.
(s) (1) Power of Attorney.*
(2) Power of Attorney.*
* Incorporated by reference.
--------
* Interested person of the Fund and the Portfolio.
