As filed with the Securities and Exchange Commission on June __, 2000
1933 Act File No. 333-
1940 Act File No. 811-
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
(Check appropriate box or boxes)
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No._______
|_| Post-Effective Amendment No.______
and
|_| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|_| Amendment No._______
VCVillage.com Opportunity Fund, LLC
Exact Name of Registrant as Specified in its Certificate of Formation
325 W. 38th Street, Suite 1504
New York, New York 10018
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(212) 736-2223
Registrant's Telephone Number, including Area Code
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copies of Communications to:
Lawrence P. Stadulis
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
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 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|
It is proposed that this filing will become effective (check appropriate
box)
|X| when declared effective pursuant to Section 8(c)
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
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Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered Per Unit Offering Price(1) Registration Fee
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares, No Par Value $100,000,000 $__.00 $ 100,000,000 $ 26,400
=================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this Registration Statement 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 this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
Part A
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
<S> <C>
Item 1. Outside Front Cover................................................Cover Page
Item 2. Cover Pages; Other Offering Information............................Cover Page
Item 3. Fee Table and Synopsis.............................................Fee Table; Prospectus Summary
Item 4. Financial Highlights ..............................................Not Applicable
Item 5. Plan of Distribution ..............................................Cover Page; Prospectus Summary; Plan of
Distribution; How to Subscribe
Item 6. Selling Shareholders...............................................Not Applicable
Item 7. Use of Proceeds....................................................Prospectus Summary; Use of Proceeds
Item 8. General Description of the Registrant..............................Prospectus Summary; Business of the Fund
Item 9. Management.........................................................Prospectus Summary; Management of the Fund
Item 10. Capital Stock, Long-Term Debt, and Other Securities ...............Prospectus Summary; Description of Limited
Liability Company Interests
Item 11. Defaults and Arrears on Senior Securities .........................Not Applicable
Item 12. Legal Proceedings .................................................Legal Matters
Item 13. Table of Contents of the Statement
of Additional Information .........................................Not Applicable
</TABLE>
<PAGE>
Part B
<TABLE>
<CAPTION>
Items required by Part B of Form N-2 Location in Statement of
------------------------------------ Additional Information
------------------------
<S> <C>
Item 14. Cover Page ........................................................Not Applicable
Item 15. Table of Contents .................................................Not Applicable
Item 16. General Information and History ...................................Not Applicable
Item 17. Investment Objectives and Policies ................................Prospectus Summary; Business of the Fund
Item 18. Management ........................................................Prospectus Summary; Management of the Fund
Item 19. Control Persons and Principal Holders of Securities ...............Management of the Fund
Item 20. Investment Advisory and Other Services ............................Management of the Fund
Item 21. Brokerage Allocation and Other Practices ..........................Management of the Fund
Item 22. Tax Status ........................................................Tax Information
Item 23. Financial Statements ..............................................Not Applicable
</TABLE>
Part C - Other Information
Items 24-33 are answered in Part C of this Registration Statement
<PAGE>
SUBJECT TO COMPLETION - June 28, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE FUND MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
$100,000,000
SHARES OF LIMITED LIABILITY COMPANY INTERESTS IN
VCVILLAGE.COM OPPORTUNITY FUND, LLC
MINIMUM SUBSCRIPTION: $50
VCVillage.com Opportunity Fund, LLC, or the Fund, is offering up to $100,000,000
in limited liability company interests. Investors will only be permitted to
participate in voting and other matters regarding Fund governance to the extent
expressly stated in the Fund's operating agreement. All other matters regarding
Fund governance will be provided for in the Fund's operating agreement. We are a
Delaware limited liability company that has elected to be regulated as a
business development company under the Investment Company Act of 1940. The Fund
will dissolve on December 31, 2008, subject to the right of the Fund's directors
to extend the term for up to two additional two-year periods.
Our investment objectives are long-term capital appreciation from investments in
emerging growth companies and preservation of capital through risk management
and active involvement with such companies. We will not select our investments
based on their ability to generate current income for distribution.
VCVillage.com Advisors, Inc., or the Investment Manager, will be responsible for
managing our investments. The Investment Manager is a wholly owned subsidiary of
VCVillage.com Holdings, Inc.
VCVillage.com Securities, Inc., or the Broker-Dealer, is offering the shares in
the Fund on a "best efforts" basis. There is no set termination date for the
offering, no minimum amount of shares to be purchased before the Fund will begin
operations and no shares will be placed in an escrow or trust account. The
offering will remain open so long as shares of the Fund remain available, unless
prior to such time the Investment Manager terminates the offering at its own
discretion or the Fund dissolves. The Broker-Dealer is a wholly owned subsidiary
of VCVillage.com Holdings, Inc. and has applied for membership with the National
Association of Securities Dealers, Inc, or the NASD.
You must purchase shares worth a minimum of $50 to participate in this
offering. There is no public or secondary market for such shares, and we
do not expect any to develop. As a result, you will not be able to
withdraw your investment before the dissolution of the Fund. However, we
expect to distribute certain of the proceeds upon the liquidation of
<PAGE>
our portfolio companies, and we may, from time to time, offer to
repurchase some of the shares of the Fund. See "Distributions" and
"Description of Limited Liability Company Interests - Share Repurchases."
For a variety of reasons, including our lack of prior operating history, the
substantial risk associated with the portfolio companies in which we intend to
invest, the illiquid nature of a substantial majority of our investments, the
risks related to leverage, and the uncertainty associated with valuing our
investments, an investment in the Fund involves a high degree of risk. You could
lose some or all of your investment. See "Risks of the Fund."
Neither the Securities and Exchange Commission (SEC) nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus contains concisely the information about the Fund that you ought
to know before investing. You should retain this prospectus for future
reference. Additional information about the Fund has been filed with the SEC,
which is available upon oral or written request and without charge. The SEC
maintains a website (http://www.sec.gov) that contains additional information
about the Fund.
--------------------------------------------------------------------------------
Per Share (1) Total
Public offering price [ ] $100,000,000
Sales load $0 $0
Proceeds, before expenses, to the Fund (2) [ ] $100,000,000
(1) This column represents the initial price per share of the Fund. The price
per share will vary depending on the net asset value, or NAV, of the Fund's
investments, which will be determined weekly. Accordingly, the number of shares
that you receive for a $50 investment will depend on the share price the week
your investment is accepted.
(2) We will reimburse the Investment Manager and its affiliates for the
organizational expenses they incur on our behalf, which we estimate to be
approximately $[ ]. We will reimburse the Broker-Dealer and its affiliates
for their marketing and distribution expenses, which we estimate to be [ ]% of
the aggregate offering price, assuming the offering is fully subscribed. We will
cap the above reimbursement of the Broker-Dealer at 10% of the aggregate
offering price, in accordance with NASD regulations.
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<PAGE>
TABLE OF CONTENTS
PAGE
----
Fee Table......................................................................4
Prospectus Summary.............................................................5
Plan of Distribution..........................................................10
How to Subscribe..............................................................11
Use of Proceeds...............................................................11
Business of the Fund..........................................................12
Investment Objectives.........................................................12
Portfolio Strategy and Policies...............................................13
Venture Capital Operations....................................................17
Risk Factors..................................................................18
Forward Looking Statements....................................................27
Allocation of Profits and Losses..............................................28
Distributions.................................................................29
Portfolio Valuation...........................................................29
Management of the Fund........................................................30
The Fund Directors............................................................31
The Investment Manager........................................................32
Compensation of the Investment Manager, Its Affiliates,
and the Independent Directors............................................33
Conflicts of Interest.........................................................36
Description of Limited Liability Company Interests............................37
The Operating Agreement.......................................................40
Tax Information...............................................................42
ERISA Considerations..........................................................49
Investment Company Act Regulation.............................................51
Reports, Accounting, and Audit................................................53
Selling Materials.............................................................53
Legal Matters.................................................................54
Accounting Matters............................................................54
Additional Information........................................................54
<PAGE>
THIS PROSPECTUS WILL BE AVAILABLE AT HTTP://WWW.VCVILLAGE.COM/PROSPECTUS AND IS
ALSO AVAILABLE ON THE SEC'S WEBSITE AT HTTP://WWW.SEC.GOV. THE INFORMATION ON
THE WEBSITE OF THE PARENT COMPANY OF THE INVESTMENT MANAGER AND THE
BROKER-DEALER, HTTP://WWW.VCVILLAGE.COM, IS NOT A PART OF THIS PROSPECTUS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR IN THE
AUTHORIZED SELLING MATERIALS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT OR ADDITIONAL INFORMATION. YOU SHOULD NOT ASSUME THAT THE INFORMATION
IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE SET FORTH ON
THE FRONT COVER OF THIS PROSPECTUS. WE WILL FURNISH YOU WITH ALL REPORTS
REQUIRED BY APPLICABLE LAW.
The use of forecasts in this offering is prohibited. We are not permitted
to make any representations to the contrary and any predictions, written or
oral, as to the amount or certainty of any present or future cash benefit or tax
consequence that may flow from an investment in the Fund.
FEE TABLE
Shareholder Transaction Expenses
<TABLE>
<S> <C>
Sales Load ........................................... None
Reimbursement of Organizational Expenses ............. Actual expenses as incurred
Reimbursement of Distribution Expenses ............... Actual expenses as incurred
Dividend Reinvestment and Cash Purchase Plan Fees .... None
</TABLE>
Annual Expenses (as a percentage of NAV, and assuming the offering is fully
subscribed)
<TABLE>
<S> <C>
Management Fees (1) .................................. 2.5%
Other Expenses (2) ................................... [ ]%
Total Annual Expenses ................................ [ ]%
</TABLE>
(1) The above chart and the example below do not include the monthly incentive
fee payable to the Investment Manager which is equal to 20% of the Fund's
capital gains, net of cumulative realized and unrealized losses. For more
detailed information, see "Compensation of the Investment Manager, Its
Affiliates and the Independent Directors."
(2) "Other Expenses" includes the reimbursement of the Investment Manager for
operating expenses, as well as professional fees and other expenses that
the Fund will incur directly. The figure is based on estimated amounts for
the current fiscal year. "Other Expenses" expressed as a percentage will
be higher with lower proceeds of this offering.
--------------------------------------------------------------------------------
<PAGE>
EXAMPLE OF COSTS AND EXPENSES CALCULATION
1 3 5 10
YEAR YEARS YEARS YEARS
You would pay the
following expenses on a
$1,000 investment, assuming
a five percent annual return ......... $[ ] $[ ] $[ ] $[ ]
The chart and the example each assume no leverage. In the event that the
Fund engages in borrowing, the Fund will incur the expense of interest payments.
The example should not be considered a representation of future expenses. Actual
expenses may be greater or less than those shown above.
The purpose of the above table is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly. The Fund's
actual rate of return may be greater or less than the hypothetical 5% return
used above. The 5% return is merely a hypothetical return required by law to
demonstrate the costs and expenses of an investment, and does not reflect our
expectation of the actual return that you may or may not realize from an
investment in the Fund.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus, including the Operating Agreement of the Fund, which is attached as
Exhibit A. This summary is not complete and is not intended to contain all the
information that you should consider before investing in the Fund. You should
read this entire prospectus and the Operating Agreement carefully before
purchasing shares in the Fund.
THE OFFERING. We are offering shares of limited liability company
interests in an aggregate amount of up to $100,000,000. We will adjust the price
of the shares on a weekly basis based on the net asset value of our investments.
We will admit new investors to the Fund on a weekly basis after that week's
determination of net asset value and the subsequent adjustment to share price.
The initial price per share is $[ ].
The minimum purchase price for any investor is $50, payable by debit card
upon subscription. We intend to apply to the SEC for exemptive relief to allow
investors to pay by credit card. The Broker-Dealer will sell the shares in the
Fund on a "best efforts" basis and you will not pay any sales load. The
Broker-Dealer will only sell shares to you if you confirm that you have reviewed
the suitability considerations contained in this prospectus and acknowledge that
you meet or exceed the suggested suitability standards. See "Plan of
Distribution."
No money has been invested in the Fund to date and there is no minimum
amount of shares to be purchased before the Fund will begin operations. However,
the Investment Manager
<PAGE>
has indicated that it intends to invest $100,000 in the Fund as part of the
offering, and we expect to use such funds to make our first investment. We
expect that the offering will be fully subscribed within two years of the date
of this prospectus. The offering will remain open so long as shares of the Fund
remain available, unless prior to such time the Investment Manager terminates
the offering at its own discretion or the Fund dissolves. If the Fund cannot
raise the $100,000,000 contemplated by this offering, the Fund may have less
diversification than the Investment Manager anticipates.
THE FUND. We are a newly organized entity established to provide
investors with the opportunity to participate in venture capital investments
that are generally only available to "accredited investors" and require
substantially larger financial commitments. We will provide you with
professional management and administration that you may not otherwise have
access to if you invest directly. We have not yet made any investments in
portfolio companies, but expect to make our first investment soon after
commencement of the offering. During the course of this offering, we will post a
listing of all our portfolio companies on the website of the parent company of
the Investment Manager and the Broker-Dealer at http://www.vcvillage.com as we
commit capital to such companies. For each portfolio company, the website will
disclose;
o its name and address
o the nature of its business
o the title, class, percentage of class and value of the securities
held by the Fund,
o the amount and general terms of all loads to the portfolio
companies, and
o the relationship of the portfolio company to the Fund.
We were formed as a Delaware limited liability company on June 13, 2000,
and as such we are governed by an Operating Agreement that defines many of your
rights and responsibilities as an investor in the Fund. We have elected to be
regulated as a business development company, and as such we will operate as a
closed-end, non-diversified company in accordance with the Investment Company
Act. The Directors have elected to treat the Fund as a partnership for tax
purposes and do not intend to elect otherwise. We will not seek a ruling from
the Internal Revenue Service concerning our tax status.
THE DIRECTORS. The Operating Agreement provides that the Directors will
manage the administrative affairs of the Fund. We will initially have five
Directors, consisting of three Independent Directors (i.e., not "interested
persons" of the Fund or its affiliates as that term is defined in the Investment
Company Act) and two Affiliated Directors (i.e., persons affiliated with the
Investment Manager). The Directors have given the Investment Manager the
authority, subject to the supervision of the Directors, to manage the
investments for the Fund, as well as to manage the day-to-day operations of the
Fund. See "The Fund Directors".
<PAGE>
THE INVESTMENT MANAGER. The Investment Manager will implement our
investment objectives and will set our strategic and operational
directive. In particular, the Investment Manager will identify, structure
and negotiate investments for the Fund, as well as monitor and assist our
portfolio companies. There can be no assurance that the investments it
selects will be successful. The Investment Manager will also manage our
day-to-day operations, including our accounting, finance, record-keeping
and regulatory compliance. See "The Investment Manager".
INVESTMENT OBJECTIVES. Our investment objectives are long-term capital
appreciation from venture capital investments in emerging growth companies and
preservation of capital through risk management and active involvement with such
companies. Venture capital investments are typically long-term investments in
companies with high growth potential whose shares are not publicly-traded. We
intend to invest in private companies in various stages of development. We
expect our venture capital investments primarily to take the form of common
stock, preferred stock, or debt securities convertible into common stock or
warrants or options exercisable for preferred or common stock.
We will seek to provide returns to you through long-term
appreciation in the value of our portfolio companies. We will not select our
investments based on their ability to generate current income for distribution.
There is no assurance that we can achieve our investment objectives or that the
performance of companies in which we make investments will be as anticipated.
See "Business of the Fund".
INVESTMENT STRATEGY. As a key element of our investment strategy, we
intend to invest in consumer-oriented pre-IPO companies. Such companies need to
raise capital to fund their marketing and other operational costs. We believe
that such companies will view the Fund as an attractive source of capital,
because the community of investors in the Fund can serve as a pool of potential
customers for such companies. As investors, you will have an economic interest
in helping our portfolio companies succeed. The more our investors become
customers, the more attractive the Fund will become to other consumer-oriented
pre-IPO companies. There can be no assurance, however, that the Fund will
attract a critical mass of investors, that start-up companies will view the Fund
as an attractive source of capital or that our investors will have any impact on
the ultimate success of any of our portfolio companies.
After investing in portfolio companies, we will seek to enhance their
value by offering to provide significant managerial assistance. Such assistance
may include help in preparing for future rounds of private or public financing,
recruiting management, refining business strategies, assisting with general
business operations and making introductions to venture firms, investment banks
and other potential sources of capital.
<PAGE>
We do not have any current plans to issue senior interests or debt
securities or to use significant leverage. However, in order to maximize the
internal rate of return of the Fund, we may elect to increase its leverage,
including by use of a line of credit secured by the assets of the Fund. In any
case, debt incurred by the Fund will not exceed 50% of net asset value, unless
otherwise permitted under the Investment Company Act. See "Risk Factors -- Debt
Incurred by the Fund Could Affect Distributions and Exaggerate Decreases in Net
Asset Value."
COMPENSATION OF THE INVESTMENT MANAGER AND THE BROKER-DEALER. We will pay
the Investment Manager an annual management fee equal to 2.5% of the Fund's
average net assets, payable in monthly installments. The Investment Manager may
waive all or a portion of the management fee. In addition, we will pay the
Investment Manager an incentive fee as described in detail below. We will also
reimburse the Investment Manager for organization expenses incurred in setting
up the Fund and for ongoing operational costs incurred by it on our behalf. The
Investment Manager expects such annual operational costs (excluding the above
management fee) to be approximately [ ]% of the total capital being sought by
the Fund in this offering. Actual operational costs in any particular year may
exceed this estimate. The terms of the Investment Manager's compensation are set
forth in detail in the Operating Agreement.
At the end of each month, 20% of the Fund's realized capital gains, net of
realized and unrealized cumulative losses, will be paid to the Investment
Manager as an incentive fee. The amount of the fee will be charged to the
capital accounts of the investors.
The incentive fee, referred to as a "carried interest," is a typical
incentive compensation used in the venture capital industry and provides an
economic incentive for venture capital fund managers to select investments with
the potential to achieve the greatest increase in value over time. However, the
incentive fee may also encourage the Investment Manager to make investments that
are subject to greater risk. The Investment Manager may waive or defer all or
any portion of the incentive fee.
The Broker-Dealer will not receive any commission for selling shares in
the Fund. However, we will reimburse the Broker-Dealer and its affiliates
for actual costs incurred in the marketing and distribution of the Fund's
shares, subject to certain legal limits. See "Compensation of the
Investment Manager, Its Affiliates and the Independent Directors".
ALLOCATION OF PROFITS AND LOSSES. We will allocate the net profits and net
losses of the Fund to our investors in accordance with their capital accounts.
See "Allocations of Profits and Losses".
DISTRIBUTIONS. The primary source for cash distributions will be proceeds
from the liquidation of venture capital investments. The Investment Manager, in
its sole discretion, will determine whether to reinvest such proceeds or to
distribute them, and will determine the amount and timing of any distribution.
In any case, it is unlikely that we will make any significant cash
<PAGE>
distributions in the first three years of the Fund's operation. We will use
gross income from short-term investments to offset operating expenses.
We will make distributions in accordance with the capital accounts of the
investors, giving effect to the incentive fee described above. We may seek an
exemptive order from the SEC that would allow us to distribute securities
in-kind and deem as realized gains or losses on such securities distributed to
our investors. See "Distributions".
SUITABILITY CONSIDERATIONS. An investment in the Fund may be appropriate
if you want to place a small portion of your investment portfolio in an
aggressive growth fund to diversify your holdings. Professionally managed
venture capital funds that have invested in emerging companies entail
significant risks. Significant restrictions constrain your ability to transfer
shares, and therefore an investment in the Fund is only appropriate for you if
you have no need for liquidity of your investment for a number of years. You
should not invest more than 5% of your net worth (exclusive of home,
furnishings, and automobiles and any liabilities secured by those assets) in the
Fund.
TAX CONSIDERATIONS. The "Tax Information" section in this prospectus
applies mainly to individuals and not to trusts, pension and profit-sharing
plans, or corporations. Because actual tax consequences will depend on your
unique circumstances, we advise you to seek independent tax and financial
counsel in evaluating the individual merits and suitability of this investment.
RISK FACTORS; CONFLICTS OF INTEREST. Purchasing shares of the Fund carries
significant risk of losing some or all of your investment. Prior to investing in
the Fund, you should consider the risk factors described on pages 18 to 27 of
this prospectus and the impact of events that could adversely affect our
business, many of which may be events beyond our control or the control of the
Investment Manager. In addition, pages 36 to 37 of this prospectus set forth
some of the potential conflicts of interest that arise based on the structure of
the Fund.
ADDITIONAL INFORMATION. Our executive offices are located at 325 W. 38th
Street, Suite 1504, New York, NY 10018. The Fund is required to file annual and
quarterly reports with the SEC. This prospectus and all other information filed
with the SEC can be found at HTTP://WWW.VCVILLAGE.COM/PROSPECTUS. The
information contained on the website of the parent company of the Investment
Manager and the Broker-Dealer, HTTP://WWW.VCVILLAGE.COM, is not part of this
prospectus.
<PAGE>
PLAN OF DISTRIBUTION
VCVillage.com Securities, Inc., or the Broker-Dealer, is distributing up
to $100,000,000 worth of shares of the Fund on a best efforts basis through its
website at HTTP://WWW.VCVILLAGE.COM/SECURITIES. You may only purchase such
shares through the Broker-Dealer's website. The Broker-Dealer will sell shares
to those of you who represent that you meet the suitability standards set forth
under "Suitability Considerations." The Broker-Dealer has filed an application
with the NASD to become a registered member of the NASD. The Broker-Dealer will
not offer shares or solicit offers to purchase shares until such time as it is
registered as a member of the NASD.
The initial price per share is $[ ]. The price per share will vary
depending on the net asset value, or NAV, of the Fund, so that the price per
share will be equal to the per share NAV of the Fund. See "Portfolio Valuation".
We will admit new investors to the Fund on a weekly basis after that week's
determination of net asset value and the subsequent adjustment of share price.
The Broker-Dealer may determine to subsidize the first [ ] investors in the
Fund by contributing a portion of the share price to the Fund for the account of
such investors. Any subsidies will not be reimbursed to the Broker-Dealer by the
Fund. In addition, the Broker-Dealer may provide one-time referral bonuses to
investors in the Fund.
You may pay for your shares by debit card upon subscription. We intend to
apply with the SEC for exemptive relief to allow future investments to be made
by credit card. We may reject a subscription for any reason, in whole or in
part, at any time. We may not necessarily accept subscriptions in the order we
receive them. We reserve the right to reduce any subscription and to allocate
subscriptions received in the event that this offering is oversubscribed. Shares
will be paid for, and you will be admitted to the Fund on a weekly basis, after
your subscriptions are accepted. The risks associated with the purchase of
shares by credit card are set forth in the "Risk Factors" section.
We have agreed to indemnify the Broker-Dealer or contribute to its losses
arising out of certain liabilities, including liabilities under the Securities
Act of 1933.
Personnel performing functions for the Broker-Dealer will receive salaries
in connection with their distribution activities. The Investment Manager will
receive an investment management fee and an incentive fee in connection with its
management of the assets of the Fund. Certain Broker-Dealer personnel will
overlap with Investment Manager personnel in their performance of services to
the Fund.
The Broker-Dealer and the Investment Manager are both wholly owned
subsidiaries of VCVillage.com Holdings, Inc. This relationship may lead to
certain conflicts of interest that are described below under "Conflicts of
Interests". The address of the Broker-Dealer is 325 W. 38th Street, Suite 1504,
New York, NY 10018.
<PAGE>
HOW TO SUBSCRIBE
In order to invest, you will need to complete, execute, and submit to the
Broker-Dealer, the Subscription Agreement located on the Fund's website and
authorize payment for the shares you intend to purchase. As of now, payments may
only be made by debit card. We intend to allow you to purchase shares by credit
card in the future, and we may introduce other payment mechanisms over time. All
payments will be deposited directly into the Fund's custodial account
immediately upon acceptance of a subscription.
The minimum amount you may invest in the Fund is $50. The number of shares
that you will receive for a $50 investment will depend on the share price at the
time we accept your subscription. At any time during the course of this offering
you may subscribe for additional shares by executing a new on-line Subscription
Agreement. The price per share will vary depending on the NAV of the Fund's
investments, which will be determined once a week. YOU SHOULD NOTE THAT THE
PRICE PER SHARE WILL LIKELY BE DIFFERENT AT THE TIME OF EACH SUBSEQUENT
INVESTMENT YOU MAKE IN THE FUND.
We will keep confidential all the information you provide to us and
will disclose it only to the Investment Manager and its affiliates,
consultants, or service providers, except as required by appropriate
governmental, administrative, or regulatory authorities, or except if you
otherwise consent.
USE OF PROCEEDS
We will apply the proceeds of this offering (up to $100,000,000) to make
investments in portfolio companies as well as to pay any fees or reimbursements
due to the Broker-Dealer and the Investment Manager. See "Compensation of the
Investment Manager, Its Affiliates, and the Independent Directors".
Pending our investment of funds in portfolio companies, we will invest the
proceeds of this offering in interest-bearing bank accounts, money market mutual
funds, Treasury securities and/or certificates of deposit with maturities of
less than one year. We may also invest such proceeds in commercial paper (rated
or unrated) and other short-term securities. Cash, cash items, securities issued
or guaranteed by the United States Treasury or United States government agencies
and high quality debt securities with maturities of less than one year at the
time of investment will qualify for determining whether the Fund has 70% of its
total assets invested in the types of assets specified in Section 55 of the
Investment Company Act.
In accordance with the Investment Company Act, we intend to invest at
least 50% of the money invested in the Fund within the earlier of:
o two years after termination or completion of sales and
o two-and-one-half years of the commencement of this offering.
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It may take a long time for the Investment Manager to find investments, as it
intends to undertake a rigorous effort to select the best possible portfolio
companies for investment. Depending on opportunities for investment, we may
invest a significant portion of our capital in the temporary investments set
forth above during such period.
BUSINESS OF THE FUND
The Fund is a Delaware limited liability company that was established on
June 13, 2000. The Fund is a non-diversified, closed-end management investment
company that has elected to be treated as a business development company under
the Investment Company Act. A business development company is an investment
company organized under the laws of, and having its principal place of business
in, the United States that is operated for the purpose of making investments
primarily to foster smaller, developing businesses. The Investment Company Act
requires business development companies to make available significant managerial
assistance to the businesses in which they invest.
In the past twenty years, the business of providing capital to emerging
companies has grown to a multi-billion dollar industry that serves as one of the
country's primary sources of new economic growth. Venture capital funds seek to
provide a high investment rate of return while at the same time mitigating the
high risks of loss inherent in investing in unproven companies by investing in a
balanced portfolio of such companies. Historical industry performance is not an
indication of future industry performance or Fund performance.
Our investment adviser is VCVillage.com Advisors, Inc., or the Investment
Manager. The Investment Manager will identify, structure and negotiate our
investments, as well as monitor and offer to assist our portfolio companies. The
Investment Manager intends to utilize many of the risk management and investment
strategies common to the venture capital industry. The Investment Manager will
also manage our day-to-day operations, including our accounting, finance,
recordkeeping and regulatory compliance efforts.
There is no public or secondary market for the Fund's shares, and we do
not expect any to develop. An affiliate of the Broker-Dealer will act as
transfer agent for the Fund shares, but will not engage in any market-making or
secondary market purchases or sales of such shares. The Fund will dissolve on
December 31, 2008, subject to the right of the Directors to extend the term for
up to two additional two-year periods.
INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. Our first investment objective is long-term capital
appreciation from venture capital investments in pre-IPO companies. We will
invest in companies that we believe have high growth potential over the long
term. We will not consider the generation of current income for distribution as
a factor when selecting investments.
CAPITAL PRESERVATION. Our second investment objective is preservation of
investor capital through risk management and active involvement with our
portfolio companies. We will seek to manage risk in several ways, including:
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o investing in a number of companies serving different markets and at
different stages of maturity,
o limiting our investments in seed-stage companies (i.e., companies
seeking their first round of financing), and
o co-investing in portfolio companies with professional venture
capital investors.
We believe that active involvement with our portfolio companies can help achieve
our second investment objective. The ability and necessity to provide assistance
to portfolio companies is a major differentiating factor between mutual funds
investing passively in securities of publicly-traded companies and venture
capital firms.
The investment objectives of capital appreciation and capital preservation
are fundamental to the Fund, and may not be changed without a vote of the
holders of a majority of the interests in the Fund.
WE MAY NOT SUCCEED IN ACHIEVING EITHER OF OUR PRINCIPAL INVESTMENT
OBJECTIVES. Any single venture capital investment is risky. Many will not
provide any gain, and some will be complete losses. Our goal is that the gains
on our successful investments will offset the losses on the others and provide
you with a satisfactory overall return.
PORTFOLIO STRATEGY AND POLICIES
To meet our investment objectives, the Investment Manager must:
o identify and invest in prospective portfolio companies with the
potential for significant appreciation, and
o minimize portfolio losses by careful selection of portfolio
companies, risk management, and active participation with the
portfolio companies.
PORTFOLIO COMPANIES. We will seek to take equity positions in consumer
oriented pre-IPO emerging growth companies that the Investment Manager believes
have outstanding growth and profit potential. We may also invest in established
publicly-held or privately-held companies that the Investment Manager believes
constitute special situations offering opportunities for capital appreciation.
The Investment Company Act limits the proportion of our assets represented by
publicly-traded securities.
INDUSTRY FOCUS. As a key element of our investment strategy, we intend to
concentrate our investments in consumer-oriented companies. Such companies often
raise capital for the purpose of funding their marketing and other operational
costs. We believe that such companies will view the Fund as an attractive source
of capital, because the community of investors in the Fund can serve as a pool
of potential customers for such consumer-oriented companies. For instance,
assuming that the offering is fully subscribed and the average investor
subscribes for $100 worth of shares, the Fund will have a community of 1,000,000
investors.
<PAGE>
Not only will these investors have an economic incentive to help our portfolio
companies succeed, but also the Fund and the Investment Manager may enter into
arrangements with our portfolio companies to further encourage such investors to
become customers. We cannot assure you, however, that the offering will be fully
subscribed, that start-up companies will view the Fund as an attractive source
of capital, or that investors will have any impact on the ultimate success of
any portfolio company.
In particular, we expect many of our venture capital investments will be
in consumer-oriented companies in the Internet, e-commerce, telecommunications,
software and information services industries. We believe that these sectors
offer outstanding growth opportunities and many new markets in which emerging
companies can thrive. Companies in these industries compete to meet the growing
demand for technologically advanced applications and services, and may value the
Fund's investors as potential customers.
STRUCTURE OF INVESTMENTS. We will seek to structure our typical venture
capital investments as negotiated, private transactions directly with the
issuer, or as a part of larger private transactions led by co-investors. We will
primarily seek to acquire common stock and securities convertible into common
stock, but may also acquire a combination of equity and debt securities and
warrants, options, and other rights to acquire such securities, or limited
partnership or joint venture interests. Finally, we may also make loans to our
portfolio companies to address temporary cash flow problems and may provide
guarantees to creditors of such companies. We will seek to make most of our
venture capital investments in private companies or restricted securities of
publicly-traded companies, and therefore we will tend to hold illiquid
securities subject to resale restrictions.
SIZE OF INVESTMENTS. The amount of funds we commit to a portfolio company
and the ownership percentage we receive will vary depending on the maturity of
the company, the quality and completeness of its management team, the perceived
business opportunity, the capital it requires, and the potential return. To
ensure that we have the freedom to select investments in companies that meet our
investment objectives, we have no formal limits on the amount of capital that we
may invest in any individual portfolio company. However, assuming the offering
is fully subscribed, we do not anticipate committing more than 5% of the Fund's
assets, based on the cost of its investments, to any single portfolio company.
INVESTMENT PERIOD. We intend to invest the proceeds of the offering
(including money invested by the Investment Manager as part of the offering) as
rapidly as is consistent with our investment objectives. If we are not able to
invest at least 50% of the Fund's total assets in certain securities by the
earlier of:
o two years after termination or completion of sales and
o two-and-one-half years after the commencement of this offering,
we may make a distribution of capital to you so that least 50% of the Fund's
remaining assets are invested or committed for investment, or we may seek to
obtain your approval for a change in our business purpose, if required to do so
by the SEC. We expect that it may take up to three years or longer from the
termination of the offering for us to complete the investment of the
<PAGE>
Fund's initial capital (other than reserves maintained for follow-up investments
or operating expenses).
FOLLOW-ON INVESTMENTS. After making our initial investments, we will often
provide additional or "follow-on" financings for our portfolio companies. We may
provide follow-on investments for a number of reasons, including providing
additional capital to a portfolio company to implement the company's business
plan, to develop a new line of business, or to recover from unexpected business
problems. Follow-on investments may increase our ownership position in a
successful or promising portfolio company.
INDEBTEDNESS. Although we do not currently contemplate it, in the future
we may use leverage (i.e., borrowed funds or senior securities) for any Fund
purpose, including making follow-on investments. Such borrowing would normally
occur in the later years of Fund operations when our portfolio may have
significant value but no liquidity. We may also borrow funds during the offering
period to allow us to participate in investment opportunities in anticipation of
additional capital contributions. Otherwise, we will only incur debt as a
temporary measure for extraordinary or emergency purposes. Unless otherwise
permitted by the Investment Company Act, the amount of borrowing may not exceed
50% of net asset value to the Fund.
RESERVE MANAGEMENT. We intend to retain significant reserves for a number
of years in order to have sufficient funds for equity-oriented follow-on
investments in portfolio companies and to pay Fund operating expenses. In order
to enhance the rate of return on these reserves and increase the amounts
ultimately available, we will engage in a reserve management strategy that may
include making secured loans to our portfolio companies, potential portfolio
companies, or other entities. We expect to invest some portion of these reserves
either in publicly-traded securities or in mutual funds, subject to applicable
legal limits.
PORTFOLIO MANAGEMENT. We regard a balanced portfolio as an essential part
of our strategy of risk management and capital preservation. The Investment
Manager expects to balance the Fund's portfolio in the following ways:
o INDUSTRY. While we anticipate concentrating our investments in
certain industries, the Investment Manager will consider an
investment in any company in any industry that presents a good
investment opportunity. Our ability to invest in a wide range of
industries will reduce the potential impact of adverse developments
in a particular industry.
o COMPANY. Assuming the offering is fully subscribed, the Investment
Manager expects that we will invest in at least 75 portfolio
companies. In that case, the Investment Manager does not expect that
the failure of any single portfolio company will materially affect
the success of the Fund. However, the actual number of portfolio
companies, and the size of such investments, will depend on the
amount of funds available.
<PAGE>
o MATURITY OF PORTFOLIO COMPANIES. We will seek a range of maturities
for our portfolio companies. More mature companies often represent
less risk, as they have already survived many of the hazards of
growth. However, such companies' equity typically costs more than
that of earlier-stage companies that have greater risk but higher
appreciation potential.
Actual portfolio composition will depend on market conditions and funding
opportunities beyond the Investment Manager's control. Consequently, we cannot
assure that these portfolio management objectives will be met.
CO-INVESTMENT. We expect that we will make most of our investments in
conjunction with other venture capital funds, including venture capital funds
that are affiliates of, or entities that have significant ownership interests
in, the Investment Manager. Later-stage start-up companies often require levels
of funding in excess of what the Fund could prudently provide on its own. In
early-stage investments, co-investment allows for a larger aggregate investment,
the sharing of necessary follow-on investment requirements, and joint
involvement by venture capital firms in building a company. The Fund, along with
its co-investors, will typically have a substantial, and maybe even controlling,
interest in its portfolio companies. By making co-investments, the Fund not only
expands the financial and managerial resources available to its portfolio
companies, but also increases its network of venture investors that may come to
the Fund with future investment opportunities. We intend to request exemptive
relief from the SEC to allow co-investments with our affiliates.
PORTFOLIO TURNOVER; CHANGE OF POLICY. We expect a low rate of portfolio
turnover among our venture capital investments. However, the short-term nature
of the money market securities, publicly-traded securities, mutual funds and
other temporary securities in which we will invest will result in higher
portfolio turnover in that segment of the portfolio. We will not purchase any
securities on margin (except for use of short-term credit necessary for the
clearance of transactions), make short sales of securities (unless assets are
sufficiently segregated or the Fund otherwise owns the securities), or purchase
or sell commodities or commodity contracts (other than financial futures
contracts), except as permitted by the Investment Company Act or any order
issued by the SEC thereunder. Our election to be treated as a business
development company will limit our choice of investments. We may only elect to
withdraw our status as a business development company with the authorization of
a majority in interest of the Fund's investors.
VENTURE CAPITAL OPERATIONS
Our venture capital operations will consist of the following basic
activities:
o INVESTMENT DEVELOPMENT. The Investment Manager will receive
investment proposals from many sources, including unsolicited
proposals from the public, postings on the Fund's or its affiliates'
websites, personal contacts of the Investment Manager, and referrals
from banks, lawyers, accountants, and other members of the financial
community. However, we expect other professional venture capital
firms, including those
<PAGE>
that have ownership interests in the Investment Manager, to serve as
the primary source of proposals.
o INVESTMENT RESEARCH. Prior to committing funds to an investment
opportunity, the Investment Manager will conduct research to assess
the prospects and risks of the potential investment. The officers of
the Investment Manager, with the help of its co-investors, will
evaluate the products, markets, industry trends, financial
requirements, competition, and the entrepreneurial group associated
with a prospective investment. Where appropriate, the Investment
Manager may hire, on behalf of the Fund, outside consultants to
provide expertise in specialized areas.
o INVESTMENT STRUCTURING. We expect to make our venture capital
investments along with co-investors through private transactions
negotiated directly with the subject company. The Investment Manager
will represent the Fund in the negotiations, and will seek to
structure the terms of the investment so as to maximize the Fund's
opportunity for long-term capital appreciation. Where appropriate
and in compliance with applicable law, the Fund, the Investment
Manager, or any co-investors may receive structuring fees,
transaction fees, breakup fees, workout fees, or other similar fees
for providing services to potential portfolio companies.
o INVESTMENT MANAGEMENT. Representatives of the Investment Manager
and/or representatives of the Fund's co-investors will seek to serve
as members of the boards of directors of portfolio companies. This
board representation, as well as our close working relationships
with the management teams of our portfolio companies, should enable
us to provide assistance with respect to such matters as capital
structure, budgets, profit goals, diversification strategy,
financing requirements, management additions or replacements, and
disposition strategy. The close tracking of internal financial
statements and progress reports, as well as an active working
relationship with management teams, form the essential ingredients
of effective monitoring and risk control. We will not completely
rely on our co-investors to provide managerial assistance to our
portfolio companies. We do not expect to receive significant fees or
compensation directly or indirectly from our portfolio companies.
o INVESTMENT LIQUIDATION AND EXIT. We intend to sell our venture
capital investments in order to realize capital gains within the
limited duration of the Fund. We expect to liquidate our investments
through a variety of transactions, including mergers, acquisitions
of our portfolio companies by third parties, sales in registered
underwritten offerings, sales in the public market pursuant to
exemptions from registration, and negotiated private sales to our
portfolio companies, other investors in such companies, or other
venture capital investors.
The Operating Agreement provides that we may make distributions, at the
election of the Investment Manager, in cash or securities. We may seek an
exemptive order under Section 206A of the Investment Advisers Act that will
permit us to distribute any in-kind portfolio securities traded on any
nationally recognized exchange or market that are no longer considered venture
capital investments. We will value such in-kind securities distributed at the
average of their
<PAGE>
closing bid and asked prices on the relevant exchange or market during the five
trading days immediately preceding the distribution. You may sell any in-kind
securities distributed subject to the extent of liquidity available on such
exchange or market.
The Investment Manager anticipates that the Fund may enter into
arrangements to facilitate the eventual sale of securities distributed in-kind
at reduced transaction costs. However, you may prefer to receive cash
distributions that represent the proceeds of a sale of a block of securities by
the Fund. If you receive distributions in-kind, you may be able to affect both
the amount and timing of the recognition of any gain or loss on the security for
income tax purposes. For each distribution that we could make partly or wholly
in-kind, the Investment Manager will weigh our ability to liquidate stock
efficiently against your opportunity to control the timing and amount of any
gain or loss on the securities. For distributions made partly in cash and partly
in-kind, we will allocate net profit and net losses in an amount and manner
sufficient to equalize capital accounts per share pursuant to the Operating
Agreement.
RISK FACTORS
You should carefully consider the following risk factors in addition to
the other information set forth in this prospectus before purchasing any shares.
Investing in the Fund involves a high degree of risk, and you should consult
with your financial, tax or legal advisors before making an investment. We have
classified the various risks factors below into "venture capital risks" (i.e.,
risks inherent in equity investments in emerging growth companies), "risks of
the Fund" (i.e., risks that arise from the proposed structure of the Fund and
the nature of its investments) and "credit card risks".
VENTURE CAPITAL RISKS
VENTURE CAPITAL INVESTMENTS ARE SPECULATIVE IN NATURE AND YOU COULD LOSE
ALL OR SOME OF THE AMOUNT YOU INVEST.
Each venture capital investment involves several business and financial
risks that may result in substantial losses. These include risks associated with
investing in:
o companies in an early-stage of development with little or no
operating history,
o companies operating at a loss or with substantial variations in
operating results from period to period, and
o companies that need substantial additional capital to support
expansion or to achieve or maintain a competitive position.
In addition, we expect to make significant equity investments in companies in
rapidly changing high-technology fields that face special risks of product
obsolescence and intense competition from other companies.
EARLY STAGE COMPANIES MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP THEIR
PRODUCTS OR SERVICES
<PAGE>
Early-stage companies are often unable to commercialize their technology
or product concepts with the resources that they have available. Even
later-stage companies that have developed products need to continue to create
new products and improve existing ones in order to succeed. Our portfolio
companies may not succeed in their development efforts, and, even if successful,
may not complete their development within the budget or time period originally
estimated. Such companies may require additional investments by the Fund or
other sources in order to complete such development, and there is no assurance
that such investments will be available.
VENTURE CAPITAL INVESTMENTS TEND TO BE IN COMPANIES THAT ARE IN
COMPETITIVE AND CHANGING MARKETS
The markets for new products and services tend to be highly competitive
and rapidly changing. Nearly all of our portfolio companies will face intense
competition, including competition from companies with greater financial
resources, more extensive development, manufacturing, marketing, and service
capabilities, and a larger number of qualified managerial and technical
personnel. Commercial success often depends on marketing and support resources.
The marketing efforts of any of our portfolio companies may not succeed and such
companies may not be able to sell their products or services at a profitable
price and volume. The products or services of a particular portfolio company may
become obsolete or require significantly more capital to obtain or maintain an
adequate market share in order to succeed.
THE SUCCESS OF OUR PORTFOLIO COMPANIES WILL DEPEND ON THE TALENTS AND
EFFORTS OF THEIR MANAGEMENT AND PERSONNEL
The success of our portfolio companies depends in great part upon the
abilities of their management, as the day-to-day operations of each such company
will be in the hands of its own management team. The success of any venture also
depends upon the availability of qualified employees. High turnover of personnel
has become endemic in many rapidly growing industries and could severely disrupt
a company's implementation of its business plan. Our portfolio companies may not
succeed in attracting and retaining qualified personnel. In addition, a
company's personnel, particularly its founders, may have difficulty accepting
and making the transitions that occur as a company matures. As our portfolio
companies have yet to be identified, you must rely upon the Investment Manager
to select companies that have, or can obtain, the necessary management and
personnel.
OUR PORTFOLIO COMPANIES WILL LIKELY REQUIRE ADDITIONAL CAPITAL AND EXPECT
FOLLOW-ON INVESTMENTS FROM THE FUND
Most of our portfolio companies will require additional equity financing
to satisfy their working capital requirements. The amount of additional equity
financing will depend upon the maturity and objectives of each particular
company. If the funds available are not sufficient, a company may have to raise
additional capital at a price unfavorable to its existing investors, including
the Fund. The availability of capital depends on capital market conditions that
are beyond the control of the Investment Manager or any portfolio company, and
our portfolio
<PAGE>
companies may not be able to predict accurately their future capital
requirements. We expect our portfolio companies to call upon the Fund to provide
additional capital. If the Fund is unwilling or unable to make a follow-on
equity investment, it may have a negative impact on a portfolio company in need
of such investment.
VENTURE CAPITAL INVESTMENTS TYPICALLY ARE ILLIQUID
Substantial portions of the returns of venture capital funds are realized
through the initial public offerings of their portfolio companies. The market
for initial public offerings is cyclical in nature. An adverse change in the
market for public offerings could significantly impact the Fund's ability to
realize its investment objective. Even if our portfolio companies become
publicly-traded, most of the securities we hold will be subject to restrictions
on resale. We will not be able to sell such securities unless we meet the
conditions of Rule 144 or otherwise qualify for an exemption from registering
the securities under the Securities Act of 1933. Absent an available exemption,
we may be deemed an "underwriter," or possibly a controlling person, for the
purpose of the Securities Act of 1933 and may be subject to liability as such.
Our ability to achieve attractive investment returns will also depend upon
the availability of strategic or financial buyers for our portfolio companies.
The interest of potential purchasers in our portfolio companies will vary with
general economic conditions. The valuation of our portfolio companies will vary
with the valuations of comparable publicly-traded companies.
Other practical limitations may inhibit our ability to sell or distribute
the securities of our portfolio companies. For example, we may own a relatively
large percentage of a portfolio company's outstanding securities, and customers,
other investors, financial institutions, or management may rely on our continued
investment. The overall condition of the securities market may also hinder our
ability to sell securities, as the market price for our portfolio companies may
be adversely affected by factors unrelated to their actual operating
performance. In the past few years, the market for equity securities has been
volatile, especially for securities of high-technology companies. The above
limitations could prevent a successful sale of portfolio securities, result in
delay of a sale, or reduce the proceeds that we receive from a sale.
THERE IS OFTEN A LACK OF AVAILABLE INFORMATION RELATING TO PRIVATELY HELD
COMPANIES
We will invest primarily in privately held companies. Generally, very
little public information exists about these companies. We will rely on the
ability of the Investment Manager to obtain adequate information to evaluate the
potential returns from investing in these companies.
RISKS OF THE FUND
WE EXPECT TO INCUR SUBSTANTIAL INITIAL LOSSES
<PAGE>
We anticipate that most of the capitalization of the Fund, except for
operating cash reserves and funds set aside for follow-on investments in our own
portfolio companies, will be expended or committed by the end of the year 2002.
We do not expect to receive any substantial gains during that period. In
addition, the Investment Manager anticipates that a number of our portfolio
companies will sustain substantial losses in their initial years of operation.
There can be no assurance that the Fund will ever be profitable.
AN INVESTMENT IN THE FUND CANNOT BE READILY SOLD
We do not expect any public or secondary market for the shares of the Fund
to develop. Federal and state laws impose restrictions on the resale of the
shares of the Fund. In addition, the Operating Agreement places restrictions on
the transferability and sale of shares, including the requirement that the
admission of a "substituted investor" may occur only with the consent of the
Directors. Consequently, an investment in the Fund will have little, if any,
collateral value or liquidity and should be made only as a long-term investment.
Being a closed-end Fund, we will not be able to redeem your shares, as is
typical practice for mutual funds. Even if the Fund initiates a repurchase offer
for shares, it will only be for a small portion of each investor's shares. In
case a repurchase offer is over-subscribed, your participation in such
repurchase offer will be further limited.
WE HAVE NOT YET MADE ANY INVESTMENTS
As of the date of this prospectus, we have not made any venture capital
investments. If you invest in the Fund before it makes any investments, you will
not have an opportunity to evaluate specific portfolio companies and will have
to depend upon the Investment Manager to select and negotiate with potential
portfolio companies. To the extent we make material financing commitments to
portfolio companies during the period of the offering, such investments will be
disclosed on our website and in our annual or quarterly report as required by
the Securities Exchange Act of 1934.
OUR ABILITY TO MAKE VENTURE CAPITAL INVESTMENTS WILL DEPEND ON OUR ABILITY
TO RAISE FUNDS IN THIS OFFERING
We will begin investment operations immediately. The number of
investments, portfolio balance, and potential profitability of the Fund will
depend on the amount of funds at our disposal. The less funding we receive, the
fewer investments the Fund will make and its investment return might be
adversely affected by a single investment decision. In addition, expenses that
we express as a percentage of Fund assets will be higher the less money we
raise.
WE EXPECT TO FACE SIGNIFICANT COMPETITION FOR VENTURE CAPITAL INVESTMENTS
The Fund expects to encounter competition from other entities having
similar investment objectives. Historically, the primary competition for venture
capital investments has been from venture capital funds and corporations,
venture capital affiliates of large industrial and
<PAGE>
financial companies, small business investment companies, and wealthy
individuals. Additional competition is anticipated from foreign investors and
from large industrial and financial companies investing directly rather than
through venture capital affiliates. Many of the Fund's competitors are subject
to regulatory requirements substantially different from those to which the Fund
is subject, and, as a consequence, they may have a competitive advantage to the
extent that the regulations under which the Fund operates restrict its abilities
to take certain actions. The Fund will frequently be a co-investor with other
professional venture capital groups, and will rely on its relationships with
other groups to expand the Fund's access to investment opportunities.
OUR SUCCESS MAY DEPEND GREATLY ON THE FUTURE OF THE INTERNET INDUSTRY
To the extent that we invest in a significant number of Internet-related
companies, the success of the Fund will depend on the increase in use of the
Internet by businesses and individuals. Commercial use of the Internet is still
at an early stage of development and we cannot guarantee the future success of
Internet-related companies. If use of the Internet fails to grow sufficiently,
our returns will be negatively impacted. In addition, because of the Internet's
popularity and increasing use, new laws and regulations may be adopted that
relate to privacy, pricing, content, taxation or other issues. The enactment of
new laws or regulations could impede the growth of the Internet and affect our
returns.
THE FUND'S DISTRIBUTIONS MAY NOT EXCEED YOUR INVESTMENTS IN THE FUND
We anticipate that it will take a significant period of time (up to three
or four years) before we complete the initial selection of our portfolio
companies for our first round of equity investments. Venture capital investments
typically take at least two years from the date of initial investment to reach a
state of maturity for a possible liquidation. In light of the foregoing, we
don't expect to make any significant distributions of the proceeds from the
liquidation of equity investments during the early years of the Fund.
Even if we eventually make significant distributions, the aggregate
distributions may never equal or exceed your investment in the Fund. The
Investment Manager has absolute discretion in determining whether the cash
proceeds from the liquidation of our portfolio companies will be distributed to
you, and if so, when such distributions will occur. Your income tax liability
will depend on the profits of the Fund, regardless of whether or when we make
distributions.
VALUING OUR PORTFOLIO WILL BE DIFFICULT AND INEXACT AND MAY NOT REFLECT
THE TRUE VALUE OF OUR INVESTMENTS
The Investment Manager, under guidelines established by the Directors,
will determine the net asset value of the Fund based on its best estimate of the
value of the individual investments in our portfolio companies. There is
typically no public market for the securities of small, privately held
companies. Accounting firms, investment banks and other consulting firms
<PAGE>
may assist in valuation of our investments. Portfolio valuations, however, are
inherently subjective. The net asset value of the Fund may not reflect the price
at which you could sell shares if they could be sold on an open market.
THE FUND MAY NOT ACHIEVE THE HISTORICAL RATE OF RETURN OF THE VENTURE
CAPITAL INDUSTRY
Past performance of the venture capital industry is not indicative of the
future performance of the Fund or the industry in general. We cannot guarantee
that the Fund will meet or exceed the rates of return historically realized in
the venture capital industry. Additionally, our structure as a business
development company will almost certainly reduce our overall returns, because
of:
o the lower returns on our short-term liquid investments during the
period in which we identify potential investments, and
o the periodic disclosure requirements for business development
companies, which may result in the Fund being less attractive as a
source of capital to potential portfolio companies.
DEBT INCURRED BY THE FUND COULD AFFECT DISTRIBUTIONS AND EXAGGERATE
DECREASES IN NET ASSET VALUE
We may borrow money and, in connection with loans, may mortgage, assign,
or otherwise encumber any Fund asset. We may use such borrowings for any Fund
purpose, including working capital or follow-on investments in our portfolio
companies. Any borrowings by the Fund must be repaid from Fund assets, which
would reduce the cash available for distribution to investors and could result
in taxable income to investors without cash distributions. In fact, the costs of
borrowing may exceed the income from the portfolio securities purchased with the
borrowed money. The use of such leverage would also exaggerate increases or
decreases in the Fund's net asset value as contrasted to the value of its total
assets. If the Fund's asset coverage ratio declines to less than 200%, it will
affect our ability to distribute Funds to our investors.
BOTH THE FUND AND THE INVESTMENT MANAGER ARE NEWLY FORMED ENTITIES
Although we expect that the key personnel of the Investment Manager will
have prior venture capital investment experience, neither the Fund nor the
Investment Manager has any operating history. The success of the Fund and the
Investment Manager in identifying and pursuing investment opportunities and
managing such investments will, to a large part, depend upon the expertise and
experience of the Investment Manager as well as the relationships that the
Investment Manager has within the venture capital community.
THE RELATIONSHIP BETWEEN THE FUND AND THE INVESTMENT MANAGER MAY CREATE
POTENTIAL CONFLICTS OF INTEREST
<PAGE>
The Investment Manager may be subject to various conflicts of interest in
managing the investments of the Fund. Affiliates of, or entities that have
significant ownership interests in, the Investment Manager may also have
organized venture capital funds or similar investment vehicles. Such funds may
have similar investment objectives as the Fund and may compete with the Fund.
The Fund may co-invest in portfolio companies with such other funds and may
participate in follow-on investments in such portfolio companies of such funds,
subject to a majority vote of the Independent Directors and, if necessary, an
exemptive order from the SEC. (The personnel of the Investment Manager and its
affiliates will not necessarily devote their entire time to the portfolio
companies or the Fund).
In addition, the attorneys and other professionals who perform services
for the Fund (including in connection with this offering) also perform services
for the Investment Manager and its affiliates. If a conflict of interest arises
and cannot be resolved, or if the consent of the respective parties cannot be
obtained to the continuance of such dual representation after full disclosure of
such conflict, such professionals will have to withdraw from the representation
of one or both of the conflicting interests.
INDIVIDUAL INVESTORS HAVE NO RIGHT TO TAKE PART IN MANAGING THE FUND
The Directors will make all decisions with respect to the management of
the Fund. While the Fund's website may contain chat rooms, hyperlinks and other
information relating to its portfolio companies, individual investors will have
no right or power to take part in the management of the Fund. In addition, you
will not receive any of the detailed financial information issued by our
portfolio companies that is available to the Directors.
Although the Operating Agreement provides that the Fund's investors may
remove the Investment Manager under certain circumstances, such removal may
require substantial expenditures and could have negative financial and other
consequences for the Fund. The removal of the Investment Manager and several of
the other rights of Fund investors under the Operating Agreement require an
investor vote to accomplish.
OUR INVOLVEMENT IN PORTFOLIO COMPANIES MAY EXPOSE US TO POTENTIAL
LIABILITIES
We will offer to participate actively in the management of many of our
portfolio companies, and as a result may have representatives serve as members
of their boards of directors. Consequently, the Fund may expose itself to
liability from lawsuits against its representatives as directors. The Investment
Manager will try to limit Fund exposure to such claims and liabilities where
practical, but such efforts may not be successful. Liabilities related to
portfolio companies would adversely affect the amount of cash available for
distribution.
BY INVESTING IN THE FUND YOU MAY BE EXPOSED TO FEDERAL INCOME TAX RISKS
<PAGE>
The Directors have elected to treat the Fund as a partnership for federal
tax purposes. It is not anticipated, and the Directors do not foresee the
possibility, of making an alternative election. The principal tax risks are
that:
o the Fund could be classified as a publicly-traded partnership
taxable as a corporation rather than as a partnership for purposes
of federal income tax law, which would require the Fund to pay
income tax at corporate tax rates on its net income, would prevent
investors from deducting their distributive share of losses, and
would cause any distributions to Fund investors to be taxed as
dividend income to the extent of earnings and profits of the Fund,
o the allocation of Fund items of income, gain, loss, and deduction in
the Operating Agreement may not be respected for federal income tax
purposes,
o all or a portion of the Fund's expenses could be considered either
investment expenses (which would be deductible by an investor only
to the extent the aggregate of such expenses exceeded 2% of such
investor's adjusted gross income) or as nondeductible items that
must be capitalized,
o all or a substantial portion of the Fund income could be deemed to
constitute unrelated business taxable income, such that tax-exempt
investors (such as pension funds, Keogh plans, individual retirement
accounts, and tax-exempt institutions) could be subject to tax on
their respective portions of such income,
o the purchase of shares by a tax-exempt investor through the use of a
credit card may also cause the investment to produce unrelated
business taxable income,
o a portion of the losses, if any, allocated to investors could be
"passive losses" and thus deductible by an investor only to the
extent of passive income, and
o investors could have capital losses in excess of the amount that is
allowable as a deduction in a particular year.
The Fund has elected to be treated as a partnership for federal income tax
purposes and does not believe that it will be treated as a publicly-traded
partnership taxable as a corporation. The Fund has not received an opinion of
counsel nor will it obtain a ruling from the Internal Revenue Service (IRS)
regarding this or any other matter. If the Fund were treated as a publicly
traded partnership or otherwise as a corporation for federal income purposes,
material adverse consequences for the investors could result. The Fund would be
subject to tax on its income at corporate tax rates, without a deduction for any
distribution to the investors, thereby materially reducing the amount of any
cash available for distribution to investors. In addition, capital gains and
losses and other income and deductions of the Fund would not be passed through
to the investors, and the investors would be treated as shareholders for federal
income tax purposes. The tax consequences of investing in the Fund could be
altered at any time by legislative, judicial, or administrative action.
The IRS may audit the Fund's tax returns. Any audit issues will be
determined at the Fund level. If the IRS makes any adjustments, you will have to
make corresponding adjustments to your own federal income tax returns, which may
require payment of additional taxes, interest, and penalties. Audit of a Fund
return may result in examination and audit of an investor's return that
otherwise might not have occurred, and such audit may result in adjustments to
items in your
<PAGE>
return that are unrelated to the Fund. You must bear the expenses associated
with an audit of your own return.
In considering an investment in the Fund by a tax-exempt entity such as an
employee benefit plan or individual retirement account subject to the
requirements of the Employee Retirement Income Security Act of 1974 (ERISA), the
fiduciary acting on behalf of such entity should be satisfied that such an
investment is consistent with Sections 404 and 406 of ERISA and that the
investment is prudent in light of the entity's cash flow and other objectives.
The Department of Labor has issued regulations that would characterize the
assets of certain entities in which tax-exempt entities invest as "plan assets."
Because the Fund is expected to qualify as a "venture capital operating company"
and the shares are "publicly offered securities" within the meaning of the
regulations, the Fund assets should not be considered plan assets. However,
fiduciaries of tax-exempt entities are urged to consult their own advisers prior
to investing in the Fund.
The foregoing summarizes certain significant federal income tax risks
relating to an investment in the Fund. This summary is not a representation that
these matters are the only tax risks involved in this investment or that the
magnitude of such risks is necessarily equal. The "Tax Information" section of
this prospectus contains a more detailed discussion of these and other federal
income tax risks of an investment in the Fund. We urge you to consult your own
tax advisor prior to investing in the Fund.
THE FUND IS SUBJECT TO EXTENSIVE REGULATION UNDER THE INVESTMENT COMPANY
ACT
The Fund has elected to be regulated as a "business development company"
under the Investment Company Act. The Investment Company Act imposes numerous
restrictions on the activities of the Fund, including restrictions on the nature
of its investments, its use of leverage, and its issuance of securities,
options, warrants, or rights. In addition, a majority of the Directors must be
individuals who are not "interested persons" of the Fund as defined in the
Investment Company Act. The Fund generally must invest at least 70% of its
assets in securities of nonpublic companies or shares of public companies which
shares are not eligible for margin loans under the rules of the Federal Reserve
Board. Finally, a business development company must make significant managerial
assistance available to its portfolio companies. Such constraints could prohibit
the Fund from investing in some potentially attractive situations.
Because there are no judicial and few administrative interpretations of
portions of the Investment Company Act legislation applicable to the Fund, the
legislation may not be interpreted or administratively implemented in a manner
consistent with the Fund's objectives and intended manner of operation. In the
event the Directors determine that the Fund cannot operate effectively under the
Investment Company Act, it may at some future date decide to transform the Fund
into an operating company not subject to regulation under the Investment Company
Act or cause the Fund to liquidate. These changes require the approval of the
Fund's investors.
CREDIT CARD PAYMENT METHOD RISK
<PAGE>
We intend to request exemptive relief from the SEC to allow you to
purchase shares in this offering by credit card. Even if the SEC grants such
relief, the Fund and the Broker-Dealer strongly recommend against short-term
borrowing to fund speculative long-term investments such as venture capital. The
Fund and the Broker-Dealer advise you not to maintain a balance on a credit card
used to purchase Fund shares or to obtain new credit cards to purchase such
shares as the cost of borrowing money would reduce your potential return.
You should review the following example: Assume that you bought [ ] shares
for $[ ] on a credit card that charged interest of [18]% per annum. If you take
one year to pay off the balance, you would pay the credit card issuer $[ ] in
finance charges, bringing the total cost of your investment to $[ ]. If,
instead, you bought [ ] shares for $[ ] in the first month, and then (assuming
the per share price remained the same) bought four shares per month for the next
nine months at $[ ] per month, and paid each credit card bill as it came due,
your total investment of $[ ] would purchase [ ] shares instead of [ ] shares.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These statements are
based largely on current expectations and projections about future events and
trends in the technology sector, the venture capital industry and the state of
the financial markets and the economy in general. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
the Fund, including, among other things:
- general economic and business conditions and the general state of
the financial markets;
- expectations and estimates concerning the future growth and
performance of the venture capital sector;
- expectations and estimates concerning the future growth and
performance of information technology companies, particularly
Internet companies;
- existing and future laws and regulations imposed on information
technology companies, including future laws and regulations
governing the Internet;
- the Investment Manager's ability to successfully implement its
investment objectives and strategies;
- the Investment Manager's relationship with other venture capital
firms;
- technological changes in the Internet industry; and
- other risk factors described under "Risk Factors" in this
prospectus.
<PAGE>
In addition, in this prospectus the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect," and similar
expressions, as they relate to the Fund or the Investment Manager and their
respective investment objectives, business or management, are intended to
identify forward-looking statements.
Neither the Fund nor the Investment Manager has undertaken any obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise after the date of this
prospectus. Because of these risks and uncertainties, the forward-looking events
and circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
ALLOCATION OF PROFITS AND LOSSES
We will allocate the net profits and net losses of the Fund to our
investors in accordance with their capital accounts. The terms "net profit",
"net loss" and "capital account" are defined in the Operating Agreement.
The following example illustrates how we will allocate net profits and net
losses. We have chosen the dollar amounts arbitrarily and solely for the
purposes of illustration, and they do not reflect the expected results of our
investments. The example assumes that the Investment Manager has not purchased
any shares for its own account.
EXAMPLE. The Fund incurs a net loss of $100 in year 1. The Fund has no net
profit or net loss in years 2-5. In year 6, the Fund has a net profit of $600.
In year 7, the Fund liquidates and realizes a net loss of $50 on liquidation.
o We would allocate the net loss of $100 incurred in year 1, to our
investors in accordance with their capital accounts.
o We would allocate the $600 of net profit incurred in year 6 to our
investors in accordance with their capital accounts
o During year 6, we would pay an incentive fee of $100 (i.e., 20% of
realized capital gains, net of realized and unrealized losses paid
monthly) to the Investment Manager and allocate the fee pro rata to
our investors in accordance with their capital accounts.
o We would allocate the net loss of $50 incurred upon liquidation to
our investors in accordance with their capital accounts.
Accordingly, in this example, we would have had an overall profit of $450, of
which we allocated $350 among our investors and we paid an incentive fee of $100
to the Investment Manager.
DISTRIBUTIONS
The Investment Manager, in its sole discretion, will determine the amount
and timing of any distribution of cash or portfolio securities. We will retain
short-term investment
<PAGE>
income to offset operating expenses.
The primary source of distributable cash will be proceeds from the
disposition of venture capital investments not reinvested. We do not intend to
make significant distributions in the early years of the Fund, because most
venture capital investments are illiquid until they mature. To the extent we
incur indebtedness, we will not make distributions if our asset coverage ratio
does not exceed 200% at the time of the distribution, unless otherwise permitted
by the Investment Company Act.
We will make distributions in accordance with the capital accounts
of the investors, giving effect to the incentive fee described above. If
we choose to distribute securities in-kind after receiving SEC exemptive
relief, the Investment Manager will deem as realized any gains or losses
on securities distributed.
PORTFOLIO VALUATION
The Investment Manager will determine the net asset value, or NAV, of the
Fund on a weekly basis. The Investment Manager will make its valuation in good
faith under guidelines established by the Directors. During the course of this
offering, we will adjust the share price on a weekly basis.
The Investment Manager will value securities for which market quotations
are readily available and that are freely marketable and transferable at the
average closing price (or at the bid/ask price that is available on a national
securities exchange or over-the-counter market) for the last five trading days.
For publicly-traded equity investments with selling restrictions, a discount
will apply to reflect the illiquidity. The fair market value for equity venture
capital investments for which no market exists cannot be determined precisely.
For companies in the early stages of development, the Investment Manager will
value investments based upon their original cost to the Fund. Subsequently, the
Investment Manager will value these investments based on the valuations given to
such companies in subsequent rounds of third-party financings. Upon the
occurrence of a significant development or other factor affecting a portfolio
company, including results of operations, changes in general market conditions,
subsequent financing or the availability of market quotations, the Investment
Manager will determine whether such events provide a basis for valuing such
investment at a different number. Such valuations may be based on a variety of
assumptions and may vary significantly over time.
The valuation of notes receivable will include accrued interest less any
discount related to warrants and the allowance for loan losses. This portfolio
valuation will approximate fair value through inclusion of an allowance for loan
losses. The Investment Manager will review the allowances quarterly and adjust
them to a level deemed adequate to cover possible losses inherent in notes and
unfunded commitments. In conjunction with possible notes receivable
<PAGE>
granted to a portfolio company of the Fund, the Fund may receive warrants to
purchase certain shares of capital stock of such companies. The Investment
Manager will estimate the cost basis of the warrants and the resulting discount
as 1% of the principal balance of the original notes. The discount will amortize
over the term of the loan and the warrants will be included in the equity
investment portfolio.
In general, the Investment Manager will value securities with legal,
contractual, or practical restrictions on transfer at a discount to their value
determined by the foregoing methods in order to reflect the effect of such
restrictions.
MANAGEMENT OF THE FUND
GENERAL. The Directors will manage the Fund. We will initially have
five Directors, consisting of three Independent Directors (i.e., not
"interested persons" of the Fund or its affiliates as that term is defined
in the Investment Company Act) and two Affiliated Directors. The
resignation or withdrawal of a Director could temporarily reduce the
number of Directors and the Operating Agreement permits the addition of
further Directors. However, we do not expect any such changes. Subject to
the authority and supervision of the Directors, the Investment Manager
will take responsibility for
o analyzing and selecting our portfolio companies,
o negotiating and structuring our venture capital investments,
o overseeing our portfolio companies, and
o managing our day-to-day affairs.
The Investment Manager will continue to serve in such capacity until our
investors have elected a successor.
The day-to-day operations of our portfolio companies will be the
responsibility of the management of each respective portfolio company. We will
offer to provide assistance to such companies when needed, particularly in the
areas of management selection, market analysis, business review, and the
formulation of marketing and financing strategies. Where appropriate,
representatives of the Fund or its co-investors will serve on the boards of
directors or management committees of our portfolio companies.
You will have no right to participate in the control of the Fund. We
anticipate that our website will contain certain content that will allow you to
engage in chat rooms, informal polls and other interactive features with respect
to the Fund and our individual portfolio companies. We have designed such
features for entertainment purposes only, and none of them will allow you the
right to control or manage the operations of the Fund.
<PAGE>
The following sets forth certain information regarding the directors and
officers of the Fund:
DANIEL M. BENDHEIM is the President and a director of the Fund. Mr.
Bendheim is also a co-founder, Chief Executive Officer and a director of
VCVillage.com Holdings, Inc. and is President of the Investment Manager and the
Broker-Dealer. Previously, Mr. Bendheim was an executive at Mineral Resources
Technologies, a manufacturing start-up, from 1997 to 1999. Prior to that, Mr.
Bendheim was a research analyst at Southcoast Capital, an investment bank. Mr.
Bendheim received his B.A. in political science, with highest honors, from
Yeshiva University and his J.D. with honors from Harvard Law School.
[ ]
The Fund intends to name three Independent Directors.
Since we are newly incorporated, we have not paid any compensation to any
of our directors or officers. See "Compensation of the Investment Manager, its
Affiliates and the Independent Directors".
THE FUND DIRECTORS
The Directors will have exclusive management and control of the business
of the Fund, and will have the authority, on behalf of the Fund, to do all
things necessary or appropriate to carry out their duties, except as the
Operating Agreement may expressly limit such powers. Subject to the Investment
Company Act, the Directors have the power and authority to authorize the
Investment Manager to:
o borrow on behalf of the Fund on such terms as it deems appropriate
and to secure such borrowings by granting security interests in any
Fund assets, including securities of portfolio companies,
o invest Fund capital as it deems appropriate,
o sell, trade or exchange any Fund assets (including the Fund's
interests in its portfolio companies), or
o abandon any Fund assets at such times and for such consideration as
it deems appropriate.
There will initially be three Independent Directors. The number of
Independent Directors may be fixed from time to time by the Independent
Directors at that time, provided that such number will not be less than three or
more than nine. If at any time the Independent Directors constitute less than a
majority of the Directors, the remaining Directors will, within 90 days,
designate such additional Independent Directors so that the Independent
Directors constitute a majority of the Directors. Any successor Independent
Director will hold office until his or her successor has been approved and
elected or until his or her removal or withdrawal. In the event that no
Directors remain, the Investment Manager will, within 90 days, call a meeting of
Fund investors for the purpose of approving and electing successor Independent
Directors.
<PAGE>
THE INVESTMENT MANAGER
The Investment Manager is a newly formed Delaware corporation formed
to act as the investment adviser to the Fund. Its address is 325 W. 38th
Street, Suite 1504, New York, NY 10018. The Investment Manager currently
employs [ ] persons, including [ ] senior officers, whose biographical
information is set forth below. The Investment Manager may use consultants
and outside counsel to provide expertise in certain areas. The Fund will
look to the Investment Manager, as well as its co-investors, to provide
assistance to its portfolio companies with respect to such matters as
capital structure, budgets, profit goals, diversification strategy,
financing requirements, management additions or replacements, and
disposition strategy.
The Investment Manager is a wholly owned subsidiary of VCVillage.com
Holdings, Inc., a newly formed Internet-based venture capital company.
Daniel M. Bendheim holds approximately 40% of the common stock, on a fully
diluted basis, of VCVillage.com Holdings, Inc. and is its President and
Chief Executive Officer.
The following is certain information regarding the key personnel of the
Investment Manager:
[TO COME]
COMPENSATION OF THE INVESTMENT MANAGER, ITS AFFILIATES, AND THE INDEPENDENT
DIRECTORS
INVESTMENT MANAGER. The Investment Manager will receive the
following fees and compensation:
o ORGANIZATIONAL EXPENSE REIMBURSEMENT. We will reimburse the
Investment Manager for actual expenses paid or incurred by it or its
affiliates in connection with organizing the Fund, including any
legal and accounting expenses incurred in connection with the
formation of the Fund. Such expenses will be amortized over a period
of two years.
o OPERATIONAL EXPENSE REIMBURSEMENT. We will reimburse the Investment
Manager for all operational costs incurred by it for the benefit of,
or on behalf of, the Fund. We will base the reimbursement upon the
lower of the Investment Manager's cost or the amount the Fund would
be required to pay to independent parties for comparable services in
the same geographic location. The "operational costs" of the Fund
include
<PAGE>
consultants' fees, legal and accounting fees, and the costs of
goods, materials, and services used for the benefit of the Fund and
obtained from entities unaffiliated with the Investment Manager.
o MANAGEMENT FEE. We will pay the Investment Manager an annual
management fee equal to 2.5% of the Fund's average net assets,
payable on a monthly basis. To the extent we have insufficient cash
reserves to pay the entire management fee when due, we may carry
forward the unpaid fee and pay it when we have sufficient cash
reserves. We will pay interest on any such fees we carry forward at
a rate of [ ]%. The Investment Manager may elect to waive the
management fee for any period of time.
INCENTIVE FEE. At the end of each month, 20% of the Fund's realized
capital gains, net of realized and unrealized cumulative losses,
will be paid to the Investment Manager as an incentive fee. The
amount of the fee will be charged to the capital accounts of the
investors. The Investment Manager may waive or defer all or any
portion of the incentive fee.
To the extent the Investment Manager otherwise receives compensation for
services it provides on behalf of the Fund, any cash compensation it receives
shall offset the above management fee and any stock, options or warrants shall
automatically be contributed to the Fund. In addition, we will not reimburse the
Investment Manager for expenses of a general and administrative nature incurred
by the Investment Manager solely for its own account and not attributable to
services provided to, or for the benefit of, the Fund. The audited financial
statements of the Fund will include all costs reimbursed to the Investment
Manager and its affiliates. The terms "organizational expenses" and "operational
costs" are defined in detail in the Operating Agreement contained in Exhibit A.
The following chart summarizes the compensation of the Investment Manager:
Reimbursement of Organizational Expenses Actual expenses as incurred
Reimbursement of Operational Costs Actual expenses as incurred
Management Fees 2.5% of average net assets
Incentive Fee 20% of monthly realized net capital
gains, net of any realized and
unrealized losses
INDEPENDENT DIRECTORS. Each Independent Director will receive the
following fees and compensation from the Fund:
o An annual fee of $10,000 per year, payable in quarterly
installments,
o A meeting fee of $1,000 per meeting of the Independent Directors
attended, up to an annual limit of $4,000,
<PAGE>
o A committee meeting fee of $1,000 per meeting of a committee of the
Independent Directors attended (unless the committee meeting is held
on the same day and place as an Independent Directors meeting), up
to an annual limit of $4,000, and
o An expense reimbursement for out-of-pocket expenditures incurred
relating to meetings of the Directors or any separate committee
meeting.
The Operating Agreement allows the Independent Directors to increase
their compensation only with the approval of a majority in interest
of the investors.
CODE OF ETHICS. The Fund has adopted a code of ethics that governs the
personal trading activities of its officers, directors and certain other persons
who have access to proprietary information regarding the Fund's trading
activity. The Investment Manager and Broker-Dealer have adopted substantially
similar codes. The code of ethics places certain restrictions on the personal
trading of all such persons. Each of these codes of ethics may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Information
regarding the SEC's Public Reference Room may be obtained by calling (202)
942-8090. The codes of ethics are also available on the SEC's Internet site at
http://www.sec.gov and copies of these codes of ethics may be obtained for the
price of duplicating fees by electronic request at the following e-mail address:
[email protected] or by writing the SEC's Public Reference Room, Washington,
D.C. 20549-0102.
OTHER EXPENSES OF THE FUND. The Fund may have to pay a "finder's fee" in
connection with making its investments in its portfolio companies, and may incur
brokerage fees or other costs to enable it to sell its investments in such
portfolio companies. The Fund expects such expenses, if any, to be in line with
the market for finder's and brokerage fees. Some of these fees may be payable to
affiliates of the Fund and the Investment Manager.
CUSTODIAN. The Fund has entered into a Custody Agreement with [ ] to
serve as custodian for the Fund. [ ]'s principal business address is
[ ].
CONFLICTS OF INTEREST
The relationship between the Fund and its affiliates may lead to some
potential conflicts of interest. Because the Investment Manager will manage the
operations of the Fund (subject to the supervision of the Directors) and
determine the NAV of the Fund (subject to the guidelines set by the Directors),
the Fund will depend on the Investment Manager's exercise of its judgment
consistent with its fiduciary responsibilities to the investors in the Fund. The
potential conflicts include the following:
RELATIONSHIP WITH THE INVESTMENT MANAGER.
o COMPENSATION. The Fund will compensate the Investment Manager with a
<PAGE>
management fee, an incentive fee and the reimbursement of
operational costs. The Directors believe that such compensation, as
well as the other terms and conditions of the Investment Manager's
relationship with the Fund, are reasonable and fair to the Fund.
o TRANSACTIONS WITH THE FUND. The Investment Manager intends to use
the Fund's assets to co-invest with its affiliates in certain
venture capital investments. However, the Operating Agreement
imposes various constraints on the Investment Manager in its
dealings with the Fund. Moreover, the Investment Manager will be
subject to a fiduciary duty to the Fund in evaluating the
capabilities, services, and compensation of persons rendering
service to the Fund. Finally, the Investment Company Act contains
restrictions as to certain transactions between the Fund and its
affiliates. In general, transactions involving the Fund and its
affiliates require the prior approval of the SEC and/or the
Independent Directors.
o ACTIVITIES OF THE INVESTMENT MANAGER. We will not have independent
management or employees and therefore we will rely upon the
Directors and Investment Manager for management and administration
of the Fund and its assets. While the Investment Manager does not
currently engage in any other activities, the Operating Agreement
provides that the Investment Manager only needs to devote such
amount of time as it deems necessary to the Fund. Thus, we have no
contractual right to such services prior to any other party.
o TIMING OF DISPOSITION OF FUND INVESTMENTS. The Investment Manager
will determine the timing of the liquidation of the Fund's portfolio
securities. Because of its incentive fee based on the performance of
the Fund, the Investment Manager has an interest in the net capital
gains of the Fund. The Investment Manager's interests may in some
cases conflict with the interests of the Fund's investors with
respect to when to recognize gain or loss. In addition, because its
compensation is linked to the NAV of the Fund, the Investment
Manager has an incentive to reinvest proceeds from portfolio
companies rather than distribute them. However, the acts of the
Investment Manager are subject to supervision by the Directors, and
the Directors are subject to a fiduciary duty to the Fund.
o LEGAL AND ACCOUNTING REPRESENTATION. We have generally used the same
counsel and accountants as the Investment Manager and its
affiliates, and expect to continue to do so in the future. If a
conflict arises that the parties cannot resolve and such
professionals cannot obtain the consent of the respective parties to
the continuance of such dual representation, such professionals will
withdraw from
<PAGE>
the representation of one or both of the parties with conflicting
interests with respect to the matter involved. Our counsel and
accountants have not acted on behalf of you or conducted a review or
investigation on your behalf. You should consult with your own
counsel and investment advisors with respect to an investment in the
Fund.
o STATUS AS TAX MATTERS PARTNER. The Operating Agreement designates
the Investment Manager as the Fund's "Tax Matters Partner". As a
result, the Operating Agreement authorizes and directs the
Investment Manager to represent the Fund and its investors in
connection with all examinations of the Fund's affairs by tax
authorities (including resulting administrative or judicial
proceedings) and to expend Fund assets in doing so.
RELATIONSHIP WITH THE BROKER-DEALER. The Broker-Dealer, an affiliate of
the Investment Manager, will manage the distribution of the Fund's shares on a
"best efforts" basis. The Broker-Dealer will not receive any commission for such
distribution, but we have agreed to reimburse the Broker-Dealer and its
affiliates for their marketing and distribution costs, which we expect to be
substantial. See "Compensation of the Investment Manager, Its Affiliates and the
Independent Directors."
RELATIONSHIP WITH OTHER VENTURE CAPITAL FIRMS. Affiliates of, or entities
that have significant ownership interests in the Investment Manager, may be
organized venture capital funds or similar investment vehicles. Such entities
may have similar investment objectives as the Fund and may compete with the
Fund. We may co-invest in portfolio companies with such other funds and may
participate in follow-on investments in such portfolio companies of such funds,
subject to a majority vote of the Independent Directors and, if necessary, an
exemptive order from the SEC. While we expect such entities to serve as a source
of venture capital investments for the Fund, such entities might not include the
Fund as a co-investor in their more attractive investments, if at all. In any
case, we anticipate that any co-investments with our related entities will be
made on substantially the same terms and conditions. We intend to apply for
exemptive relief from the SEC to allow the Fund to co-invest with its
affiliates.
DESCRIPTION OF LIMITED LIABILITY COMPANY INTERESTS
The shares offered in this offering are limited liability company
interests in the Fund, and they are currently the only outstanding securities of
the Fund. The shares will be priced weekly based on the net asset value of the
Fund, as determined in accordance with the procedures set forth above under
"Portfolio Valuation". We will allocate the profits and losses of the Funds to
the holders of such shares as set forth above under "Allocation of Profits and
Losses". We will make distributions to holders of such shares as set forth above
under "Distributions". Certain other properties of the shares offered in this
offering are set forth below.
<PAGE>
VOTING RIGHTS. The holders of the shares offered hereby cannot participate
in the management or control of the Fund. However, the Operating Agreement
provides that, subject to certain conditions described below, such holders may
vote on or approve certain Fund matters. Each limited liability company interest
entitles its holder to one vote. Upon notification to the Investment Manager,
holders of such shares, at their own expense, may obtain a list of the names and
addresses (if known) of all the holders of Fund shares for a purpose reasonably
related to such holder's interest as a holder of limited liability company
interests of the Fund.
Subject to the provisions described below, the holders of Fund shares may:
o approve and elect or disapprove and remove Directors and the
Investment Manager,
o approve or disapprove proposed changes in the nature of the Fund's
business so as to cause the Fund to cease to be, or to withdraw its
election as, a business development company under the Investment
Company Act,
o approve or disapprove any proposed investment advisory contract or
management agreement or disapprove and terminate any such existing
contracts; provided, however, that a majority of the Directors also
approve such contracts,
o approve and ratify or disapprove and reject the appointment of the
independent accountants of the Fund; provided, however, that a
majority of the Directors also approve or reject such appointment,
o approve or disapprove the appointment of any successor Investment
Manager, and
o approve any other material matters related to the business of the
Fund that the Investment Company Act requires to be approved by its
investors so long as the Fund is a business development company
subject to the provisions of the Investment Company Act, provided,
however, that, prior to the exercise of any such right of approval,
the Directors amend the Operating Agreement to reflect such
additional voting right.
Notwithstanding any other provisions of the Operating Agreement,
unless the Fund obtains an opinion of counsel for the Fund (or counsel
designated by investors owning an aggregate of at least 50% of the Fund's
shares) to the effect that neither the possession of such right nor the
exercise thereof will:
o violate the provisions of the Investment Company Act or the laws of
the other jurisdictions in which the Fund is then formed or
qualified,
o adversely affect the limited liability of the Fund's investors
(including the Investment Manager), or
o adversely affect the treatment of the Fund as a partnership for
federal income tax purposes,
the Directors and the Investment Manager and/or the holders of Fund shares, as
the case may be, may not take the proposed action or exercise such voting right,
other than those voting rights mandated by the Investment Company Act.
<PAGE>
TRANSFERABILITY OF SHARES. Shares are generally not transferable, and may
only be transferred to a "substituted investor" with the written consent of the
Investment Manager. The term "substituted investor" is defined in the Operating
Agreement.
CAPITAL CONTRIBUTIONS. You are not entitled to receive interest on any
capital contribution you make to the Fund or on the money in your capital
account. In addition, except as otherwise provided in the Operating Agreement
and subject to our ability to launch a repurchase offer for our shares, you have
no right to withdraw, or to receive any return of, your capital contributions.
Unless we make a distribution of securities to all Fund investors, without the
consent of all Fund investors no individual investor has the right to receive
property other than cash in return for a capital contribution. You will not be
required to make any additional capital contributions to the Fund after making
your initial investment.
SHARE REPURCHASES. We may, from time to time after the termination of this
offering, offer to repurchase some of the shares of the Fund. The Directors, in
the exercise of their fiduciary duty, will consider several factors in
determining when and if to make such repurchases, including the amount of cash
in the Fund and the success of prior repurchases. Shares will be repurchased at
their net asset value as of the commencement of the share repurchase. However,
we may apply an "early withdrawal charge" or a "repurchase fee" (not to exceed
2%) in connection with any share repurchase. No repurchase offer will be made if
it could result in the classification of the Fund as a publicly-traded
partnership for federal tax purposes.
Prior to launching a repurchase offer, we will provide notice to all
holders of Fund interests of the proposed offer. The notice will contain
information that shareholders should consider in deciding whether or not to
participate in the repurchase offer (including the existence and amount of any
fee that may be charged) and detailed instructions on how to tender shares. To
the extent we engage in share repurchases, our expense ratios are likely to rise
and we may not be able to achieve our objectives as the diminution in the size
of the Fund may decrease our investment opportunities.
LIMITED LIABILITY OF FUND INVESTORS. A Fund investor's liability under the
Delaware Limited Liability Act will be limited, subject to certain possible
exceptions, to the amount of capital such investor is obligated to contribute to
the Fund plus such investor's share of any assets and undistributed profits of
the Fund.
DISSOLUTION AND LIQUIDATION. The Fund will be dissolved on the first
to occur of:
o December 31, 2008 (or such later date to which the Directors extend
the Fund up to a limit of two additional two-year terms),
o the incapacity of all Directors and the Investment Manager,
o the vote of a majority in interest of the Fund's investors,
o the withdrawal, retirement, or removal of the Investment Manager,
<PAGE>
o the sale at any one time of all or substantially all the assets of
the Fund, or
o the date on which the Fund is dissolved by operation of law or
judicial decree,
provided that, upon the occurrence of an event described in the fourth bullet
above, the Fund will not dissolve if within 90 days after such event, all
Directors agree in writing to continue the business of the Fund and appoint,
effective as of such date, a successor Investment Manager.
Upon dissolution of the Fund, the affairs of the Fund will be wound up and
its assets distributed as provided in the Operating Agreement. The Operating
Agreement provides, in general, that in the event of dissolution and
liquidation, the assets of the Fund will be sold, and the Fund investors will
receive the net proceeds in proportion to the balances in their capital
accounts. Distributions may be made in-kind if a sale would cause an undue loss.
Investors may look only to the assets of the Fund, not the assets of the
Directors or Investment Manager, for payment on liquidation.
THE OPERATING AGREEMENT
The Operating Agreement governs the relationships, rights, and obligations
of the Fund's investors. We have provided the following summary of certain
provisions of the Operating Agreement not discussed elsewhere in this
prospectus. This summary is not complete and is qualified in its entirety by
reference to the Operating Agreement. You should read the entire Operating
Agreement (attached as Exhibit A) before signing the Subscription Agreement.
COVENANTS OF FUND INVESTORS. Article [ ] of the Operating Agreement
contains various covenants and agreements that each investor in the Fund must
make. The covenants and agreements concern the transfer of shares in the Fund
and an agreement by each investor to advise the Fund of a breach of any
representations or warranties in the Operating Agreement or the Subscription
Agreement.
WITHDRAWAL AND REMOVAL OF THE INVESTMENT MANAGER. The Investment Manager
may withdraw from the Fund only if a majority in interest of the Fund's
investors has consented to the appointment of a successor investment adviser. A
majority in interest of the Fund's investors or a majority of the Directors may
remove the Investment Manager. In case of such a removal, or in the event of the
incapacity of the Investment Manager, a majority in interest of the Fund's
investors may admit another entity to be a successor to the Investment Manager
concurrently with such removal or incapacity, as the case may be.
In the event of the removal of the Investment Manager, the venture capital
investments of the Fund will be appraised by two independent appraisers, one
chosen by the Investment Manager and one by the Directors. Assuming the Fund
receives a favorable exemptive order from the SEC to permit distributions in
kind, the Investment Manager will receive securities
<PAGE>
representing a final incentive fee determined as if all unrealized capital gains
or losses were realized.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF THE INVESTMENT MANAGER AND
THE DIRECTORS BY THE FUND. The Fund's Operating Agreement and the Investment
Advisory agreement between the Fund and the Investment Manager provide for
indemnification by the Fund for losses incurred by the Investment Manager, the
Fund's Directors and certain of the officers, employees and affiliates.
The federal and state securities laws impose liabilities, under certain
circumstances, on persons who act in good faith. Nothing in the Operating
Agreement should be construed to relieve the Investment Manager or its
affiliates of such liabilities. Investors should closely review the
indemnification provisions in the Operating Agreement.
AMENDMENTS TO THE OPERATING AGREEMENT. The Investment Manager, as managing
the affairs of the Fund, may amend the Operating Agreement under certain
circumstances without the consent of the Fund's investors, subject to
authorization by the Directors.
OTHER PROVISIONS OF THE OPERATING AGREEMENT. Each investor in the Fund must give
the Investment Manager a personal power of attorney to execute documents on such
investor's behalf, including the Operating Agreement and amendments thereto. The
books and records of the Fund must be kept in accordance with generally accepted
accounting practices and principles. Such books and records must be made
available, upon request by a Fund investor, for review for any purpose
reasonably related to such investor's investment, including without limitation
any suit or other action by such investor against the Fund. However, the
Investment Manager may in its sole discretion elect not to provide a list of
Fund investors if in its opinion provision of such a list for a commercial
purpose might jeopardize the Fund's status for tax purposes.
TAX INFORMATION
The following discussion summarizes the significant federal income tax
considerations in connection with an investment in the Fund by individuals who
are United States citizens or resident aliens. It is not feasible to comment on
all of the federal, state, and local income tax consequences resulting from the
organization of the Fund and the conduct of its contemplated operations. THESE
TAX CONSEQUENCES CAN VARY SIGNIFICANTLY WITH THE PARTICULAR SITUATION OF EACH
INVESTOR. MOREOVER, THE RELEVANT TAX PROVISIONS ARE COMPLEX AND SUBJECT TO
CHANGE. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE INCOME AND OTHER TAX
CONSEQUENCES TO YOU OF AN INVESTMENT IN THE FUND.
This discussion was reviewed by Morgan, Lewis & Bockius LLP (MLB), counsel
for the Fund. MLB believes that the discussion addresses the significant federal
income tax aspects of
<PAGE>
an investment in the Fund. However, MLB expresses no opinion regarding the
outcome of specific issues, except where opinions are expressly stated. This
discussion is based on the relevant provisions of the Internal Revenue Code of
1986, as amended (IRC), and on the applicable Treasury regulations thereunder
(including proposed regulations), administrative rulings and procedures, and
judicial decisions. New legislation or regulations could affect Fund investors
adversely. In the future, the IRS may not agree with the interpretation of the
current federal income tax laws and regulations summarized below.
FUND STATUS
CLASSIFICATION OF THE FUND. The Fund has been formed in such a manner so
that under applicable Treasury Regulations it will be treated as a partnership,
as opposed to a corporation, for federal tax purposes, unless it affirmatively
elects to be treated as a corporation for federal tax purposes. The Investment
Manager has no intention of making such an election and does not anticipate any
circumstances under which such an election would be made. If the Fund were
treated as a corporation for federal income tax purposes, all of its income
would be subject to tax at corporate rates, distributions to its investors
generally would be taxable as dividends, and its investors would not be entitled
to report any portion of the income or loss of the Fund on their returns.
PUBLICLY-TRADED PARTNERSHIPS. A partnership or limited liability company
that is classified as a "publicly-traded partnership" (PTP) is generally treated
as a corporation for federal income tax purposes. If the Fund were treated as a
corporation for federal income tax purposes, there would be potentially adverse
consequences to our investors unless the Fund elected to be treated as a
"regulated investment company" (RIC). In particular,
o an investor's share of the income, gain, losses, deductions, and tax
credits of the Fund could not be included in that investor's federal
income tax return,
o any income or gain of the Fund would be subject to federal income
tax at the rates applicable to corporations, and
o distributions by the Fund to its investors, other than liquidating
distributions, would constitute dividend income to the extent of the
earnings and profits of the Fund. Distributions reclassified as
dividends would be taxed as ordinary income to such investors, and
the payment would not be deductible by the Fund in computing its
taxable income.
A Fund is considered "publicly-traded" only if:
o interests in such Fund are traded on an established securities
market, or
o interests in such Fund are readily tradable on a secondary market
(or the substantial equivalent thereof).
IRS regulations provide certain safe harbors that, if satisfied by a Fund,
will result in interests in the Fund not being treated as readily tradable on a
secondary market or the substantial equivalent thereof. The Operating Agreement
is drafted with the intention to restrict
<PAGE>
the sale of shares to the extent necessary to avoid the creation of a secondary
market (or the substantial equivalent thereof) for the shares and is designed to
comply with the safe harbors of the IRS regulations. The Investment Manager has
represented that it intends to exercise its discretion regarding transfers of
shares in a manner designed to prevent the Fund from becoming a PTP.
FEDERAL INCOME TAXATION OF FUNDS AND INVESTORS GENERALLY
INVESTORS, NOT FUND, SUBJECT TO TAX. Under present law, a limited
liability company that is treated for federal income tax purposes as a
partnership incurs no federal income tax liability. Instead, each investor is
required to report on such investor's federal income tax return such investor's
distributive share of the Fund's income, gains, losses, deductions, and credits
for the taxable year of the Fund ending with or within such investor's taxable
year, without regard to any Fund distributions. It is possible that an investor
could recognize income from Fund operations but not receive any cash
distributions from the Fund to pay the tax with respect to that income. The
receipt of a cash distribution from the Fund by an investor results in the
recognition of gain to the investor only to the extent the cash distribution
exceeds such investor's adjusted tax basis for such investor's interest in the
Fund.
ALLOCATIONS OF PROFIT AND LOSS. Each investor's distributive share of Fund
income, gain, deduction, loss, or credit for federal income tax purposes will
generally be determined in accordance with the provisions of the Operating
Agreement. However, if an allocation in the Operating Agreement does not have
"substantial economic effect" under IRC Section 704, the IRS can reallocate the
items "in accordance with the investor's interest in the fund (determined by
taking into account all facts and circumstances)." The regulations under IRS
Section 704 set forth rules which determine whether allocations contained in an
operating agreement will be respected for federal tax purposes.
Under the Operating Agreement, allocations are reflected by appropriate
adjustments to the investors' capital accounts, and liquidation proceeds are
distributed in accordance with the investors' positive capital account balances
throughout the term of the Fund. Although the investors are not obligated to
restore any deficit capital account balance on liquidation, such a deficit
balance should not arise since the Operating Agreement prohibits the allocation
of losses to an investor to the extent such an allocation would result in a
deficit capital account balance.
The Operating Agreement does contain a "qualified income offset" provision
as required by the regulations. In addition, it would appear that the
allocations under the Operating Agreement affect the dollar amounts to be
received by the Fund investors, independent of tax consequences. Accordingly,
the Fund believes that allocations made pursuant to the Operating Agreement
should be respected for federal income tax purposes. If the IRS were successful
in contending that any Fund allocations should not be respected for federal
income tax purposes, such a determination could result in reallocation between
the Investment Manager and the investors of a part of the Fund's income, gains,
losses, deductions, and credits in a manner that could have an adverse effect on
the investors.
<PAGE>
TAXATION OF FUND OPERATIONS
One of the Fund's principal sources of income is expected to be from the
sale of equity interests in its portfolio companies. The sale by the Fund of any
equity interest purchased from one of its portfolio companies should result in
capital gain or loss to the investors in the Fund. Net capital gains are
currently taxed at a preferential maximum rate of 20% for individuals.
LIMITATIONS ON DEDUCTION OF FUND LOSSES
ADJUSTED BASIS. An investor in the Fund may deduct on such
investor's federal income tax return his or her distributive share of a
Fund loss, but not in excess of such investor's adjusted basis for his or
her interest in the Fund (and subject to the other loss limitations
discussed below). The foregoing adjusted basis is equal to:
o the amount of cash and the adjusted basis of any property net of
liabilities that such investor contributed to the Fund, decreased by
(but not below zero) or
o distributions to such investor from the Fund (including constructive
cash distributions resulting from a decrease in such investor's
share of Fund liabilities), decreased by
o such investor's distributive share of Fund losses, and increased by
o such investor's distributive share of Fund taxable income.
If an investor's distributive share of a Fund loss for any Fund taxable
year exceeds the adjusted basis in the investor's Fund interest at the end of
that taxable year, such excess may not be deducted at that time. Instead, such
excess may be carried over and deducted in any later year if, and to the extent,
the adjusted basis in such investor's Fund interest at the end of the later
taxable year otherwise exceeds zero (and subject to the other loss limitations
discussed below).
PASSIVE LOSSES. IRC Section 469 provides, in part, that losses from trade
or business and related activities in which the taxpayer does not materially
participate -- so-called "passive losses" -- are deductible only up to the
aggregate income generated by those types of activities -- so-called "passive
income." Losses allocated to the Fund investors that are attributable to trade
or business expenses or losses of the Fund may constitute passive losses. These
losses will not be available to offset an investor's income from wages,
portfolio investments (including interest on the Fund's uninvested funds), or
active trade or business activities in which such investor materially
participates. Unused passive losses of an investor can be carried over to offset
passive income received in future years. In addition, upon a fully taxable
disposition of a taxpayer's entire interest in a passive activity to an
unrelated party, the amount of any deferred losses will be allowed against
income that is not from a passive activity, after first being applied to passive
income in the year of disposition. See, however, the capital loss rules
discussed below.
<PAGE>
Gain or loss from the sale or disposition of equity investments held by
the Fund likely will not constitute passive income or loss; thus, gain, if any,
may not be offset by an investor's prior or current passive losses. Instead,
such gain or loss likely will be considered attributable to property held for
investment.
CAPITAL LOSSES. Capital losses of individuals in excess of capital gains
are deductible for a taxable year, but only to the extent of $3,000, although
the excess capital losses may be carried forward indefinitely.
NON-TRADE OR BUSINESS EXPENSES. Expenses incurred in connection with an
investment that is not considered a trade or business are deductible by
individuals, if at all, under IRC Section 212. Under IRC Section 67, IRC Section
212 expenses are deductible by an individual investor only to the extent such
deductions (along with other so-called "miscellaneous itemized deductions")
exceed 2% of such investor's adjusted gross income. The Fund expenses (including
fees) passed through to its investors would be subject to this limitation if
they were considered not to be incurred in a trade or business.
There is substantial uncertainty whether the activities of the Fund will
constitute a trade or business as the IRS and the courts have interpreted that
concept. You should be aware that all or a substantial portion of the Fund's
expenses may be subject to the limits of IRC Section 67. If so, such expenses
would be deductible only to the extent that your aggregate miscellaneous
itemized deductions (including such expenses) exceeded 2% of your adjusted gross
income.
INVESTMENT INTEREST EXPENSE. IRC Section 163(d) generally limits the
amount of investment interest (i.e., interest incurred to purchase or carry
property held for investment) that a non-corporate taxpayer can deduct. The
deduction is limited to the amount of such taxpayer's investment income.
However, the investment interest deduction is not a miscellaneous itemized
deduction under IRC Section 67, and thus, is not subject to the limitation that
it exceed 2% of a taxpayer's adjusted gross income in order to be deductible.
Investment interest that cannot be deducted for federal income tax purposes for
any year because of the foregoing limitation may, subject to further
limitations, be carried over and treated as investment interest paid in
succeeding taxable years.
It should be anticipated that interest paid by the Fund on any borrowings,
as well as any interest paid by a Fund investor on borrowings incurred to
purchase a share, may be considered "investment interest." Any investment income
from the Fund passed through to you would qualify as investment income that
would increase the amount of investment interest that you would be able to
deduct.
The foregoing rules will not apply to the extent losses from the Fund
constitute "passive losses" as described above. In such case, interest expense
(either of the Fund or of an investor) attributable to the passive activity in
question will be treated as a passive activity deduction and not as investment
interest.
<PAGE>
SALE OF AN INTEREST IN THE FUND
The sale or exchange of a Fund interest ordinarily results in a capital
gain or loss, but can result in the recognition of ordinary income under certain
circumstances. IRC Section 751 treats as ordinary income gain on the sale of a
Fund interest that is attributable to either:
o unrealized receivables of the Fund or
o items of Fund inventory.
It is not anticipated that the Fund will have significant amounts, if any, of
unrealized receivables or inventory items.
FUND ORGANIZATIONAL AND SYNDICATION EXPENDITURES
Expenses of organizing the Fund (organizational expenses) are not
currently deductible by the Fund or any Fund investor. The Fund may elect to
amortize organizational expenses over a period of not less than 60 months.
Syndication expenses of the Fund (i.e., expenditures made in connection with the
marketing and issuance of shares, including any placement fees) are neither
deductible nor amortizable.
MANAGEMENT AND INCENTIVE FEE
The Operating Agreement provides for payment to the Investment Manager of
a management fee and an incentive fee. If the management fee is deductible only
under IRC Section 212, you would be subject to the limitations under IRC Section
67 described above. The IRS could contend that a portion of the management fee
or the incentive fee represents a nondeductible syndication cost or an
amortizable organizational expense. If the IRS were successful in this argument,
the deductions allocated to you would be decreased.
ALTERNATIVE MINIMUM TAX
The IRC provides for an alternative minimum tax to be paid by corporate
and individual taxpayers if such tax exceeds the taxpayer's regular federal
income tax liability. Alternative minimum taxable income is generally the
taxpayer's taxable income as recomputed using certain adjustments plus the
amount of the taxpayer's items of tax preference. In determining alternative
minimum taxable income, passive activity losses, as recomputed, are not
deductible. In addition, investment interest in excess of investment income is
not allowable as a deduction against alternative minimum taxable income, even if
deductible in computing regular tax liability. In general, an investment in the
Fund is not expected to generate material items of tax preference for
individuals.
The application of the alternative minimum tax depends on the facts and
circumstances of each taxpayer's situation and the computation of such tax is
complicated. You are urged to
<PAGE>
consult your tax advisor to determine whether you will be subject to the
alternative minimum tax and the potential effects thereof on an investment in
the Fund.
CERTAIN CONSIDERATIONS FOR TAX-EXEMPT INVESTORS
The Fund may from time to time use leverage (i.e., borrowed funds or
senior securities) for any Fund purpose, including making follow-in investments.
To the extent that the Fund does so, an investment in the Fund will generate
unrelated business taxable income for federal income tax purposes (and may have
other adverse tax consequences) for pension funds, Keogh plans, individual
retirement accounts, tax-exempt institutions and other tax-exempt investors. In
addition, although it is not likely to occur, any purchase by any such
tax-exempt investors using the credit card option could also result in the Fund
unrelated business taxable income for such tax-exempt investor. Accordingly,
such prospective investors are urged to consult their own tax advisors
concerning possible federal, state, local and no-U.S. tax consequences from an
investment in the Company.
MISCELLANEOUS PROVISIONS
NO SECTION 754 ELECTION. Due to the tax accounting burden such election
imposes, the Fund does not intend to file an election under IRC Section 754 to
adjust the basis of Fund property in the case of a transfer of a share or the
distribution of property by the Fund. As a consequence, a transferee might be
subject to a tax upon the portion of the proceeds of a sale or disposition of
Fund equity securities that represents, as to such transferee, a return of
capital. This decision not to file an election may adversely affect the price
that potential transferees would be willing to pay for the shares.
INTEREST AND PENALTIES. If the IRS subsequently adjusts Fund income
or loss, you will be subject to interest on any deficiency from the due
date of the original return. Additionally, the IRS may impose a penalty
equal to 20% of the understatement for the "substantial understatement" of
tax liability even if you were not negligent or fraudulent in filing your
tax return. "Substantial understatement" is defined as an understatement
for the taxable year that exceeds the greater of 10% of the required tax
or $5,000 ($10,000 for most corporations).
FUND AUDIT RULES. The tax treatment of Fund items of income and deduction
generally will be determined at the Fund level. You will be required to file
your tax returns in a manner consistent with the information returns filed by
the Fund, unless you file a statement with your tax return describing any
inconsistency. In addition, the Investment Manager will be the Fund's "tax
matters partner" and as such will have authority to make certain decisions with
respect to any IRS audit and any court litigation relating to the Fund. In
general, the law limits the rights of less than one percent partners to
participate in such proceedings without notifying the IRS and the tax matters
partner.
POSSIBLE CHANGES IN FEDERAL INCOME TAX LAWS. The federal income tax
matters discussed herein are based on the laws in effect on the date of this
prospectus. However,
<PAGE>
tax laws are subject to frequent changes. When these changes occur, the adopted
statutes, regulations, rulings, and judicial decisions may also be made
retroactive. Accordingly, there can be no assurance that future changes in the
IRC, Treasury regulations, IRS rulings, or judicial decisions will not adversely
affect your investment in the Fund. The content of any future tax legislation is
impossible to predict. Therefore, you are urged to consult your own tax advisor
regarding the possible tax consequences of future legislation on your investment
in the Fund.
STATE LAW CONSIDERATIONS
In addition to the federal income tax consequences described above, the
investors, as well as the Fund itself and the entities in which the Fund
invests, may be subject to various state, local and non-U.S. taxes. An
investor's allocable share of Fund income, gain, loss, deduction and expense may
be required to be included in determining such investor's reportable income for
state, local and non-U.S. tax purposes. In addition, state, local and non-U.S.
taxation of such Fund tax items may differ from the treatment of such items for
federal income tax purposes.
The Investment Manager 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 investors (where and to the extent permissible under applicable law). If
the Investment Manager decides to make any such composite, group or similar
filing, such a filing would eliminate an investor's filing requirement in such a
jurisdiction arising by reason of an investment in the Fund. Each investor 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 such relevant members. Such
advances may be funded by the Investment Manager or an affiliate thereof (with
interest thereon). Both the deduction for interest payable by the Fund to the
Investment Manager (or an affiliate thereof) with respect to such advances, and
the corresponding income from interest received by the Fund from the relevant
investors, will be specially allocated to such investors, and such interest
expense may be subject to limitations on deductibility. Such taxes may be higher
or lower than what an investor's state, local or non-U.S. tax liability would
be in the absence of such a composite, group or similar filing.
TAX SHELTER COMPLIANCE PROVISIONS
IRC Section 6111 requires organizers to register "tax shelters" with the
IRS and to receive an identification number that they must furnish to investors
and include on their tax returns. Substantial penalties apply to organizers of
tax shelters that fail to register or fail to supply registration numbers to
investors. Investors who, without reasonable cause, fail to include the
identification number on their returns will be subject to a $250 penalty.
Investors also have certain reporting obligations to the IRS and notice
requirements to any person to whom they transfer any part of their interest.
<PAGE>
The Fund does not expect to generate significant tax advantages to its
investors, and thus, is not a "tax shelter" in the conventional sense. However,
the language of IRC Section 6111 and the temporary regulations issued thereunder
is extremely broad and may be read to include the Fund. Thus, the Investment
Manager intends to register the Fund as a tax shelter.
ERISA CONSIDERATIONS
The provisions of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), are extremely complex. Consequently, if you are subject to
ERISA you should consult with your own advisors prior to investing in the Fund.
A fiduciary of a pension, profit-sharing or other employee benefit plan,
or an Employee Plan, subject to ERISA should consider fiduciary standards under
ERISA in the context of such Employee Plan's particular circumstances before
authorizing an investment of all or any portion of such Employee Plan's assets
in shares of the Fund. Among other factors, such fiduciary should consider:
o whether the investment satisfies the prudence requirements of
Section 404(a)(1)(B) of ERISA,
o whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of ERISA,
o whether the investment is in accordance with the documents and
instruments governing the Employee Plan as required by Section
404(a)(1)(D) of ERISA,
o whether a prohibited transaction in violation of Section 406 of
ERISA or Section 408(e)(2) or 4975 of the IRC will occur and
o how the definition of the term "plan assets" under ERISA and the
Department of Labor regulations regarding the definition of "plan
assets" affect the proposed investments.
In addition, persons who control the investments of individual retirement
accounts (IRAs) should consider the applicable items listed above.
Neither ERISA nor the IRC defines "plan assets." However, under
regulations promulgated by the Department of Labor, the assets of certain pooled
investment vehicles, including certain partnerships, may be treated as "plan
assets." If the assets of the Fund were deemed to be "plan assets" of Employee
Plans or IRAs that owned shares,
o the prudence standards and other provisions of ERISA will extend to
investments made by the Fund,
o the person or persons who have investment discretion over the assets
of Employee Plans that invest in the Fund will be liable under ERISA
for investments made by the Fund that do not conform to such ERISA
standards, and
o certain transactions that the Fund might enter into in the future in
the ordinary course of its business and operation might constitute
prohibited transactions of an Employee Plan or IRA under ERISA and
the IRC. A prohibited transaction, in addition to
<PAGE>
imposing potential personal liability upon fiduciaries of Employee
Plans or IRAs, may also result in the imposition of an excise tax
under the IRC upon the disqualified person participating in the
prohibited transaction, or result in disqualification of the IRA.
The Fund's assets would not be considered to be "plan assets" under ERISA
and the Department of Labor regulations so long as, inter alia, the Fund's
shares are "publicly-offered securities" or the Fund qualifies as a "venture
capital operating company" within the meaning of such regulations. Under the
regulations, an interest, such as a share, will be considered a
"publicly-offered security" if:
o such security is widely held, freely transferable, and
o either:
o part of a class of securities registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934 or
o sold to a plan pursuant to an effective registration statement under
the Securities Act of 1933, provided that such securities sold are
thereafter registered under the Securities Exchange Act of 1934
within a specified time period.
The Investment Manager believes that, under the regulations, Fund shares
will be deemed "publicly-offered securities." Moreover, the Investment Manager
also expects the Fund to qualify as a "venture capital operating company."
Therefore, the Fund's underlying assets should not be deemed to be "plan
assets."
INVESTMENT COMPANY ACT REGULATION
The Small Business Investment Incentive Act of 1980 became law on October
21, 1980. This law modified the provisions of the Investment Company Act
applicable to an entity, such as the Fund, that elects to be treated as a
business development company, or a BDC. The Fund elected to be treated as a
"business development company" on June 28, 2000. The Fund may not withdraw its
election without first obtaining the approval of a majority in interest of its
investors. The following is a brief description of the Investment Company Act.
For more details, you should refer to the full text of the Investment Company
Act and the rules thereunder.
A business development company must be operated for the purpose of making
investments in certain types of securities as required by the Investment Company
Act. Such types include certain present and former "eligible portfolio
companies" and certain bankrupt or insolvent companies. A business development
company need not invest in all of the possible types of securities. Business
development companies must also make available significant managerial assistance
to their 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:
<PAGE>
o 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,
o is actively controlled by the relevant business development company
either alone or as part of a group acting together and as an
affiliate of such business development company is a member of the
portfolio company's board of directors, or
o meets such other criteria as may be established by the SEC.
Control, under the Investment Company Act, is presumed to exist where a business
development company owns 25% of the outstanding voting securities of a portfolio
company.
The Investment Company Act prohibits or restricts business development
companies from investing in certain types of companies, such as brokerage firms,
insurance companies, and investment banking firms. Moreover, according to the
Investment Company Act, a business development company may only acquire
"qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment, and facilities) if, at the time of the acquisition,
less than 70% of the value of its assets consists of qualifying assets.
"Qualifying assets" include:
o securities of companies that were eligible portfolio companies at
the time that the business development company acquired their
securities,
o securities of bankrupt or insolvent companies that are not otherwise
eligible portfolio companies,
o securities acquired as follow-on investments in companies that were
eligible at the time of the business development company's initial
acquisition of their securities but are no longer eligible (provided
that the business development company has maintained a substantial
portion of its initial investment in those companies),
o securities received in exchange for or distributed on or with
respect to any of the foregoing, and
o 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, a business development company
may purchase securities in order for the securities to be considered qualifying
assets.
A business development company may, under specified conditions,
issue a single class of senior debt and a single class of senior equity if
its asset coverage ratio is at least 200% after the issuance of such debt
or equity. As a result, distributions to Fund investors or the repurchase
of any of the Fund's shares will be prohibited if the asset coverage ratio
does not exceed 200% at the time of the distribution or repurchase, unless
otherwise permitted under the Investment Company Act.
After this offering, the Fund may sell its shares below the prevailing net
asset value per share only with the approval of the holders of a majority of the
Fund's voting securities (including a majority of the voting securities held by
nonaffiliated persons) at an annual meeting. The Fund may repurchase its shares
from time to time, subject to the restrictions of the Operating
<PAGE>
Agreement and the Investment Company Act. See "Description of Limited Liability
Company Interests - Share Repurchases".
In accordance with the Investment Company Act, certain transactions
involving the Fund and its affiliates (and affiliates of such affiliates) may be
consummated only with the prior approval of a majority of the Independent
Directors, including a majority of the Independent Directors having no financial
interest in the transactions. Certain transactions involving closely affiliated
persons of the Fund, including the Investment Manager, will require the prior
approval of the SEC. In general, the following people must obtain the prior
approval of a majority of the Independent Directors and, in some situations, the
prior approval of the SEC, before engaging in certain transactions involving the
Fund or any portfolio company controlled by the Fund:
o any person who owns, controls, or holds with power to vote, more
than 5% of its outstanding shares,
o any director, executive officer, or general partner of that person,
and
o any person who directly or indirectly controls, is controlled by, or
is under common control with, that person.
The Investment Company Act generally does not restrict transactions
between a business development company and its portfolio companies.
In accordance with the Investment Company Act, a majority of the Directors
are not "interested persons" as defined in the Investment Company Act.
REPORTS, ACCOUNTING, AND AUDIT
We will furnish to each of you all reports required by applicable laws.
You will be asked to consent to receiving these reports and all other
communications of the Fund by either having access to such reports on the Fund's
web site or by receiving them via electronic mail. We reserve the right to not
accept the subscription of any potential investor who does not so consent. Upon
receipt of such consent we will furnish you with all communications
electronically until you notify us of your desire to rescind that election. You
may at any time make an affirmative election not to receive information
electronically. In that case, we will deliver, by first class mail, only those
items required by statute or the Operating Agreement. We will file all such
reports with all governmental authorities as required.
SELLING MATERIALS AND MARKETING
We are making this offering only by means of this prospectus, as amended
and supplemented, and any advertisements distributed by the Fund that comply
with either SEC Rule 134 or SEC Rule 482. We may also use selling materials
other than such advertisements if they are accompanied or preceded by the
delivery (including electronic delivery) of this prospectus. We will only
distribute to you selling materials that indicate that they are being
distributed by the Fund or the Broker-Dealer. Use of any materials will be
conditioned, if required, on filing with and clearance by appropriate regulatory
authorities. Such clearance does not mean that the
<PAGE>
agency allowing use of the selling materials has passed on the merits of this
offering or the accuracy or adequacy of the selling materials.
The Broker-Dealer expects to use various means to market and promote the
Fund. Such means may include direct mail, telemarketing, banner advertisements
and various media channels. We will reimburse the Broker-Dealer and its
affiliates for their marketing and promotional expenses, which we estimate to be
[ ]% of the aggregate offering price, assuming the offering is fully subscribed.
NASD rules cap our reimbursement for marketing and distribution expenses at 10%
of the actual proceeds of the offering.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, which has been retained as counsel to the
Fund, has passed upon certain legal matters relating to the shares offered
hereby. None of the Fund, the Investment Manager or the Broker-Dealer is subject
to any material pending legal proceedings.
ACCOUNTING MATTERS
The Fund has retained Deloitte & Touche LLP to audit the Fund and
assist in the preparation of quarterly and annual reports. Deloitte &
Touche's principal business address is Two World Financial Center, New
York, New York 10281.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C., a Registration Statement under the Securities
Act of 1933, with respect to the shares offered hereby. This prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information pertaining to the Fund and the shares, you should
review the Registration Statement, including the exhibits and schedules thereto.
We will also file reports, proxy statements and other information with the SEC
under the Securities Exchange Act of 1934, as amended. Such reports, proxy
statements and other information, as well as the Registration Statement and the
exhibits and schedules thereto, can be inspected at the Public Reference section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of such
material may be obtained at prescribed rates. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a web site that contains information filed electronically
with the SEC. The address of the SEC's web site is http://www.sec.gov.
<PAGE>
VCVILLAGE.COM OPPORTUNITY FUND LLC
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
1. Financial Statements:
Not Applicable.
All financial statements, schedules and historical financial information
have been omitted as the subject matter is not required, not present, or not
present in amounts sufficient to require submission.
2. Exhibits
a. Certificate of Formation dated June 13, 2000, as filed with
the State of Delaware on June 13, 2000 is filed herewith.
b. Form of Operating Agreement is filed herewith.
c. Not Applicable.
d. Not Applicable.
e. Not Applicable.
f. Not Applicable.
g. Form of Investment Advisory Agreement with VCVillage.com
Advisors, Inc. is filed herewith.
h. Form of Distribution Agreement with VCVillage.com Securities
Inc. is filed herewith.
i. Not Applicable.
j. Custody Agreement [to be filed by amendment].
k. Not Applicable.
l. Morgan, Lewis & Bockius Opinion [to be filed by amendment].
m. Not Applicable.
n. Not Applicable.
o. Not Applicable.
p. Not Applicable.
q. Not Applicable.
r. Code of Ethics [to be filed by amendment].
Item 25. Marketing Arrangements.
Not Applicable.
Item 26. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses expected to be incurred in
connection with the offering described in this Registration Statement:
<PAGE>
Registration fees 26,400
Printing 1,000
Fees and expenses of qualification under state
securities laws (including fees of counsel) 15,000
Accounting fees and expenses 0
Legal fees and expenses 100,000
NASD Fees 5,000
Reimbursement of Broker-Dealer's Expenses 24,000
Miscellaneous
Total
Item 27. Persons Controlled by or under Common Control with Registrant.
Not Applicable.
Item 28. Number of Holders of Securities.
Not Applicable.
Item 29. Indemnification.
Under the Registrant's Operating Agreement neither the Directors nor any
of their Affiliates shall be liable, responsible, or accountable in damages or
otherwise to the Fund or any Fund investor for any loss or damage incurred by
reason of any act performed by or omission of the Directors or such Affiliates
in good faith in the furtherance of the interests of the Fund and in a manner
reasonably believed by them to be within the scope of the authority granted to
the Directors by this Agreement or by the Fund investors, provided that the
Directors or such Affiliates were not guilty of gross negligence, misconduct, or
any other breach of fiduciary duty with respect to such acts or omissions. The
Fund, out of its assets and, subject to the Operating Agreement, not out of the
assets of the Directors, shall, to the full extent permitted by law, indemnify
and hold harmless any Director and any Director Affiliate who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (including any action by or in the right of the Fund), by reason
of any acts or omissions or alleged acts or omissions arising out of such
Person's activities as a Director or as an Affiliate of a Director, if such
activities were performed in good faith in furtherance of the interests of the
Fund and in a manner reasonably believed by such Person to be within the scope
of the authority conferred to the Directors by the Operating Agreement or by the
Fund investors against losses, damages, or expenses for which such Person has
not otherwise been reimbursed (including attorneys' fees, judgments, fines, and
amounts paid in settlements) actually and reasonably incurred by such Person in
connection with such action, suit, or proceeding, so long as such Person was not
guilty of gross negligence, misconduct, or any other breach of fiduciary duty
with respect to such acts or omissions and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such Person's conduct was
unlawful, and provided that the satisfaction of any indemnification and any
<PAGE>
holding harmless shall be from and limited to Fund assets and no investor shall
have any personal liability on account thereof.
Notwithstanding the foregoing, none of the indemnified parties shall be
indemnified for any loss or damage incurred by them in connection with any
judgment entered in or settlement of any lawsuit for violations of federal or
state securities laws by the indemnified parties in connection with the offer or
sale of Fund Interests unless: (i) there has been a successful adjudication on
the merits as a result of a trial; or (ii) such claim has been dismissed with
prejudice on the merits by a court of competent jurisdiction that has been
apprised of the SEC's position on indemnification. In addition, a court of
competent jurisdiction must approve any such indemnification for securities law
violations. The Fund may purchase liability insurance that insures the
indemnified parties against any liabilities as to which such parties are
permitted to be indemnified pursuant to the provisions of Section [ ] of the
Operating Agreement. However, the Fund may not incur the cost of that portion of
liability insurance which insures the indemnified parties for any liability as
to which the indemnified parties are prohibited from being indemnified under
Section [ ] of the Operating Agreement.
Item 30. Business and Other Connections of Investment Advisers.
[Bios of officers and Directors to be inserted by amendment.]
Item 31. Location of Accounts and Records.
Records are located at the offices of the Fund: 325 W. 38th Street,
Suite 1504, NY, NY 10018
Item 32. Management Service.
Not Applicable.
Item 33. Undertakings.
1. Registrant hereby undertakes to suspend offering of the shares covered
hereby until it amends its prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
declines more than 10 percent from its net asset value per share of the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in such
prospectus.
2. Not Applicable.
3. Not Applicable.
4. Registrant hereby undertakes:
a. to file, during any period in which offers or sales are being
made, a post-effective amendment to the registration
statement:
<PAGE>
i. to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933,
ii. to reflect in the prospectus any facts or events after
the effective date of the 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
iii. to include any material information with respect to the
plan of distribution not previously;
b. that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of those
securities at that time shall be deemed to be the initial bona
fide offering thereof; and
c. 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.
5. Not Applicable.
6. Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and the State
of New York, on the 28th day of June, 2000.
/s/ Daniel Bendheim
------------------------------
Name: Daniel Bendheim
Title: President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Daniel Bendheim June 28, 2000
------------------------------ ----------------------------
Name: Daniel Bendheim Date:
Title: President
<PAGE>
Exhibit Index
a. Certificate of Formation dated June 13, 2000, as filed with
the State of Delaware on June 13, 2000 is filed herewith.
b. Form of Operating Agreement is filed herewith.
c. Not Applicable.
d. Not Applicable.
e. Not Applicable.
f. Not Applicable.
g. Form of Investment Advisory Agreement with VCVillage.com
Advisors, Inc. is filed herewith.
h. Form of Distribution Agreement with VCVillage.com Securities
Inc. is filed herewith.
i. Not Applicable.
j. Custody Agreement [to be filed by amendment].
k. Not Applicable.
l. Morgan, Lewis & Bockius Opinion [to be filed by amendment].
m. Not Applicable.
n. Not Applicable.
o. Not Applicable.
p. Not Applicable.
q. Not Applicable.
r. Code of Ethics [to be filed by amendment].
