EXHIBIT 10.21
J Net Ventures I LLC
OPERATING AGREEMENT
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TABLE OF CONTENTS
Page
ARTICLE ONE Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Restrictions on Investments . . . . . . . . . . . . . . . . . . 7
2.5 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Office and Agent. . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Creation of Series of Fund Interests. . . . . . . . . . . . . . 7
2.8 Investments by Series A Fund in Series B Portfolio Companies. . 8
ARTICLE THREE Members . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Members; Percentage Interests . . . . . . . . . . . . . . . . . 9
3.2 Admission of Additional Members . . . . . . . . . . . . . . . . 9
3.3 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Membership Certificate. . . . . . . . . . . . . . . . . . . . . 9
3.5 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Meeting of the Members. . . . . . . . . . . . . . . . . . . . . 9
3.7 Members Are Not Agents. . . . . . . . . . . . . . . . . . . . .10
3.8 Resignation and Withdrawal of Members . . . . . . . . . . . . .10
3.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . .10
3.10 Competing Activities. . . . . . . . . . . . . . . . . . . . . .11
ARTICLE FOUR Management and Control of the Fund . . . . . . . . . . . . . .12
4.1 Management of the Fund by Manager . . . . . . . . . . . . . . .12
4.2 Advisory Board. . . . . . . . . . . . . . . . . . . . . . . . .12
4.3 Limited Liability . . . . . . . . . . . . . . . . . . . . . . .12
4.4 Management Compensation . . . . . . . . . . . . . . . . . . . .13
4.5 Assignment of Manager's Interest; Resignation of Manager;
Removal of Manager. . . . . . . . . . . . . . . . . . . . . . .13
4.6 Performance of Duties; Liability of Manager . . . . . . . . . .13
4.7 Liability of Manager Limited to Manager's Assets. . . . . . . .13
4.8 Expenses of the Fund. . . . . . . . . . . . . . . . . . . . . .13
ARTICLE FIVE Capital Contributions . . . . . . . . . . . . . . . . . . . . .16
5.1 Capital Contributions . . . . . . . . . . . . . . . . . . . . .16
5.2 Additional Capital Contributions. . . . . . . . . . . . . . . .16
5.3 Withdrawal or Reduction of Capital Contributions. . . . . . . .16
5.4 No Interest Payable on Capital Contributions. . . . . . . . . .17
5.5 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . .17
5.6 Minimum Capital Contribution of Manager . . . . . . . . . . . .18
ARTICLE SIX Distributions . . . . . . . . . . . . . . . . . . . . . . . . .19
6.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . .19
6.2 Form of Distributions . . . . . . . . . . . . . . . . . . . . .21
6.3 Restriction on Distributions. . . . . . . . . . . . . . . . . .21
6.4 Return of Distributions . . . . . . . . . . . . . . . . . . . .21
6.5 Withholding from Distributions. . . . . . . . . . . . . . . . .21
ARTICLE SEVEN Allocations . . . . . . . . . . . . . . . . . . . . . . . . .22
7.1 Allocations of Net Income and Net Losses. . . . . . . . . . . .22
7.2 Regulatory Allocations. . . . . . . . . . . . . . . . . . . . .23
7.3 Code Section 704(c) Allocations . . . . . . . . . . . . . . . .25
7.4 Other Allocation Rules. . . . . . . . . . . . . . . . . . . . .25
7.5 Allocation of Net Income and Losses and Distributions
in Respect of a Transferred Interest. . . . . . . . . . . . . .25
7.6 Obligations of Members to Report Allocations. . . . . . . . . .26
ARTICLE EIGHT Transfer and Assignment of Interests. . . . . . . . . . . . .26
8.1 Transfer and Assignment of Interests. . . . . . . . . . . . . .26
8.2 Further Restrictions on Transfer of Interests . . . . . . . . .26
8.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . .27
8.4 Substitution of Members . . . . . . . . . . . . . . . . . . . .27
8.5 Effective Date of Permitted Transfers . . . . . . . . . . . . .27
8.6 Rights of Legal Representatives . . . . . . . . . . . . . . . .27
8.7 No Effect to Transfers in Violation of Agreement. . . . . . . .28
8.8 Involuntary Transfers . . . . . . . . . . . . . . . . . . . . .28
ARTICLE NINE Dissolution and Liquidation. . . . . . . . . . . . . . . . . .28
9.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.2 Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . .29
9.3 Cancellation of Certificate of the Fund . . . . . . . . . . . .29
ARTICLE TEN Records and Accounting; Fiscal Affairs. . . . . . . . . . . . .30
10.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . .30
10.2 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . .30
10.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . .30
10.4 Tax Returns; Elections. . . . . . . . . . . . . . . . . . . . .30
10.5 Tax Matters Member. . . . . . . . . . . . . . . . . . . . . . .31
ARTICLE ELEVEN Indemnification and Insurance. . . . . . . . . . . . . . . .31
11.1 Right to Indemnification. . . . . . . . . . . . . . . . . . . .31
11.2 Limited Liability Members . . . . . . . . . . . . . . . . . . .32
11.3 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
11.4 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .33
ARTICLE TWELVE Investment Representations . . . . . . . . . . . . . . . . .33
12.1 Pre-existing Relationship or Experience . . . . . . . . . . . .33
12.2 No Advertising. . . . . . . . . . . . . . . . . . . . . . . . .33
12.3 Investment Intent . . . . . . . . . . . . . . . . . . . . . . .33
12.4 Accredited Investor . . . . . . . . . . . . . . . . . . . . . .33
12.5 Treatment of Fund as Partnership. . . . . . . . . . . . . . . .33
12.6 Economic Risk . . . . . . . . . . . . . . . . . . . . . . . . .34
12.7 No Registration of Membership Interest. . . . . . . . . . . . .34
12.8 Membership Interest in Restricted Security. . . . . . . . . . .34
12.9 No Disposition in Violation of Law. . . . . . . . . . . . . . .34
12.10 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
12.11 Investment Risk . . . . . . . . . . . . . . . . . . . . . . . .35
12.12 Investment Experience . . . . . . . . . . . . . . . . . . . . .35
12.13 Absence of Market . . . . . . . . . . . . . . . . . . . . . . .35
12.14 Information Reviewed. . . . . . . . . . . . . . . . . . . . . .36
12.15 No Representations By Fund . . . . . . . . . . . . . . . . . .36
12.16 Consultation with an Attorney . . . . . . . . . . . . . . . . .36
12.17 Tax Consequences. . . . . . . . . . . . . . . . . . . . . . . .36
12.18 No Assurance of Tax Benefits . . . . . . . . . . . . . . . . .36
ARTICLE THIRTEENMiscellaneous. . . . . . . . . . . . . . . . . . . . . . . .37
13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
13.2 Separability. . . . . . . . . . . . . . . . . . . . . . . . . .37
13.3 Interpretation; Jurisdiction. . . . . . . . . . . . . . . . . .37
13.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . .37
13.5 Counterparts; Effective Date. . . . . . . . . . . . . . . . . .38
13.6 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . .38
13.7 Further Assurances. . . . . . . . . . . . . . . . . . . . . . .38
13.8 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
13.9 Additional Remedies . . . . . . . . . . . . . . . . . . . . . .38
13.10 No Reliance by Third Parties . . . . . . . . . . . . . . . . . 38
Exhibits and Schedules
EXHIBIT A - Amended and Restated Certificate of Formation
SCHEDULE A - Members
J Net Ventures I LLC
OPERATING AGREEMENT
This OPERATING AGREEMENT (the "Agreement"), dated as of _______,
2000 is by and among J Net Venture Partners, LLC, a limited liability company
organized under the laws of the State of Delaware, and each of the persons
listed on the signature pages hereof.
W I T N E S S E T H:
WHEREAS, the Amended and Restated Certificate of Formation for J
Net Ventures I LLC (the "Fund"), a limited liability company organized under
the laws of the State of Delaware, was filed with the Secretary of State of
Delaware on June 21, 2000; and
WHEREAS, the parties to this Agreement (individually referred to as
a "Member" and collectively as the "Members") desire to adopt and approve an
operating agreement for the Fund;
NOW, THEREFORE, the Members hereby agree as follows:
ARTICLE ONE
Definitions
1.1 The defined terms used in this Agreement shall, unless the
context otherwise requires, have the meanings specified in this Article One.
1.1.1 "Act" shall mean the Limited Liability Company Act,
Title 6 of the Delaware Code, Subchapter I, Section 18-101, et. seq., as it
may be amended from time to time, and any successor to said law.
1.1.2 "Advisory Board" shall have the meaning set forth in
Section 4.2.1.
1.1.3 "Affiliate" shall mean with respect to any Member or
Manager, (i) a Person that directly or indirectly, through one or more
intermediaries, has control of, is controlled by, or is under common control
with, such Member or Manager, or (ii) a Member's or Manager's spouse, child,
parent, grandparent, or grandchild or trust for the benefit of such person or
persons. For these purposes, control means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
of any Person whether through the ownership of voting securities, by
contract, as an officer or director of such Person, or otherwise.
1.1.4 "Amended and Restated Certificate of Formation"
shall mean the Fund's Amended and Restated Certificate of Formation as filed
with the Secretary of State, as it may be amended, supplemented, or restated
from time to time.
1.1.5 "Capital Account" shall mean with respect to the
Manager and any Member, the Capital Account that the Fund establishes and
maintains for the Manager or any Member pursuant to Section 5.5.
1.1.6 "Capital Call" shall have the meaning set forth in
Section 5.1.
1.1.7 "Capital Call Date" shall have the meaning set forth
in Section 5.1.
1.1.8 "Capital Commitment" shall have the meaning set
forth in Section 5.1.
1.1.9 "Capital Contribution" shall mean with respect to
the Series A Fund, the amount of cash each Member contributed to the Series A
Fund, and with respect to the Series B Fund, the amount of cash each Member
contributed to the Series B Fund, as the case may be, and in the case of all
the all Series A Fund Members, the aggregate of all such Capital
Contributions made to the Series A Fund and in the case of all Series B Fund
Members, the aggregate of all such Capital Contributions made to the Series B
Fund.
1.1.10 "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time (or any corresponding provisions of any
succeeding law).
1.1.11 "Disposition" shall have the meaning set forth in
Section 6.1.1.
1.1.12 "Economic Assignee" shall have the meaning set forth
in Section 8.3.
1.1.13 "Economic Interest" shall mean a Member's Capital
Account and the right to receive distributions of the Fund's assets,
distribution of cash, and allocations of income, gain, loss, deduction,
credit and similar items from the Fund pursuant to this Agreement and the
Act, but shall not include any other rights of a Member, including, without
limitation, the right to vote or participate in the management of the Fund,
or any right to information concerning the business and affairs of the Fund
other than tax reporting information related to such Economic Interest.
1.1.14 "Fund" shall have the meaning set forth in the
preamble to this Agreement and shall consist of the Series A Fund and the
Series B Fund
1.1.15 "Fund Percentage Interest" shall mean, with respect
to a Member, a fraction (expressed as a percentage) (x) the numerator of
which shall equal the sum of all of such Member's Capital Contributions to
the Fund as of such date, and (y) the denominator of which shall equal the
sum of all Capital Contributions to the Fund made by all Members as of such
date, as same may be adjusted pursuant to this Agreement.
1.1.16 "Gilbert Investors" shall mean (i) Gilbert Global
Equity Partners L.P., (ii) Gilbert Global Equity Partners (Bermuda, L.P.),
and (iii) GGEP/GECC Equity Partners, L.P., each of which is a Member of the
Fund.
1.1.17 "Gross Asset Value" shall mean with respect to an
asset of the Series A Fund or the Series B Fund the adjusted basis for
federal income tax purposes of such asset, except that the Gross Asset Value
of each such asset shall be adjusted to equal its gross fair market value at
the time of any of the events described in Section 5.5.3.
1.1.18 "Indemnified Person" shall have the meaning set
forth in Section 11.1.
1.1.19 "Internal Rate of Return" shall have the meaning set
forth in Section 6.1.3.
1.1.20 "Manager" shall mean J Net Venture Partners, LLC, a
limited liability company.
1.1.21 "Marketable Securities" shall mean securities listed
on a national or regional stock exchange or quoted on the NASDAQ system,
including the over-the-counter bulletin board.
1.1.22 "Member" or "Members" shall mean the Manager and
those Members who have acquired Membership Interests, as listed on Schedule
A, which list may be amended from time to time.
1.1.23 "Membership Interest" shall mean all of a Member's
rights in the Fund at any particular time.
1.1.24 "Net Income" or "Net Loss" shall be computed
separately for Series A Fund Portfolio Companies and Series B Fund Portfolio
Companies and shall mean with respect to each fiscal year or other period, an
amount equal to the portion of the Fund's Taxable Income or Taxable Loss
allocable to Series A Fund Portfolio Companies or Series B Fund Portfolio
Companies, as the case may be, for such year or period, together with the
following adjustments:
any income of the Fund that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net Loss
pursuant to this definition shall be added to such Taxable Income or Taxable
Loss;
any expenditures of the Fund described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures and not
otherwise taken into account in computing Net Income or Net Loss pursuant to
this definition shall be subtracted from such Taxable Income or Taxable Loss
in the year paid, and shall not be taken into account in any other year; and
in the event the Gross Asset Value of any Fund asset is
adjusted pursuant to Section 5.5.3, the amount of such adjustment shall be
taken into account as a gain or loss on disposition of such asset immediately
prior to the event causing the adjustment for purposes of computing Net
Income and Net Loss;
with respect to each Fund asset the Gross Asset Value of
which differs from its adjusted federal income tax basis, any gain or loss
resulting from any disposition of such asset shall be computed by reference
to its Gross Asset Value, rather than its adjusted federal income tax basis;
notwithstanding any other provision of this definition of
Net Income and Net Loss, any items comprising the Fund's Net Income or Net
Loss that are allocated pursuant to Section 7.2 shall not be taken into
account in computing Net Income or Net Loss.
1.1.25 "Percentage Interest" shall mean, with respect to a
Member, a fraction (expressed as a percentage and calculated separately for
each Sub-Fund) (x) the numerator of which shall equal the sum of all Capital
Contributions to a Sub-Fund made by such Member as of such date, and (y) the
denominator of which shall equal the sum of all Capital Contributions to such
Sub-Fund made by all Members as of such date, as same may be adjusted
pursuant to this Agreement. A separate Percentage Interest shall be
calculated with respect to each Series B Fund Portfolio Company for each
Series B Fund Member equal to (i) the Capital Contribution of such Series B
Fund Member with respect to such Series B Fund Portfolio Company, divided by
(ii) the Capital Contributions of all Series B Fund Members with respect to
such Series B Fund Portfolio Company.
1.1.26 "Person" shall mean any individual, partnership,
corporation, limited liability company, unincorporated organization,
association, trust or other entity.
1.1.27 "Portfolio Company" shall mean a Person in which the
Series A Fund invests and/or the Series B Fund invests (i.e., a Series A Fund
Portfolio Company or a Series B Fund Portfolio Company).
1.1.28 "Regulations" shall, unless the context indicates
otherwise, mean the income tax regulations in force as final or temporary
promulgated under the Code, as such regulations may be amended from time to
time, including corresponding provisions of any succeeding regulations.
1.1.29 "Secretary of State" shall mean the Secretary of
State of Delaware.
1.1.30 "Series A Fund" shall have the meaning set forth in
Section 2.7.1.
1.1.31 "Series A Fund Member" shall mean a Member that has
a Membership Interest in the Series A Fund.
1.1.32 "Series A Fund Portfolio Company" shall mean a
Person in which the Series A Fund invests pursuant to this Agreement.
1.1.33 "Series B Fund" shall have the meaning set forth in
Section 2.7.1.
1.1.34 "Series B Fund Member" shall mean a Member that has
a Membership Interest in the Series B Fund.
1.1.35 "Series B Fund Portfolio Company" shall mean a
Person in which the Series B Fund invests pursuant to this Agreement.
1.1.36 "Sub-Fund" shall have the meaning set forth in
Section 2.7.1.
1.1.37 "Taxable Income" or "Taxable Loss" shall be computed
separately for the Series A Fund and for the Series B Fund and shall mean
with respect to each fiscal year or other period, an amount equal to the Sub-
Fund's taxable income or loss for such year or period determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss or deduction required to be separately stated pursuant to Code
Section 703(a)(1) shall be included in such taxable income or loss).
1.1.38 "Tax Matters Partner" or "TMP" shall have the
meaning set forth in Section 10.6.
1.1.39 "Term" shall have the meaning set forth in Section
2.4.
1.1.40 "Transfer" and "Transferred" shall have the meaning
set forth in Section 8.1.
ARTICLE TWO
Organization
2.1 Formation. The Members have formed a limited liability
company pursuant to the provisions of the Act and this Agreement. The Fund
commenced upon the filing of a Certificate of Formation on March 13, 2000
which was amended and restated by the Amended and Restated Certificate of
Formation (a copy of which is attached hereto as Exhibit A) which was filed
with the Secretary of State.
2.2 Name. The name of the Fund shall be "J Net Ventures I LLC".
2.3 Purposes.
2.3.1 The purpose for which the Series A Fund was formed
is to purchase, sell and invest in securities of, and to otherwise finance,
early stage and later stage Internet-related, software-related and
technology-related companies. Such companies may be private or public,
domestic or foreign.
2.3.2 The purpose for which Series B Fund was formed is to
purchase, sell and invest in securities of, and to otherwise finance, early
stage and later stage Persons involved in developing, providing and servicing
elements of the Internet infrastructure. Since one of the Gilbert Investors
participating in the Series B Fund has partners that are tax-exempt and/or
are foreign investors, the Series B Fund necessarily will have, and intends
to have, investment objectives and business purpose, different than that of
the Series A Fund, in addition to the differences between the purposes
described provided in Sections 2.3.1 and the first sentence of this Section
2.3.2. Notwithstanding the foregoing, the Series A Fund and the Series B
Fund may invest in the same Portfolio Companies.
2.3.3 Both the Series A Fund and the Series B Fund will
seek to be lead investor in investment situations, but may also co-invest
with other investment funds having objectives similar to that of the Series A
Fund or the Series B Fund, as the case may be. The Series A Fund and/or the
Series B Fund may also invest in short-term highly liquid investments
providing for appropriate safety of principal (such as government
obligations, certificates of deposit, money market fund investments, short-
term debt obligations and interest-bearing accounts) pending investment of
funds. The power to invest in securities shall include the power to invest
in one hundred percent (100%) or any fraction thereof of the debt or equity
securities of any one or more issuers and to cause the organization of any
one or more such issuers; and to invest in any other issuers which may engage
in the business of investing in securities of other issuers and/or making
loans to the other issuers. In furtherance of all of the foregoing purposes,
the Fund shall have all powers necessary, suitable or convenient for the
accomplishment of such purposes, including without limitation the power to
engage in any lawful act or activity for which limited liability companies
may be organized under the laws of Delaware
2.4 Restrictions on Investments. The Series A Fund shall invest
no more than 15% of the Capital Contributions of Series A Fund Members in a
single Portfolio Company.
2.5 Term. Subject to earlier dissolution pursuant to the Act or
this Agreement, the Fund shall continue in existence from the date of the
filing of its initial Certificate of Formation until March 31, 2005;
provided, however, that the time in which the Fund continues in existence may
be extended for up to a period not to exceed two (2) years at the discretion
of the Manager. Such period with any permitted extension is referred to
herein as the "Term".
2.6 Office and Agent. The Fund shall maintain a registered office
(which may but need not be a place of business in Delaware) and a registered
agent in the State of Delaware. The principal office of the Fund shall be in
such location as determined from time to time by the Manager. The registered
agent shall be as stated in the Certificate or as otherwise determined by the
Manager.
2.7 Creation of Series of Fund Interests.
2.7.1 The Fund hereby designates and shall consist of two
sub-funds ("Series A Fund" and "Series B Fund" and each a "Sub-Fund")
consisting of separate limited liability company interests allocated to each
pursuant to this Agreement. Each Sub-Fund shall have the separate rights,
powers and duties as is provided in the Agreement for the Fund, in general,
and when expressly provided in this Agreement, the Sub-Fund, subject however
to this Section. All Capital Contributions of the Gilbert Investors as and
when made shall be allocated to the Series B Fund and the Capital
Contributions of all other Members shall be allocated to the Series A Fund.
The Gilbert Investors shall have the exclusive right, subject to the approval
of the Manager, to make capital contributions to the Series B Fund in
addition to their Capital Commitments.
2.7.2 The debts, liabilities and obligations incurred,
contracted for or otherwise existing with respect to a Sub-Fund shall be
enforceable only against the assets of such Sub-Fund and not against the
assets of the Fund generally of the other Sub-Fund and none of the debts,
liabilities and obligations incurred, contracted for or otherwise existing
with respect to the Fund generally or such other Sub-Fund shall be
enforceable against the assets of such Sub-Fund.
2.7.3 The Fund shall insure that (i) separate and distinct
records shall be maintained for each of Sub-Fund, (ii) the assets associated
each Sub-Fund shall be held and accounted for separately from the assets of
the other Sub-Fund and (iii) the Amended and Restated Certificate of
Formation shall at all times reflect the provisions of Section 2.7.2.
2.7.4 The Manager shall consult with each Gilbert Investor
with regard to all material matters regarding Series B Fund Portfolio
Companies. In all events, the Manager shall obtain the written consent of
each Gilbert Investor prior to making an investment for the Series B Fund and
prior to any Disposition of a Series B Fund Portfolio Company. The Series B
Fund shall only make investments in Persons involved in developing, providing
and servicing Internet infrastructure unless each Gilbert Investor otherwise
consents in writing. The Series B Fund shall have the right to participate
in all investment opportunities made available to the Series A Fund, in an
amount equal to the prospective investment by the Series A Fund and otherwise
on the same terms and conditions applicable to the investment by the Series A
Fund. If the Membership Interests of a Gilbert Investor is assigned to its
constituent members or partners pursuant to Section 8.3, the constituent
members or partners shall select a single Person to represent their interests
with respect to this Section and notify the Manager in writing of the
identity of such Person, failing which the Manager may select a constituent
member or partner to act as the representative for the others.
2.7.5 The Series B Fund may only incur indebtedness or
become liable under guarantees if the Series B Fund Members have been advised
by counsel for the Fund (at the expense of the Series B Fund) that such
indebtedness or guarantees will not result in the realization of Unrelated
Business Taxable Income ("UBTI") (as defined in Section 512 of the Code) by
a Series B Fund Member (or any person treated for federal income tax purposes
as a partner of a Series B Member that is itself treated as a partnership for
federal income tax purposes) that is exempt from federal income taxation
under Section 501(a) of the Code. The Manager shall use its best efforts to
operate the Series B Fund in a manner that will not result in (i) realization
of UBTI by a Series B Fund Member (or any person treated for federal income
tax purposes as a partner of a Series B Fund Member that is itself treated as
a partnership for federal income tax purposes) that is exempt from income
taxation under Section 501(a) of the Code; or (ii) the Series B Fund being
engaged in the conduct of a "trade or business within the United States"
within the meaning of Section 864 of the Code.
2.8 Investments by Series A Fund in Series B Portfolio Companies.
To the extent of available funds, the Series A Fund shall make available up
to fifteen million dollars ($15,000,000) for investments in Series B Fund
Portfolio Companies. Such investments in Series B Fund Portfolio Companies
shall be in amounts equal to the amount invested by the Series B Fund and
shall be made as and when and on the same terms as the Series B Fund invests.
The Manager in its discretion, but subject to Section 2.3, may decide to have
the Series B Fund invest in a Series B Fund Portfolio Company in an amount
greater (but not lesser) than required by the foregoing sentence.
ARTICLE THREE
Members
3.1 Members; Percentage Interests. The initial Members and their
respective Capital Contributions and Percentage Interests are listed on
Schedule A attached hereto. The Percentage Interests shall be calculated
separately for the Series A Fund and the Series B Fund. Upon the admission
of any new Member, Schedule A shall be amended accordingly.
3.2 Admission of Additional Members. Additional Members may only
be admitted to the Fund upon the prior written consent of the Manager (and
the prior written consent of each Gilbert Investor with respect to
participation in the Series B Fund), and as otherwise provided in this
Agreement. Unless named in this Agreement, or unless admitted to the Fund as
a substituted Member as provided herein, no Person shall be considered a
Member, and the Fund need deal only with the Members so named and so
admitted.
3.3 Limited Liability. Except as expressly set forth in this
Agreement or required by law, no Member shall be personally liable for any
debt, obligation, or liability of the Fund, whether that liability or
obligation arises in contract, tort, or otherwise.
3.4 Membership Certificate. The Fund may issue, but shall not be
obligated to issue, to each Member, a certificate representing such Member's
Membership Interest in the Fund.
3.5 Voting Rights. Except as may be otherwise provided in the Act
or this Agreement, each of the Members hereby waives his or its right to vote
on any matters relating to the Fund.
3.6 Meeting of the Members. The Fund shall not be required to
hold annual or other meetings of the Members. Subject to the foregoing, a
meeting of the Members may be called at any time by the Manager. If called,
meetings of Members shall be held at the Fund's principal place of business,
unless otherwise agreed to by the Manager.
3.7 Members Are Not Agents. Pursuant to Section 4.1, the
management of the Series A Fund and the Series B Fund is vested in the
Manager. The Members shall have no power to participate in the management of
the Fund other than the Gilbert Investors with respect to the Series B Fund
as provided in Section 2.7.4. No Member, acting solely in the capacity of a
Member, is, or shall be, an agent of the Fund.
3.8 Resignation and Withdrawal of Members.
3.8.1 Members may not resign or withdraw as a Member prior
to the dissolution and winding up of the Fund.
3.8.2 The Manager may terminate the Membership Interest of
any Member and/or (notwithstanding Section 3.8.1) cause such Member to resign
from the Fund at any time upon at least two days' prior written notice, if
such resignation is required, as determined in the sole and absolute
discretion of the Manager, to comply with laws or regulations applicable to a
Member or if the Manager determines that the continued participation of such
Member in the Fund might adversely affect the Fund, such as by involving the
Fund or any Member in any litigation arising out of, or relating to, the
participation of such Member in the Fund or causing the Fund to be required
to register as an investment company under the Investment Fund Act. In the
event of termination by the Manager of the Member's Interest, such Member
shall immediately resign from the Fund and cease to be a Member but shall be
paid the fair market value of the Member's Membership Interest as determined
by the Manager, 90% of such amount payable within 90 days after such
termination or as soon thereafter as the Fund has available funds, with the
remainder to be paid upon completion of that year's audit. Notwithstanding
the foregoing, if the terminated Member is a Series B Fund Member, Manager
shall cause a redemption of the Membership Interest of such terminated Member
by distributing to such Member interests in Series B Fund Portfolio Companies
held by the Series B Fund at the time equal to such Member's Percentage
Interests in such Series B Fund Portfolio Companies, unless the Series B Fund
is prohibited from making such distribution either by agreement with a
Portfolio Company or if the Manager, in good faith, determines that such
redemption and/or distribution of interests in Series B Fund Portfolio
Companies is not in the best interests of the Series B Fund and/or the other
Series B Fund Members.
3.9 Confidentiality. Members shall keep confidential and not
disclose to any other person any information received from the Fund relating
to business affairs of the Fund, including any information relating to any
Portfolio Company or prospective Portfolio Company except as may otherwise be
required by law
3.10 Competing Activities.
3.10.1 The Manager shall devote to the Fund and to
Portfolio Companies in which the Fund invests such time as the Manager
believes shall be necessary to conduct the Fund business and affairs in an
appropriate manner. The Members recognize, however, that Affiliates of the
Manager, and any member, officer or employee of the Manager or any such
Affiliate, shall be required to devote only such time to the affairs of the
Fund and to Portfolio Companies, as the Manager or such other Person
determines in its reasonable discretion may be necessary or appropriate to
manage and operate the Fund, and each such Person shall be free to serve and
may be compensated by any other Person or enterprise in any capacity
(including serving the Fund in any capacity other than as a representative or
agent of the Manager) that it may deem appropriate in its discretion. The
Members hereby consent to the foregoing. The Members further acknowledge
that although the Manager and the Advisory Board intend generally to identify
appropriate investment opportunities for the Fund, neither the Manager, the
Advisory Board nor any of their Affiliates shall have any obligation under
this Agreement, to offer to the Fund or any Member any particular investment
opportunity (except that the Manager shall offer to the Series B Fund each
investment opportunity presented to the Series A Fund as provided in Section
2.7). Any Member may engage in or possess any interest in other business
ventures of any kind, nature or description, independently or with others,
whether such ventures are competitive with the Fund or otherwise. Neither
the Fund nor any Member shall have any rights or obligations by virtue of
this Agreement or the Fund relationship created hereby in or to such
independent ventures or the income or profits or losses derived therefrom.
3.10.2 Each Member acknowledges and agrees that (i) neither
the Manager nor any Affiliate of the Manager shall be prohibited from being a
sponsor or manager of or providing services to any other equity fund
including any equity fund having purposes substantially the same as those of
the Fund (a "Competitive Fund"); and (ii) neither the Manager nor any
Affiliate of the Manager shall have any obligation to offer to any Member the
opportunity to become Members of any Competitive Fund, or, if so offered,
such offer is not required to be made to the Members on a pro rata basis.
3.10.3 Notwithstanding that it may constitute a conflict of
interest, the Manager may engage in any transaction (including, without
limitation, the purchase, sale, lease, or exchange of any property or the
rendering of any service, or the establishment of any salary, other
compensation, or other terms of employment) with the Fund.
3.10.4 The Fund may invest in entities in which the
Manager, Affiliates of Manager or a member, officer or employee of Manager of
Affiliate may have an existing interest as manager, investor, consultant or
otherwise and the Members hereby consent to such investment.
ARTICLE FOUR
Management and Control of the Fund
4.1 Management of the Fund by Manager. The business, policies,
property, investment decisions and affairs of the Fund generally and of both
the Series A Fund and the Series B Fund in particular, shall be managed
exclusively by the Manager. Except for situations in which the approval of
the Members is expressly required by the Act, the Manager shall have full,
complete and exclusive authority, power, and discretion to manage and control
the business, policies, property and affairs of the Fund, to make all
decisions regarding those matters and to perform any and all other acts or
activities customary or incident to the management of the Fund's business,
property and affairs. With respect to the management of the Series B Fund,
the foregoing shall be subject to Sections 2.7 and 2.8.
4.2 Advisory Board.
4.2.1 The Manager shall from time to time select a panel
of persons to be members of an Advisory Board (the "Advisory Board").
Members of the Fund and/or Members of, or Affiliates of, the Manager may be
selected to service on the Advisory Board.
4.2.2 The Manager shall determine the functions of the
Advisory Board but in general the Advisory Board shall assist the Manager
with identifying investments, conducting due diligence and managing
investments. The recommendations of the Advisory Board shall be advisory
only and the Manager shall not be obligated to act in accordance with the
advice or recommendations of the Advisory Board, and shall suffer no
liability for failure to do so.
4.2.3 The members of the Advisory Board shall not be
compensated by the Fund for services rendered as a member of the Advisory
Board other than pursuant to this Section. The Manager shall reimburse
Advisory Board members for reasonable out-of-pocket expenses. The Manager
may also grant to all or some of the Advisory Board members a "profits
interest" in any Portfolio Company (i) first identified to the Manager by
such member or (ii) with respect to which such member significantly
participates in the due diligence. If the Manager requests that an Advisory
Board member serve as a director of a Portfolio Company, such member may keep
any monetary or other compensation provided by such Portfolio Company.
4.3 Limited Liability. Except as expressly set forth in this
Agreement or required by law, the Manager shall not be personally liable for
any debt, obligation, or liability of the Fund, whether arising in contract,
tort or otherwise, solely by reason of being the Manager of the Fund.
4.4 Management Compensation. The Manager shall not be entitled to
any compensation for services rendered in connection with the management of
the Fund other than pursuant to Article Six.
4.5 Assignment of Manager's Interest; Resignation of Manager;
Removal of Manager.
4.5.1 The Manager shall not assign, sell or otherwise
dispose of all or any portion of its interest as Manager; provided the
foregoing shall not restrict changes in the composition of the members of the
Manager nor a sale of Manager to one of its members.
4.5.2 The Manager shall not resign without the consent of
Members holding at least 75% of the Percentage Interests of the Series A Fund
and each of the Series B Fund Members.
4.5.3 Notwithstanding anything contained in the Act or
this Agreement to the contrary, the Manager may only be removed by unanimous
vote of all Members of the Fund and Members participating in a Sub-Fund shall
not be entitled to remove the Manager with respect to its role as Manager of
such Sub-Fund without the unanimous vote of all Members of the other Sub-
Fund.
4.5.4 If the Manager has resigned or is removed, then the
successor Manager shall be appointed by holders of at least a majority of the
Percentage Interests of each Sub-Fund.
4.6 Performance of Duties; Liability of Manager. The Manager
shall not be liable to the Fund or to any Member for any loss or damage
sustained by the Fund or any Member, unless the loss or damage shall have
been the result of fraud, deceit, gross negligence, reckless or intentional
misconduct, or a knowing violation of law by the Manager.
4.7 Liability of Manager Limited to Manager's Assets. Under no
circumstances will any director, officer, shareholder, member, manager,
partner, employee, agent or Affiliate of the Manager have any personal
responsibility for any liability or obligation of the Manager.
4.8 Expenses of the Fund.
4.8.1 The Fund itself shall not have any direct salaried
personnel. The following expenses ("Manager Expenses") shall be borne by the
Manager:
All general office overhead of the Fund, including
rent, utilities, telecommunications, office
furniture and equipment and computers ("Overhead") (and all
such furniture, equipment And computers shall be and remain
the property of the Manager), it being understood, however,
that general office overhead directly relating to the
operations of the Fund's Portfolio Companies (including, for
example, rent and other items of overhead attributable to
space and services used by employees of the Fund's Portfolio
Companies) will be borne directly by such Portfolio Companies
or, if paid by the Manager or a member of the Manager, the
Manager or such member will be reimbursed by such Portfolio
Companies;
All expenses of monitoring and managing investments
other than Transaction Expenses, as defined in Section
4.8.2(iv); and
All Organizational Expenses as defined in Section
4.8.2(i) in excess of $100,000.
4.8.2 All expenses of the Fund that are not Manager
Expenses shall be "Fund Expenses", shall be borne by and allocated between
the Series A Fund and the Series B Fund pursuant to Section 4.8.4 and shall
include, without limitation:
All reasonable organization costs, fees and expenses
incurred by or on behalf of the Manager of its Affiliates in
connection with the formation and organization of the Fund
("Organizational Expenses") up to an amount not to exceed
$100,000. Such organization expenses shall include, without
limitation, legal and accounting fees and expenses, marketing,
printing and travel expenses;
To the extent not reimbursed by a prospective or
actual Portfolio Company and to the extent not considered
Overhead, all expenses of operating the Fund, including,
without limitation, any taxes imposed on the Fund, fees and
expenses for attorneys, accountants, investment bankers and
the members of the Advisory Board, insurance premiums, all
expenses relating to the disposition of Portfolio Companies,
all indemnification obligations of the Fund, the costs and
expenses of any litigation involving the Fund and the amount
of any judgments or settlements paid in connection therewith
(excluding, however, any costs and expenses which are finally
judicially determined to have resulted primarily from the
Manager's fraud, willful misconduct or gross negligence);
All expenses incurred by the Fund related to the
discovery, investigation, development, evaluation, structuring
or negotiation of investment opportunities for the Fund where
an investment does not in fact result, including, without
limitation, (i) commitment fees that become payable in
connection with a proposed investment that is not ultimately
made, (ii) legal, accounting, investment banking and other
professional fees and expenses and (iii) printing expenses;
and
All expenses described in "iii" above with regard to
investment opportunities for the Fund that actually result in
an investment (all such expenses referred to in subsection
"iii" above and this subsection "iv", "Transaction Expenses").
The Manager (or a member of Manager) shall pay, on behalf of the Fund, all
Fund Expenses and the Fund, on demand, shall promptly reimburse the Manager
(or a member of Manager if paid by such member) for the payment thereof. The
Manager shall allocate such expenses among the Portfolio Companies and other
Fund income as the Manager may reasonably determine. All breakup, topping or
similar fees shall be paid to and retained by Manager provided, however, the
Fund shall receive a credit against any reimbursement payments of Fund
Expenses due Manager in the amount of such fees as and when received by
Manager.
4.8.3 The Manager shall not receive any salary, fees,
profits, distributions or compensation from the Fund, except as provided in
this Article Four and Article Six.
4.8.4 Fund Expenses described in Section 4.8.2(i), (ii)
and (iii) shall be allocated to the Series A Fund provided, however, to the
extent that Series B Fund Members have committed to have a prospective
investment included in the Series B Fund, Fund Expenses described in Section
4.8.2(iii) with regard to such prospective but abandoned investment shall be
allocated to the Series A Fund and the Series B Fund in proportion to their
prospective investments. Fund Expenses described in Sections 4.8.2(iv) shall
be allocated to the particular Portfolio Company to which they relate and as
between the Series A Fund and the Series B Fund, in proportion to their
prospective investments in such Portfolio Company.
ARTICLE FIVE
Capital Contributions
5.1 Amount and Timing of Capital Contributions.
5.1.1 Each Series A Fund Member shall contribute to the
Fund the amount set forth on Schedule A beside its name. The Gilbert
Investors jointly and severally agree to contribute, in accordance with
Section 5.1.3, to the Fund, collectively, up to Fifteen Million Dollars
($15,000,000) during the Term, with the allocation of such contributions by
each Gilbert Investor to be decided among the Gilbert Investors. The amounts
that the Series A Fund Members and the Gilbert Investors have agreed to
contribute to the Fund shall be referred to as their "Capital Commitments".
5.1.2 The Series A Fund Members shall make their entire
respective Capital Commitments in conjunction with the execution of this
Agreement.
5.1.3 The Gilbert Investors shall make payments from time
to time with respect their Capital Commitments only in conjunction with
investments approved by the Gilbert Investors pursuant to Section 2.7.4.
Once an investment is so approved, the Gilbert Investors shall make payments
with respect to their Capital Commitment in the aggregate amount equal to 50%
of the funds necessary to fund such approved investments as reasonably
determined by Manager with the balance to be funded by the Series A Fund
pursuant to Section 2.8. The allocation of the amounts to be paid by the
individual Gilbert Investors shall be determined exclusively by the Gilbert
Investors, and may vary from investment to investment provided, however, the
Gilbert Investors shall be jointly and severally obligated to make the
contributions required for the approved investments. All such payments to be
made by the Gilbert Investors to the Fund shall be made by the date specified
in a written notice ("Capital Call Date") given by the Manager ("Capital
Call"), which Capital Call Date shall not be less than fifteen (15) business
days after such Capital Call has been given.
5.2 Additional Capital Contributions. No Member shall be required
to make any Capital Contributions other than as set forth in Section 5.1.
5.3 Withdrawal or Reduction of Capital Contributions.
5.3.1 Except as expressly provided in this Agreement, no
Member shall have the right to withdraw from the Fund all or any part of his
or its Capital Contribution prior to the dissolution and winding up of the
Fund.
5.3.2 Without limiting the generality of this Section, no
Member shall receive any part of his or its Capital Contribution with respect
to a Sub-Fund until: (i) all liabilities of the Sub-Fund, except liabilities
to Members on account of their Capital Contributions, have been paid or there
remains property of the Sub-Fund sufficient to pay them; or (ii) the Amended
and Restated Certificate of Formation or this Agreement is canceled.
5.4 No Interest Payable on Capital Contributions. No interest
shall be payable on or with respect to the Capital Contributions or Capital
Accounts of Members.
5.5 Capital Accounts. An individual Capital Account (the "Capital
Account") shall be maintained separately for the Series A Fund and for the
Series B Fund for each Member separately for the Series A Fund and for the
Series B Fund in accordance with the following provisions.
5.5.1 The initial Capital Account of each Member shall be
the amount contributed by that Member to the Fund. Following the date
hereof, each Member's Capital Account shall be credited with (1) the amount
of additional cash contributions made by such Member to the Fund; (2) the
amount of such Member's allocable share of Net Income and any items of Fund
income and gain that are specially allocated to such Member pursuant to
Article Seven hereof; and (3) the amount, if any, of any Fund liabilities
assumed by the Member or that are secured by any Fund property distributed to
such Member by the Fund.
5.5.2 Each Member's Capital Account shall be charged with
(1) the amount of cash distributed to such Member by the Fund (other than
cash distributed in repayment of any loan by such Member to the Fund or as
payment of interest thereon); (2) the amount of such Member's allocable share
of Net Loss and any items of Fund loss and deduction that are specially
allocated to such Member pursuant to Article Seven hereof; and (3) the fair
market value of any property distributed to such Member by the Fund (net of
liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code).
5.5.3 In the event of (1) the acquisition of an additional
interest in the Fund by any new or existing Member in exchange for more than
a de minimis Capital Contribution, (2) the distribution by the Fund to a
Member of more than a de minimis amount of the assets of the Fund as
consideration for an interest in the Fund, (3) the liquidation of the Fund
for federal income tax purposes pursuant to Regulation Section 1.704-
1(b)(2)(ii)(g), or (4) an election under Code Sections 734(b) or 743(b), but
only as provided in Regulation Section 1.704-1(b)(2)(iv)(m), the Gross Asset
Value of the Fund's properties shall be adjusted (limited, in the case of the
events described in clauses (1) and (2), to adjustments which the Manager
determine are necessary or appropriate to reflect the relative economic
interest of the Members) to equal their then fair market values (as
determined by the Manager), and the Capital Accounts of each Member shall be
credited or charged with such Member's share of the Net Income or Net Loss
resulting from such adjustments.
5.5.4 In the event that any Membership Interest in the
Fund is transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred interest.
5.5.5 The foregoing provisions and the other provisions of
this Agreement relating to the maintenance of Capital Accounts are intended
to comply with Regulation Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulation.
5.5.6 Notwithstanding anything in this Section to the
contrary, a separate Capital Account shall be maintained for the Manager for
Series A Fund Portfolio Companies and for Series B Portfolio Companies. All
references in Sections 7.1.1 and 7.1.2 shall be deemed references to the
Capital Account maintained for the Manager for Series A Fund Portfolio
Companies.
5.6 Minimum Capital Contribution of Manager. Notwithstanding any
other provision of this Agreement, the Manager shall make a capital
contribution of $100 to the Fund and shall be considered a Member.
ARTICLE SIX
Distributions
6.1 Distributions.
6.1.1 Subject to the reasonably anticipated business needs
and opportunities of the Fund, taking into account all debts, liabilities and
obligations of the Fund then due, working capital and other amounts which the
Manager deems necessary for the Fund's business or to place into reserves for
customary and usual claims with respect to such business, and subject also to
any restrictions under applicable law (including, without limitation, any
obligation to withhold and remit any amounts to any governmental authority),
the Manager may resolve to distribute the cash and all or a portion of
Marketable Securities held by the Fund to the Members, at such intervals as
the Manager shall determine in its sole discretion. The Manager shall make
the foregoing determinations separately for each Sub-Fund considering the
business needs and opportunities, debt, liabilities, obligations, working
capital, reserves and assets of each Sub-Fund individually so that the assets
of one Sub-Fund shall only be available to satisfy the debts, liabilities,
and obligations with respect to such Sub-Fund, plus the actual or anticipated
Fund Expenses allocated or allocable to such Sub-Fund pursuant to Section
4.8.4 except that the Manager may consider the interests of both Sub-Funds
when determining whether to distribute Marketable Securities. If the Manager
determines to distribute Marketable Securities such distribution shall be
made in accordance with Section 6.1.2A and B, and no Member shall receive a
preference as to the receipt of Marketable Securities in lieu of cash or cash
in lieu of Marketable Securities. Notwithstanding the foregoing provisions
of this Section, if (i) at any time the Fund sells, exchanges or otherwise
disposes of all or any part of its interest in a Portfolio Company (a
"Disposition") and (ii) the Manager determines that the distribution of the
proceeds resulting from the sale together with any undistributed dividends
and interest, net of expenses and reserves set aside by the Manager pursuant
to this Section, will not violate Section 6.3.1, then the Manager shall
distribute such net proceeds (including dividends and interest) to the
Members as provided below:
6.1.2.A All amounts to be distributed hereunder shall be
distributed in the following order of priority with respect to each Series A
Fund Portfolio Company (to the extent of such investment by the Series A
Fund):
First, to each Series A Fund Member in proportion to
their respective Percentage Interests in the Series A Fund
until each Series A Fund Member has received pursuant to this
Section an amount equal to such Series A Fund Member's Capital
Contribution;
Second, to each Series A Fund Member in proportion
to their respective Percentage Interests until the Series A
Fund Members have received an Internal Rate of Return on their
Capital Contributions of 8%;
Third, to the Manager until the Manager has received
an amount equal to 20% of the cumulative
distributions made to Members pursuant to "ii"
above;
Lastly, the balance, 80% to the Series A Fund
Members in proportion to their respective Percentage
Interests and 20% to the Manager.
Distributions to the Manager pursuant to "iii" and "iv" above shall be called
"Carried Interest Distributions". If upon a Disposition, the cumulative
amounts distributed to Series A Fund Members pursuant to Section 6.1.2A
(including distributions that would result from the Disposition in question),
result in a Internal Rate of Return in excess of 35%, then the distribution
percentages referred to in Section 6.1.2.A(iv) shall be 70% with respect to
Series A Fund Members and 30% with respect to the Manager.
The term "Internal Rate of Return" means the discount rate, compounded
annually, at which the net present value of all contributions made by, and
all distributions to, a Member is zero.
6.1.2.B With respect to each Series B Portfolio Company in
which the Series B Fund invests (to the extent of such investment by the
Series B Fund) amounts attributable to each Series B Fund Portfolio Company
shall be distributed to the Series B Fund Members in proportion to their
respective Percentage Interests in the Series B Fund, calculated separately
for each Series B Portfolio Company.
6.1.3 Without limiting the generality of Section 6.1.1,
if and to the extent that the Fund is earning income which will result in the
Members being subject to income tax on their distributive share of the Fund's
income, minimum distributions shall be made to the Members in such amounts
and at such times (but in no event later than March 31 each year) as shall be
sufficient to enable the Members to meet any income tax liability arising or
incurred as a result of their participation in the Fund. Any such
distribution shall be made on a nondiscriminatory basis to all Members pro
rata in accordance with their respective Fund Percentage Interests and shall
be credited against amounts distributible under Article Six.
6.1.4 It is specifically recognized that in making an
assumption as to tax liabilities of a Member, some Members may receive a
distribution which is in excess of their actual tax liabilities, and some
Members may receive a distribution which is less.
6.2 Form of Distributions.
6.2.1 No Member, regardless of the nature of the Member's
Capital Contribution, has any right to demand and receive any distribution
from the Fund in any form other than money.
6.2.2 At the Manager's sole discretion, the Fund may
distribute specific property or assets of the Fund (including, without
limitation, Marketable Securities).
6.3 Restriction on Distributions.
6.3.1 No distribution shall be made from a Sub-Fund if,
after giving effect to the distribution: (i) the Sub-Fund would not be able
to pay its debts as they become due in the usual course of business, (ii) the
Sub-Fund's total assets would be less than the sum of its total liabilities,
or (iii) the provisions of Section 18-215(h) of the Act are not satisfied.
6.3.2 The Manager may base a determination that a
distribution is not prohibited on any of the following: (i) financial
statements prepared on the basis of accounting practices and principles that
are reasonable in the circumstances; (ii) a fair valuation; or (iii) any
other method that is reasonable in the circumstances.
The effect of a distribution is to be measured as of the date the
distribution is authorized if the payment is to occur within one hundred
twenty (120) days after the date of authorization, or the date payment is
made if it is to occur more than one hundred twenty (120) days after the date
of authorization.
6.4 Return of Distributions. Members and Economic Assignees who
receive distributions made in violation of the Act or this Agreement shall
return such distributions to the Fund. Except for those distributions made
in violation of the Act or this Agreement, no Member or Economic Assignee
shall be obligated to return any distribution to the Fund or pay the amount
of any distribution for the account of the Fund or to any creditor of the
Fund. The amount of any distribution returned to the Fund by a Member or
Economic Assignee or paid by a Member or Economic Assignee for the account of
the Fund or to a creditor of the Fund shall be added to the account or
accounts from which it was subtracted when it was distributed to the Member
or Economic Assignee.
6.5 Withholding from Distributions. To the extent that the Fund
is required by law to withhold or to make tax or other payments on behalf of
or with respect to any Member or Economic Assignee, the Fund may withhold
such amounts from any distribution and make such payments as so required.
For purposes of this Agreement, any such payments or withholdings shall be
treated as a distribution to the Member or Economic Assignee on behalf of
whom the withholding or payment was made. Each Member shall indemnify and
hold the Fund harmless from and against all liabilities and taxes (including
interest and penalties) resulting from the Fund's failure to withhold or to
make tax or other payments attributable to such Member's allocable share of
the Fund's income or distributible cash.
ARTICLE SEVEN
Allocations
7.1 Allocations of Net Income and Net Losses.
7.1.1 Net Income attributable to Series A Fund Portfolio
Companies shall be allocated among the Series A Fund Members as follows:
First, to all Series A Fund Members in proportion
to the negative balances in their respective Capital
Accounts, if any, until all such negative balances have been
increased to zero.
Then, to the Series A Fund Members in an amount
equal to, or in proportion to, the positive differences
between (x) the amount distributible to each such Member
pursuant to Section 6.1.2.A(i), and (y) the positive balance
in its Capital Account.
Then, to the Series A Fund Members in an amount
equal to, or in proportion to, the positive differences
between (x) the amount distributible to each such Member
pursuant to Section 6.1.2.A(i) and (ii), and (y) the positive
balance in its Capital Account.
Then, to the Manager in an amount equal to the
positive difference between (x) the amount distributible
to the Manager pursuant to Section 6.1.2.A(iii) and (y) the
positive balance in its Capital Account.
Then, to the Series A Fund Members and the Manager
in an amount equal to, or in proportion to, the positive
differences between (x) the amount distributible to each such
Member pursuant to Sections 6.1.2.A(i), (ii), (iii) and (iv),
and (y) the positive balance in its Capital Account.
Then, to the Series A Fund Members and the Manager in
proportion to the allocations made to Series A Fund Members
pursuant to subsection (v) of this Section 7.1.1.
7.1.2 Net Losses shall be allocated as follows:
First, to the Series A Fund Members and the Manager
in an amount equal to, or in proportion to, the positive
differences between (x) the positive balance in its Capital
Account, and (y) the amount distributible to each such Series
A Fund Member pursuant to Sections 6.1.2.A(i), (ii) and (iii).
Then, to the Manager in an amount equal to the
positive difference between (x) the positive balance in the
Manager's Capital Account, and (y) the amount distributible
to the Manager pursuant to Section 6.1.2.A(i).
Then, to the Series A Fund Members in an amount
equal to, or in proportion to, the positive differences
between (x)the positive balance in its Capital Account, and
(y) the amount distributible to each such Series A Fund
Member pursuant to Section 6.1.2.A(i).
Then, to the Series A Fund Members and the Manager
in proportion to the positive balances in their respective
Capital Accounts until all such positive balance have been
reduced to zero.
Then, 80% to the Members in proportion to their
respective Percentage Interests and 20% to the Manager.
7.1.3 Net Income and Net Losses attributable to Series B
Portfolio Companies shall be allocated exclusively among Series B Fund
Members in proportion to their respective Percentage Interests in the Series
B Fund with respect to each such Series B Portfolio Company.
7.1.4 Notwithstanding anything in Section 7.1 to the
contrary, on liquidation of the Fund, Net Income and Net Loss (and items
thereof) shall be allocated among the Members (including the Manager) such
that, after taking into account such allocations, the positive balance in
each Member's Capital Account is equal to the amount distributible to that
Member pursuant to Section 9.2.4.
7.2 Regulatory Allocations.
7.2.1 The Regulatory Allocations set forth in this Section
7.2 shall be calculated separately for the Capital Accounts maintained for
the Series A Fund and the Series B Fund.
7.2.2 Notwithstanding any other provision of this
Agreement, Net Loss (or items of deduction as computed for book purposes)
shall not be allocated to a Member to the extent that the Member has or would
have, as a result of such allocation, an Adjusted Capital Account Deficit.
As used herein, a Member's "Adjusted Capital Account Deficit" shall mean and
refer to such Member's Capital Account, increased by any amounts which such
Member is obligated to restore pursuant to the terms of this Agreement or is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations 1.704-2(g)(1) and 1.704-2(i)(5), and reduced by any
adjustments, allocations or distributions described in Regulation 1.704-
1(b)(2)(ii)(d)(4), (5) or (6). Any Net Loss (or items of deduction as
computed for book purposes) which otherwise would be allocated to a Member,
but which cannot be allocated to such Member because of the application of
the first sentence of this Section 7.2.2, shall instead be allocated to the
other Members, in accordance with their respective Percentage Interests,
subject to the limitation imposed by the immediately preceding sentence.
7.2.3 In order to comply with the "qualified income
offset" requirement of the Regulations under Section 704(b) of the Code, and
notwithstanding any other provision of this Agreement to the contrary, except
Section 7.3, in the event a Member for any reason (whether or not expected)
has an Adjusted Capital Account Deficit, items of Net Income (consisting of a
pro rata portion of the items thereof) shall be allocated to such Member in
an amount and manner sufficient to eliminate as quickly as possible the
Adjusted Capital Account Deficit.
7.2.4 In order to comply with the "minimum gain
chargeback" requirements of Regulations 1.704-2(f)(1) and 1.704-2(i)(4),
and notwithstanding any other provision of this Agreement to the contrary, in
the event there is a net decrease in a Member's share of Fund minimum gain
(as defined in Regulation 1.704-2(d)(1)) and/or Member nonrecourse debt
minimum gain (as defined in Regulation 1.704-2(i)(2)) during a taxable year,
such Member shall be allocated items of income and gain for that year (and if
necessary, for other years) as required by and in accordance with Regulations
1.704-2(f)(1) and 1.704-2(i)(4) before any other allocation is made.
7.2.5 Notwithstanding any other provision of this
Agreement, all items of deduction and loss that, pursuant to Regulation
1.704-2(i), are attributable to a nonrecourse debt for which a Member (or a
Person related to such Member under Regulation 1.752-4(b)) bears the
economic risk of loss (within the meaning of Regulation 1.752-2), shall be
allocated to such Member as required by Regulation 1.704-2(c).
7.2.6 The allocations set forth in this Section 7.2 (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Taxable
Income or Taxable Loss. Therefore, notwithstanding any other provision of
this Article Seven (other than the Regulatory Allocations), offsetting
special allocations of Taxable Income or Taxable Loss, shall be made in
whatever manner is appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the extent possible, equal
to the Capital Account balance such Member would have had if the Regulatory
Allocations were not part of this Agreement. In making such offsetting
allocations, there shall be taken into account future Regulatory Allocations
that, although not yet made, are likely to offset other Regulatory
Allocations previously made.
7.3 Code Section 704(c) Allocations. Notwithstanding any other
provision in this Article Seven, in accordance with Code Section 704(c) and
the Regulations promulgated thereunder, income, gain, loss, and deduction
with respect to any property the Gross Asset Value of which differs from its
adjusted basis shall, solely for tax purposes, be allocated among the Members
so as to take account of any variation between the adjusted basis of such
property to the Fund for federal income tax purposes and its Gross Asset
Value on the date of contribution. Allocations pursuant to this Section 7.3
are solely for purposes of federal, state and local taxes. As such, they
shall not affect or in any way be taken into account in computing a Member's
Capital Account or share of profits, losses, or other items of distributions
pursuant to any provision of this Agreement.
7.4 Other Allocation Rules. Each separate item of income,
deduction, gain and loss of the Fund shall be allocated among the Members in
the same proportion as the portion of the total Net Income or Net Loss for
the period which is credited or charged to the Capital Account of each Member
bears to the total Net Income or Net Loss for such period.
7.5 Allocation of Net Income and Losses and Distributions in
Respect of a Transferred Interest.
7.5.1 If any Membership Interest is transferred, or if a
Member's Percentage Interest is increased or decreased by reason of the
admission of a new Member or otherwise, during any Fiscal Year of the Fund,
Net Income or Net Loss for such Fiscal Year shall be assigned pro-rata to
each day in the particular period of such Fiscal Year to which such item is
attributable (i.e., the day on or during which it is accrued or otherwise
incurred) and the amount of each such item so assigned to any such day shall
be allocated to the Member or Assignee based upon his or her respective
Economic Interest at the close of such day.
7.5.2 However, for the purpose of accounting convenience
and simplicity, the Fund shall treat such a transfer, increase or decrease
in, if a Member's Percentage Interest which occurs at any time during a semi-
monthly period (commencing with the semi-monthly period including the date
hereof) as having been consummated on the last day of such semi-monthly
period, regardless of when during such semi-monthly period such transfer,
increase, or decrease actually occurs (i.e., sales and dispositions made
during the first fifteen (15) days of any month will be deemed to have been
made on the 15th day of the month).
7.5.3 Notwithstanding any provision above to the contrary,
gain or loss of the Fund realized in connection with a sale or other
disposition of any of the assets of the Fund shall be allocated solely to the
parties owning Membership Interests as of the date such sale or other
disposition occurs.
7.6 Obligations of Members to Report Allocations. Each Member
hereby recognizes that the Fund will be treated as a partnership for federal
and state income tax purposes and will be subject to all provisions of
subchapter K of chapter 1 of subtitle A of the Code. Each Member is aware of
the income tax consequences of the allocations made by this Article Seven and
hereby agrees to be bound by the provisions of this Article Seven in
reporting his or her share of Fund income and loss for income tax purposes.
Each Member agrees to report, on his own income tax returns for each year,
each item of income, gain, loss, deduction and credit as reported by the Fund
to such member on Schedule K-1 (or other similar tax report) issued by the
Fund to such Member for such year. Except as otherwise required by law, no
Member shall take any reporting position that is inconsistent in any respect
with any tax reporting position taken by the Fund and, in the event of a
breach by such Member of the provisions of this Section such Member shall be
liable to the Fund and the Members for any costs, liabilities and damages
(including, without limitation, consequential damages) incurred by any of
them on account of such breach.
ARTICLE EIGHT
Transfer and Assignment of Interests
8.1 Transfer and Assignment of Interests. Subject to Section 8.4
hereof, no Member shall be entitled to transfer, assign, convey, sell,
encumber or in any way alienate all or any part of his or her Membership
Interest (collectively, "Transfer" or "Transferred") except with the prior
written consent of the Manager, which consent may be given or withheld,
conditioned or delayed (as allowed by this Agreement or the Act), in its sole
and absolute discretion. Transfers in violation of this Article Eight shall
only be effective to the extent set forth in Section 8.7. After the
consummation of any Transfer of any part of a Membership Interest, the
Membership Interest so Transferred shall continue to be subject to the terms
and provisions of this Agreement and any further Transfer shall be required
to comply with all the terms and provisions of this Agreement.
8.2 Further Restrictions on Transfer of Interests. In addition to
other restrictions found in this Agreement, no Member shall Transfer all or
any part of his or her Membership Interest without compliance with Section
12.9.
8.3 Permitted Transfers. The Membership Interest of any Member
may be Transferred to any other Member, subject to compliance with Section
12.9, and without the prior written consent of the Members or Manager. The
Economic Interest of any Member may be Transferred subject to compliance with
Section 8.2, and without the prior written consent of the Manager, by the
Member (i) to any spouse, parent, sibling, in-law, child or grandchild of the
Member, or to a trust for the benefit of the Member or such spouse, parent,
sibling, in-law, child or grandchild of the Member by inter vivos gift or by
testamentary transfer, or (ii) to any Affiliate of the Member (such
transferee, an "Economic Assignee"). Following the full funding to the Fund
of the Capital Commitments of the Gilbert Investors, the Membership Interest
of any Gilbert Investor may be Transferred to any Affiliate of a Gilbert
Investor or a constituent member or partner of the entity constituting a
Gilbert Investor without the written consent of the Manager, subject to
compliance with Section 12.9. Notwithstanding anything contained herein to
the contrary, no Transfer of a Membership Interest or Economic Interest
(whether or not the consent of the Manager is required) shall be effective
until written notice of such Transfer and the identity, address, and tax
reporting information of the transferee is delivered to the Manager.
8.4 Substitution of Members. An Economic Assignee of a Membership
Interest shall have the right to become a substitute Member only if (i) the
requirements of Sections 8.1 and 8.2 are met, (ii) the Economic Assignee
executes an instrument satisfactory to the Manager accepting and adopting the
terms and provisions of this Agreement, and (iii) the Economic Assignee pays
any reasonable expenses in connection with his or her admission as a new
Member. The admission of an Economic Assignee as a substitute Member shall
not result in the release of the Member who assigned the Membership Interest
from any liability that such Member may have to the Fund. Sections 8.1, 8.2,
8.3 and this Section 8.4 shall supply to any purported Transfer of an
Economic Interest by an Economic Assignee.
8.5 Effective Date of Permitted Transfers. Any permitted Transfer
of all or any portion of a Membership Interest shall be effective as of the
date provided in Section 7.5 following the date upon which the requirements
of Sections 8.1, 8.2, 8.3 and 8.4 have been met. Any transferee of a
Membership Interest shall take such Membership Interest subject to the
restrictions on Transfer imposed by this Agreement.
8.6 Rights of Legal Representatives. If a Member who is an
individual dies or is adjudged by a court of competent jurisdiction to be
incompetent to manage the Member's person or property, the Member's executor,
administrator, guardian, conservator, or other legal representative may
exercise all of the Member's rights for the purpose of settling the Member's
estate or administering the Member's property, including any power the Member
has under this Agreement to Transfer the Economic Interest. If a Member is a
corporation, trust, or other entity and is dissolved or terminated, the
powers of that Member may be exercised by his or her legal representative or
successor.
8.7 No Effect to Transfers in Violation of Agreement. Any
Transfer of a Membership Interest in violation of this Article Eight shall be
void; provided, however, that the Manager may agree to allow a purported
transferee to whom a Membership Interest was Transferred in violation of this
Article Eight to become an Economic Assignee.
8.8 Involuntary Transfers.
8.8.1 Upon and contemporaneously with any Transfer
(whether arising out of an attempted charge upon that Member's Economic
Interest by judicial process, a foreclosure by a creditor of the Member or
otherwise) of a Member's Economic Interest (other than in accordance with
Section 8.3) which does not at the same time transfer the balance of the
rights associated with the Membership Interest transferred by the Member
(including, without limitation, the rights of the Member to vote or
participate in the management of the business, property and affairs of the
Fund), the Fund shall purchase from the Member, and the Member shall sell to
Fund for a purchase price of $100, all remaining rights and interests
retained by the Member that immediately before the transfer were associated
with the transferred Economic Interest. Such purchase and sale shall not,
however, result in the release of the Member from any liability to the Fund
as a Member.
8.8.2 Each Member acknowledges and agrees that the right
of the Fund to purchase such remaining rights and interests from a Member who
Transfers a Membership Interest in violation of this Article Eight is not
unreasonable under the circumstances existing as of the date hereof.
ARTICLE NINE
Dissolution and Liquidation
9.1 Dissolution.
9.1.1 The Fund shall be dissolved and its affairs wound up
upon the first to occur of the following (a "Dissolution Event"): (i) upon
the expiration of the Term or (ii) the determination of the Manager. The
Manager may terminate and dissolve a Sub-Fund but such termination or
dissolution shall not cause (and any other dissolution of a Sub-Fund by
itself shall not cause) the dissolution of the other Sub-Fund (or the Fund)
nor affect the limitation on liabilities of such other Sub-Fund provided by
this Agreement, Section 18-215 of the Act or otherwise.
9.1.2 The death retirement, resignation, expulsion,
bankruptcy, or dissolution of any Member shall not result in the dissolution
of the Fund and each Member hereby consents to the continuation of the Fund
in the even of the death, retirement, resignation, expulsion, bankruptcy, or
dissolution of any Member.
9.1.3 Upon dissolution of the Fund, the Fund shall
immediately commence to wind up its affairs and the Manager shall proceed
with reasonable promptness to liquidate the business of the Fund.
9.1.4 During the period of the winding up of the affairs
of the Fund, the rights and obligations of the Members shall continue.
9.2 Liquidation. The Fund shall terminate after its affairs have
been wound up and its assets fully distributed in liquidation as follows
(determined separately for each Sub-Fund):
9.2.1 first, to the payment of the debts and liabilities
of each Sub-Fund (other than loans made by a Member or an Affiliate of a
Member to the Sub-Fund) and the expenses of liquidation;
9.2.2 next, to the setting up of any reserves which the
Manager may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Sub-Fund provided that any reserves not
necessary to satisfy such liabilities or obligations are distributed as soon
as practicable;
9.2.3 next, to the Members or an Affiliate of a Member,
to the extent such Persons have made loans to the Sub-Fund, an amount equal
to any unpaid accrued interest on, and then the principal balance of, such
loans; provided, however, that in the event the liquidation proceeds shall be
insufficient to pay all such interest and principal, payment first shall be
made of interest on such loans in the order in which such loans were made and
then repayment of the principal shall be made in the order in which such
loans were made; and
If only one of the Sub-Funds is terminated, then the foregoing shall apply
only to such Sub-Fund.
9.2.4 next, to the Members and the Manager in the order of
priority set forth in Article Six.
9.3 Cancellation of Certificate of the Fund. Upon the completion
of the liquidation of the Fund's property, the Manager shall cause the
cancellation of the Amended and Restated Certificate of Formation in Delaware
and all other qualifications of the Fund as a foreign limited liability
company in jurisdictions other than the State of Delaware.
ARTICLE TEN
Records and Accounting; Fiscal Affairs
10.1 Fiscal Year. The fiscal year of the Fund shall be the
calendar year.
10.2 Bank Accounts. All funds of the Fund shall be deposited in
such bank or savings and loan account or accounts as shall be designated by
the Manager with separate accounts for each Sub-Fund. Withdrawals from any
such bank account shall be made upon such signature or signatures as the
Manager may designate, and shall be made only for the purposes of the Fund.
10.3 Books and Records. The Manager shall maintain for each Sub-
Fund, full and accurate books of the Fund, in accordance with the Fund's
accounting policies consistently applied, at the principal place of business
of the Fund, showing all receipts and expenditures, assets, and liabilities,
Net Income or Net Loss, and all other records necessary for recording the
Fund's (and each Sub-Fund's) business and affairs, including those sufficient
to record the allocations and distributions provided for in this Agreement.
The books and records shall, upon reasonable prior notice to the Fund, be
open for inspection and copying by any Member or his duly authorized
representatives during regular business hours at such principal place of
business; provided, however, such right shall not extend to the inspection of
the books and records that relate exclusively to a Sub-Fund in which such
Member does not participate. Any expense for any inspection or examination
shall be borne by the Member causing such inspection or review to be
conducted. Any information obtained by a Member with respect to the affairs
of the Fund shall, except as may be required by law, be kept strictly
confidential. The Manager shall deliver to the Members audited annual
financial reports of the Fund with 90 days following the end of the Fund's
fiscal year.
10.4 Tax Returns; Elections.
10.4.1 The Manager shall use all reasonable efforts to
cause the Fund's accountants to prepare and make timely filings of all tax
returns and statements which the accountants determine must be filed on
behalf of the Fund with any taxing authority. The Manager shall provide a
copy of such returns and statements to each Member. Copies of such tax and
information returns shall be kept at the principal office of the Fund or at
such other place as the Manager shall determine and shall be available for
inspection by the Members or their representatives during normal business
hours.
10.4.2 The Manager may, in its discretion, make an election
for Federal income tax purposes to the extent permitted by applicable law and
regulations, as follows:
in case of a transfer of all or part of any Member's
Membership Interest, the Fund may elect in a timely manner
pursuant to Section 754 of the Code and pursuant to
corresponding provisions of applicable state and local tax
laws to adjust the bases of the assets of the Fund pursuant to
Sections 734 and 743 of the Code; and
all other elections required or permitted to be made
by the Fund shall be made in such a manner as the Manager, in
consultation with the Fund's attorneys or the Fund's
accountant, determine to be most favorable to the Members.
No Members shall take any action or refuse to take any action which would
cause the Fund to forfeit the benefits of any tax election previously made or
agreed to be made by the Fund.
10.5 Tax Matters Member. Pursuant to Section 6231(a)(7)(A) of the
Code, if applicable to the Fund, the Manager is hereby designated as the "Tax
Matters Partner" or "TMP" of the Fund for all purposes of the Code and for
the corresponding provision of any state or local statute. Each of the
Members hereby consents to such designation and agrees to take any such
further action as may be required by regulations or otherwise to effectuate
such designation. The TMP is authorized and required to represent the Fund
(at the Fund's expense) in connection with all examinations of the Fund's
affairs by any tax authorities, including resulting judicial and
administrative proceedings, and to expend Fund funds for the services and
costs associated therewith. The decisions of the TMP shall be final and
binding as to all Members except to the extent that any Member files a
statement not to be bound by a settlement pursuant to Code Section
6224(c)(3). The TMP shall furnish to the Members a copy of all notices or
other written communications received by the TMP from the Internal Revenue
Service or any state or local taxing authority (except such notices or
communications as are sent directly to the Members).
ARTICLE ELEVEN
Indemnification and Insurance
11.1 Right to Indemnification. Subject to the limitations and
conditions provided for in this Article and the Act and absent a final
judicial determination of fraud, willful misconduct or gross negligence, each
Person (an "Indemnified Person") who was or is made a party or is threatened
to be made a party to or is involved in any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative or investigative (a "Proceeding"), or any appeal in such a
Proceeding, by reason of the fact that he or she was or is a Member, officer
of the Fund, Manager, officer or member of Manager, officer or member of the
Advisory Board or he or she was or is the legal representative of or a
manager, shareholder, director, officer, partner, venturer, proprietor,
trustee, employee, agent or similar functionary of a Member, Manager or
Advisory Board member, or was a signatory to the initial Certificate of
Formation or the Amended and Restated Certificate of Formation filed with the
Secretary of State, shall be held harmless, defended and indemnified by the
Fund against any and all judgments, penalties (including excise and similar
taxes and punitive damages), losses, damages, claims, fines, settlements,
costs, and expenses (including, without limitation, reasonable attorneys'
fees) as and when incurred, by such Indemnified Person in connection with
such Proceeding to the fullest extent permitted by law. Any indemnity
provided in this Agreement shall be paid out of Fund assets or insurance
proceeds only and the foregoing shall not affect in any way the limitation on
liabilities of a Sub-Fund to the assets of such Sub-Fund and if a matter
giving rise to the indemnification obligations of this Section relates only
to a particular Sub-Fund then only the assets of that Sub-Fund shall be
available to satisfy such obligation. No Member shall be required to make a
loan to satisfy the Fund's indemnity obligation.
11.2 Limited Liability of Members. In the absence of a final
judicial determination of fraud, willful misconduct or gross negligence,
neither the Manager, its members, the Advisory Board, its members, or any
other Indemnified Party shall be liable to any other Member or the Fund for
any loss or damage of any nature (i) for any mistake in judgment, (ii) for
any action taken or omitted to be taken, including any action taken or
omitted to be taken by or for the Indemnified Party's own account, or (iii)
for any loss due to the mistake, action, inaction, negligence, dishonesty,
fraud or bad faith of any broker or other agent, provided that such broker or
other agent shall have been selected, engaged or retained by the Manager or
other Indemnified Party with reasonable care. The Manager may consult with
legal counsel and accountants in respect of Fund affairs and shall be fully
protected and justified in any action or inaction which is taken or omitted
in good faith, in reliance upon and in accordance with the opinion or advice
of such counsel or accountants, provided that they have been selected with
reasonable care. In determining whether a Manager acted with the requisite
degree of care, the Manager shall be entitled to rely on reports and written
statements of the directors, officers and employees of a Portfolio Company.
11.3 Survival. Indemnification under this Article shall continue
as to a Person who has ceased to serve in the capacity that initially
entitled such Person to indemnity hereunder. The rights granted pursuant to
this Article shall be deemed contract rights, and no amendment, modification
or repeal of this Article shall have the effect of limiting or denying any
such rights with respect to actions taken or Proceedings arising prior to any
such amendment, modification or repeal.
11.4 Insurance. The Fund shall have the power to purchase and
maintain insurance on behalf of any present or future Indemnified Party, or
member of the Advisory Board (each an "Insured Party") against any liability
asserted against such Insured Party by reason of actions or omissions or
alleged actions or omissions taken or omitted to be taken by the Insured
Party in connection with the Fund and its business and affairs (including
insurance against liability for any breach or alleged breach of its fiduciary
responsibilities), whether or not the Fund would have the power to indemnify
such Insured Party against such liability under this Article.
ARTICLE TWELVE
Investment Representations
Each Member hereby represents and warrants to, and agrees with, the
Manager, the other Members, and the Fund as follows:
12.1 Pre-existing Relationship or Experience. (i) Such Member has
a preexisting personal or business relationship with the Fund or one or more
of its officers or control persons or (ii) by reason of his or its business
or financial experience, or by reason of the business or financial experience
of his or its financial advisor who is unaffiliated with and who is not
compensated, directly or indirectly, by the Fund or any affiliate or selling
agent of the Fund, such Member is capable of evaluating the risks and merits
of an investment in the Membership Interest and of protecting his or its own
interests in connection with this investment.
12.2 No Advertising. Such Member has not seen, received, been
presented with, or been solicited by any leaflet, public promotional meeting,
newspaper or magazine article or advertisement, radio or television
advertisement, or any other form of advertising or general solicitation with
respect to the sale of the Membership Interest.
12.3 Investment Intent. Such Member is acquiring the Membership
Interest for investment purposes for his or its own account only and not with
a view to or for sale in connection with any distribution of all or any part
of the Membership Interest. No other person will have any direct or indirect
beneficial interest in or right to the Membership Interest.
12.4 Accredited Investor. Such Member is an "accredited investor"
as defined in Rule 501(c) promulgated by the Securities and Exchange
Commission (the "SEC").
12.5 Treatment of Fund as Partnership. Such Member has not, and
will not take any action, or fail to take any actions that would jeopardize
the Fund's treatment as a partnership for federal and state income tax
purposes.
12.6 Economic Risk. Such Member is financially able to bear the
economic risk of an investment in the Membership Interest, including the
total loss thereof.
12.7 No Registration of Membership Interest. Such Member
acknowledges that the Membership Interest has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or qualified under
any state securities laws, or any other applicable blue sky laws in reliance,
in part, on his or her representations, warranties, and agreements herein.
12.8 Membership Interest in Restricted Security. Such Member
understands that the Membership Interest is a "restricted security" under the
Securities Act in that the Membership Interest will be acquired from the Fund
in a transaction not involving a public offering, and that the Membership
Interest may be resold without registration under the Securities Act only in
certain limited circumstances and that otherwise the Membership Interest must
be held indefinitely. In this connection, such Members understands the
resale limitations imposed by the Securities Act and is familiar with SEC
Rule 144, as presently in effect, and the conditions which must be met in
order for that Rule to be available for resale of "restricted securities,"
including the requirement that the securities must be held for at least one
(1) year after purchase thereof from the Fund prior to resale and the
condition that there be available to the public current information about the
Fund under certain circumstances. He or she understands that the Fund has
not made such information available to the public and has no present plans to
do so.
12.9 No Disposition in Violation of Law.
Without limiting the representations set forth above, and without
limiting Article Seven of this Agreement, such Member will not make any
disposition of all or any part of the Membership Interest which will result
in the violation by such Members or by the Fund of the Securities Act, any
state securities laws, or any other applicable securities law. Without
limiting
the foregoing, such Member agrees not to make any disposition of all or any
part of the Membership Interest unless and until:
12.9.1 There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement and any
applicable requirements of state securities laws; or
12.9.2 Such Member has notified the Fund of the proposed
disposition and has furnished the Fund with a detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably
requested by the Manager, he has furnished the Fund with a written opinion of
counsel, reasonably satisfactory to the Manager, that such disposition will
not require registration of any securities under the Securities Act or the
consent of or a permit from appropriate authorities under any applicable
state securities laws.
12.10 Legends. Such Members understands that the certificates
(if any) evidencing the Membership Interest may bear one or all of the
following legends:
12.10.1 "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR
QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR
HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND
FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS FURTHER SUBJECT
TO OTHER RESTRICTIONS, TERMS, AND CONDITIONS WHICH ARE SET FORTH HEREIN IN
THE COMPANY'S OPERATING AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
12.10.2 Any legend required by applicable state securities
laws.
12.11 Investment Risk. Such Member acknowledges that the
Membership Interest is a speculative investment which involves a substantial
degree of risk of loss by such Member of such Member's entire investment in
the Fund, that such Member understands and takes full cognizance of the risk
factors related to the purchase of the Membership Interest, and that the Fund
is newly organized and has no financial or operating history.
12.12 Investment Experience. Such Member is an experienced
investor in unregistered and restricted securities of speculative and high-
risk ventures.
12.13 Absence of Market. Such Member acknowledges that there
are substantial restrictions on the transferability of the Membership
Interest pursuant to this Agreement, that there is no public market for the
Membership Interest and none is expected to develop, and that, accordingly,
it may not be possible for him or her to liquidate such Member's investment
in the Fund.
12.14 Information Reviewed. Such Member has received and
reviewed such information such Member considers necessary or appropriate for
deciding whether to purchase the Membership Interest. Such Member has had an
opportunity to ask questions and receive answers from the Fund and its
Manager regarding the terms and conditions of purchase of the Membership
Interest and regarding the business, financial affairs, and other aspects of
the Fund and has further had the opportunity to obtain all information (to
the extent the Fund possesses or can acquire such information without
unreasonable effort or expense) which he or she deems necessary to evaluate
the investment and to verify the accuracy of information otherwise provided
to such Member.
12.15 No Representations By Fund. Neither any Manager, any
agent or employee of the Fund or any Manager, or any other Person has at any
time expressly or implicitly represented, guaranteed, or warranted to such
Member that such Member may freely transfer the Membership Interest, that a
percentage of profit and/or amount or type of consideration will be realized
as a result of an investment in the Membership Interest, that past
performance or experience on the part of the Manager, the Advisory Board, or
their Affiliates or any other person in any way indicates the predictable
results of the ownership of the Membership Interest or of the overall Fund
business, that any cash distributions from Fund operations or otherwise will
be made to the Members by any specific date or will be made at all, or that
any specific tax benefits will accrue as a result of an investment in the
Fund.
12.16 Consultation with an Attorney. Such Member has been
advised to consult with his or her own attorney regarding all legal matters
concerning an investment in the Fund and the tax consequences of
participating in the Fund, and has done so, to the extent such Member
considers necessary.
12.17 Tax Consequences. Such Member acknowledges that the tax
consequences to such Member of investing in the Fund will depend on such
Member's particular circumstances, and neither the Fund, the Manager, the
Members, nor the partners, shareholders, members, managers, agents, officers,
directors, employees, Affiliates, or consultants of any of them will be
responsible or liable for the tax consequences to him or her of an investment
in the Fund. Such Member will look solely to, and rely upon, such Member's
own advisers with respect to the tax consequences of this investment.
12.18 No Assurance of Tax Benefits. Such Member acknowledges
that there can be no assurance that the Code or the Regulations will not be
amended or interpreted in the future in such a manner so as to deprive the
Fund and the Members of some or all of the tax benefits they might now
receive, nor that some of the deductions claimed by the Fund or the
allocations of items of income, gain, loss, deduction, or credit among the
Members may not be challenged by the Internal Revenue Service.
ARTICLE THIRTEEN
Miscellaneous
Each Member hereby represents and warrants to, and agrees with, the
Manager, the other Members, and the Fund as follows:
13.1 Notices. All notices, requests, demands and other
communications hereunder shall be made in writing and shall be deemed to have
been given if delivered by registered or certified mail, return receipt
requested, postage and registry fees prepaid to the Members at the addresses
set forth on the signature pages hereto. Any address may be changed by
notice given to the Members, as aforesaid, by the party whose address for
notice is to be changed.
13.2 Separability. The invalidity or unenforceability of any
provision in this Agreement shall not affect the other provisions hereof and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
13.3 Interpretation; Jurisdiction. This Agreement shall be
interpreted and construed in accordance with the laws of the State of
Delaware, without reference to the rules governing the conflicts of laws.
The parties hereto consent to personal jurisdiction and venue in the State of
Connecticut, County of Connecticut, with respect to any action or proceeding
brought in connection with this Agreement. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the Person or Persons referred to may require.
The captions of sections of this Agreement have been inserted as a matter of
convenience only and shall not control or affect the meaning or construction
of any of the terms or provisions hereof.
13.4 Entire Agreement. The parties hereto agree that all
understandings and agreements heretofore made among them are merged in this
Agreement, which alone fully and completely expresses their agreement with
respect to the subject matter hereof. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, among the parties hereto, other than as set forth in this
Agreement and the Amended and Restated Certificate of Formation. All prior
agreements among the parties are superseded by this Agreement, which
integrates all promises, agreements, conditions and understandings among the
parties with respect to the Fund and its properties.
13.5 Counterparts; Effective Date. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original and all
of which shall constitute one agreement. The signatures of any party to a
counterpart shall be deemed to be a signature to, and may be appended to, any
other counterpart.
13.6 Binding Effect. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors, permitted assigns, heirs, executors, administrators and legal
representatives.
13.7 Further Assurances. Each of the parties hereto agrees to
execute, acknowledge, deliver, file, record and publish such further
certificates, instruments, agreements and other documents, and to take all
such further action as may be required by law or deemed by the Members to be
necessary or useful in furtherance of the Fund's purposes and the objectives
and intentions underlying this Agreement and not inconsistent with the terms
hereof.
13.8 Waiver. No consent or waiver, express or implied, by any
Member or Manager to or of any breach or default by any other Member or
Manager shall be deemed or construed to be a consent to or waiver of any
other breach or default by such other Member or Manager. Failure on the part
of a Member or Manager to complain of any act or failure to act of any other
Member or Manager or to declare such other Member or Manager in default,
irrespective of how long such failure continues, shall not constitute a
waiver by such Member or Manager of his or her rights hereunder.
13.9 Additional Remedies. The rights and remedies of any Member or
Manager hereunder shall not be mutually exclusive. The respective rights and
obligations hereunder shall be enforceable by specific performance,
injunction or other equitable remedy, but nothing herein contained is
intended to, nor shall it limit or affect, any other rights in equity or any
rights at law or by statute or otherwise of any party aggrieved as against
the other for breach or threatened breach of any provision hereof, it being
the intention of this paragraph to make clear the agreement of the parties
hereto that their respective rights and obligations hereunder shall be
enforceable in equity as well as at law.
13.10 No Reliance by Third Parties. The provisions of this
Agreement are not for the benefit of any creditor or other Person other than
a Member to whom any losses, debts, claims, expenses or encumbrances are owed
by, or who otherwise has any claim against, the Fund, any Member or any
Manager, and no creditor or other Person shall obtain any rights under this
Agreement, or shall be able to make any claim in respect of any debts,
liabilities or obligations against the Fund, any Member or any Manager.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first written above.
SERIES A FUND MEMBERS:
SERIES B FUND MEMBERS:
Jackpot Enterprises, Inc.
By:
Name:
Title:
Gilbert Global Equity
Partners, L.P.
By:
Name:
Title:
Louis V. Gerstner, III
Gilbert Global Equity Partners
(Bermuda), L.P.
By:___________________________
_
Name:
Title:
GLOBAL PE HOLDINGS, LTD.
By:
Name:
Title:
GGEP/GECC Equity Partners,
L.P.
By:___________________________
_
Name:
Title:
MANAGER:
J Net Fund Venture Partners,
LLC
By:________________________
Name:
Title:
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF FORMATION
