UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ANICOM, INC.
(Name of Issuer)
COMMON STOCK, $.001 PAR VALUE
(Title of Class of Securities)
035250-10-9
(CUSIP Number)
Larry A. Kimmel Robert Fleming Inc. 320 Park Avenue, 11th Floor New York, NY
10022 (212) 508-3610
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
June 4, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
FLEMING US DISCOVERY FUND III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |X|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 799,420
SHARES ____________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 927,536
EACH ____________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 799,420
WITH ____________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
PN
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<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |X|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
BERMUDA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 128,116
SHARES ____________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 927,536
EACH ____________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 128,116
WITH ____________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
PN
<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
FLEMING US DISCOVERY PARTNERS, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |X|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 927,536
SHARES ____________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 927,536
EACH ____________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 927,536
WITH ____________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
PN
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
FLEMING US DISCOVERY, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |_|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ____________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 927,536
EACH ____________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ____________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
OO
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
ROBERT FLEMING, INC.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |_|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ____________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH ____________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ____________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
IA, CO
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<PAGE>
SCHEDULE 13D
CUSIP NO. 035250-10-9
1 NAME OF REPORTING PERSON
ROBERT FLEMING HOLDINGS, LTD.
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)(A) |_|
(B) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS)
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) or (e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
UNITED KINGDOM
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 0
SHARES ___________________________________________________
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH ___________________________________________________
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 0
WITH ___________________________________________________
10 SHARED DISPOSITIVE POWER
927,536
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
927,536
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
(SEE INSTRUCTIONS) |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
HC, CO
- --------------------------------------------------------------------------------
<PAGE>
Item 1. Security and Issuer. This statement relates to Common Stock, $0.001
par value per share ("Common Stock"), of Anicom, Inc., a Delaware
corporation ("Issuer"). The address of the Issuer's principal
executive offices is 6133 N. River Road, Suite 1000, Rosemont, IL
60018-5171.
Item 2. Identity and Background. This statement is being filed pursuant to
a Joint Filing Agreement (attached as Exhibit 1 and incorporated
herein by reference by (i) Fleming US Discovery Fund III, L.P. ("US
Fund"), (ii) Fleming US Discovery Offshore Fund III, L.P. ("Offshore
Fund"), (iii) Fleming US Discovery Partners, L.P., ("Fleming
Partners"), the general partner of the US Fund and a general partner
of the Offshore Fund, (iv) Fleming US Discovery, LLC ("Discovery"),
the general partner of Fleming Partners, (v) Robert Fleming, Inc.
("RFI"), investment adviser to the US Fund and Offshore Fund
(collectively, the "Funds") , and (vi) Robert Fleming Holdings, Ltd.
("RFH"), the indirect parent of RFI (sometimes collectively referred
to as the "Reporting Persons").
The information required by this Item for each of the Reporting
Persons is set forth in Appendix 1 hereto. The information required by
this Item for each officer, director, and partner and each controlling
person, if any, of certain Reporting Persons is set forth in
Appendix 2 hereto.
The Offshore Fund has two general partners, Fleming Partners and
Fleming (Bermuda) Discovery III Limited ("Fleming Bermuda"). Fleming
Bermuda is a company organized in Bermuda. Its principal business and
office address is c/o Bank of Bermuda, Ltd., 6 Front St., Hamilton HM
11, Bermuda. Its principal business is to serve as a general partner
of the Offshore Fund.
During the last five years prior to the date of this filing, none of
the Reporting Persons or persons identified in Appendix 2 has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction ending in a
judgment, decree or final order enjoining future violations or
prohibiting or mandating the activities subject to, federal or state
securities laws or finding a violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration. On May 22, 1997,
the US Fund executed the Series A Convertible Preferred Stock Purchase
Agreement dated as of May 20, 1997 (attached hereto as Exhibit 2 and
incorporated herein by reference) to purchase 6,895 shares of Series A
Convertible Preferred Stock, $0.01 par value per share ("Preferred
Stock"), of the Issuer for a total purchase price of $6,895,000. The
Preferred Stock, which was acquired by the US Fund at closing on June
4, 1997, was convertible into 799,420 shares of Common Stock. The US
Fund purchased the Preferred Stock with its working capital. No part
of the purchase price was or will be represented by funds or other
consideration borrowed or otherwise obtained for the purpose of
acquiring, holding, trading or voting the Preferred Stock.
On May 22, 1997, the Offshore Fund executed the Series A Convertible
Preferred Stock Purchase Agreement to purchase 1,105 shares of
Preferred Stock for a total purchase price of $1,105,000.00. The
Preferred Stock, which was acquired by the Offshore Fund at closing on
June 4, 1997, was convertible into 128,116 shares of Common Stock. The
Offshore Fund purchased the Preferred Stock with its working capital.
No part of the purchase price was or will be represented by funds or
other consideration borrowed or otherwise obtained for the purpose of
acquiring, holding, trading or voting the Preferred Stock.
Item 4. Purpose of Transaction. The Funds acquired the Preferred Stock for
investment purposes. The Funds may dispose of or acquire securities of
the Issuer, including Common Stock, depending upon the position of the
market, the Issuer and other factors. None of the Reporting Persons
has any present plans which relate to or would result in:
(a) The acquisition by any person of additional
securities of the Issuer;
(b) An extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the
Issuer or any of its subsidiaries;
(c) A sale or transfer of a material amount of assets of
the Issuer or of any of its subsidiaries;
(d) Any change in the present board of directors or
management of the Issuer, including any plans or
proposals to change the number or term of directors
or to fill any existing vacancies on the board;
(e) Any material change in the present capitalization or
dividend policy of the Issuer;
(f) Any other material change in the Issuer's business or
corporate structure;
(g) Changes in the Issuer's charter, bylaws or
instruments corresponding thereto or other actions
which may impede the acquisition of control of the
Issuer by any person;
<PAGE>
(h) Causing a class of securities of the Issuer to be
delisted from a national securities exchange or to
cease to be authorized to be quoted in an
inter-dealer quotation system of a registered
national securities association;
(i) A class of equity securities of the Issuer becoming
eligible for termination of registration pursuant to
Section 12(g)(4) of the Securities Exchange Act of
1934; or
(j) Any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
(a) On June 4, 1997, the US Fund purchased 6,895
shares of Preferred Stock ("US Fund Preferred
Stock"). The US Fund Preferred Stock was convertible
into 799,420 shares of Common Stock ("US Fund
Conversion Shares").
On June 4, 1997, the Offshore Fund purchased 1,105
shares of Preferred Stock ("Offshore Fund Preferred
Stock"). The Offshore Fund Preferred Stock is
convertible into 128,116 shares of Common Stock
("Offshore Fund Conversion Shares").
Because of their relationship as affiliated entities,
both Funds may be deemed to beneficially own the US
Fund Conversion Shares and the Offshore Fund
Conversion Shares. As the general partner of both
Funds, Fleming Partners may be deemed to beneficially
own the US Fund Conversion Shares and the Offshore
Fund Conversion Shares. As the general partner of
Fleming Partners, Discovery may be deemed to
beneficially own the US Fund and Offshore Fund
Conversion Shares. As investment adviser to the
Funds, controlling member of Discovery and the sole
limited partner of Fleming Partners, RFI may be
deemed to beneficially own the US Fund and Offshore
Fund Conversion Shares. RFH is the indirect 80% owner
of RFI. Thus, as the indirect parent of RFI, RFH may
be deemed to beneficially own the US Fund and
Offshore Fund Conversion Shares.
Pursuant to the Offshore Fund's Limited Partnership
Agreement (attached hereto as Exhibit 3 and
incorporated herein by reference), Fleming Bermuda,
one of the Offshore Fund's general partners, is
responsible for the Offshore Fund's administrative,
secretarial and related management activities.
Fleming Bermuda has no authority over or
responsibility for the investment management of the
Offshore Fund.
As of June 4, 1997, each Reporting Person may be
deemed to have owned beneficially 5.2% of Common
Stock, on an aggregated basis, which percentage is
calculated based upon (i) 15,912,999 shares of Common
Stock reported outstanding by the Issuer on May 20,
1997, and (ii) the number of shares of Common Stock
(927,536) issuable upon conversion of the US Fund
Preferred Stock and Offshore Fund Preferred Stock.
The percentage is calculated by dividing 927,536 by
16,840,535, which is the sum of 15,912,999 and
927,536.
(b) The information required by this paragraph is
reflected on Lines 7-10 of each Reporting Person's
cover page, incorporated herein by reference.
(c) On July 9, 1997, thirty-three and one-third
percent (33 1/3%) of the outstanding Preferred Stock
was converted into Common Stock at a conversion price
of $8.625 under the mandatory conversion provisions
contained in the Certificate of Designations,
Preferences and Rights of Series A Convertible
Preferred Stock of Anicom, Inc, dated as of May 21,
1997 ("Certificate of Designations," attached hereto
as Exhibit 4 and incorporated herein by reference).
The mandatory conversion reduced each Reporting
Person's aggregate beneficial ownership to 5.28%,
which percentage is calculated based upon (i)
15,912,999 shares of Common Stock reported
outstanding by the Issuer on May 20, 1997; (ii) the
number of shares of Common Stock (927,536) issuable
upon conversion of the US Fund and Offshore Fund
Preferred Stock; and (iii) the number of shares of
Common Stock issued upon conversion of the
other outstanding Preferred Stock (734,300).
As a result of the mandatory conversion, the US and
Offshore Funds received 309,178 shares of Common
Stock. After the mandatory conversion, the US and
Offshore Funds sold 253,800 shares of Common Stock,
on dates and in amounts which are set forth in
Appendix 3 hereto. Specifically, each Reporting
Persons aggregate beneficial ownership fell below 5%
on July 14, 1997. To date, the sale of the Common
Stock reduced each Reporting Person's aggregate
beneficial ownership to 3.80%, which percentage is
calculated based upon (i) 15,912,999 shares of Common
Stock reported outstanding by the Issuer on May 20,
1997; (ii) the number of shares of Common Stock
(927,536) issuable upon conversion of the US Fund and
Offshore Fund Preferred Stock less the number of
shares of Common Stock sold by the US and Offshore
Funds (253,800); and (ii) the
<PAGE>
number of shares of Common Stock issued upon
conversion of the other outstanding Preferred Stock
(734,300). More information about the mandatory
conversion provisions is contained in Item 6, below.
Except as set forth above, none of the Reporting
Persons has effected any transactions in the Common
Stock during the last 60 days.
(d) No other person is known to have the right to
receive or the power to direct the receipt of
dividends from, or any proceeds from the sale of, the
shares of Common Stock beneficially owned by any of
the Reporting Persons.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
The Funds acquired their respective shares of Preferred Stock
pursuant to a Series A Convertible Preferred Stock Purchase
Agreement dated as of May 20, 1997 and executed by the Funds
on May 22, 1997 by and among the Issuer and Fleming US
Discovery Fund III, L.P., Fleming US Discovery Offshore Fund
III, L.P., Cahill, Warnock Strategic Partners Fund, L.P.,
Strategic Associates, L.P., Peter H. Huizenga Testamentary
Trust, Peter H. Huizenga, Heidi A. Huizenga, Betsy Huizenga
Trust, Greta Huizenga Trust, Peter Huizenga Jr. Trust, Timothy
Dean Huizenga Trust, Summer Hill Partners, L.P., Summer Hill
R.T. Enterprises Limited Partnership, Garfam Investors,
L.L.C., S. James Perlow, Earl Perlow, Mark Perlow, KA Trading,
KA Management, CEW Partners, Trust Investments, Inc., The
Lincoln Fund, L.P., The Lincoln Fund Tax Advantage, L.P., and
The Gordon Fund, L.P. (collectively, the "Purchasers"). The
holders of Preferred Stock ("Preferred Stockholders") have the
option of participating, on a pro rata basis, in any future
issuance by the Issuer of privately placed preferred and/or
Common Stock, and the Preferred Stockholders currently are
entitled to one vote per share of Common Stock into which each
share of Preferred Stock is convertible. The Preferred
Stockholders are entitled to receive cumulative preferential
dividends at a rate of 5% annually for the first five years
and 15% annually thereafter. By virtue of the Series A
Convertible Preferred Stock Purchase Agreement, the Purchasers
acquired, in the aggregate, 27,000 shares of Preferred Stock
for $1,000.00 per share, which shares are convertible, in the
aggregate, into 3,130,435 shares of Common Stock.
The Certificate of Designations, which sets forth the terms of
conversion for the Preferred Stock, contains mandatory
conversion provisions. Under these provisions, the Preferred
Stock automatically converts in Common Stock upon the
following conditions:
(i) if, during the first twelve months following the
issuance date, the average trading price of the
Common Stock is at least 130% of the conversion
price, then 33 1/3% of the outstanding Preferred
Stock converts into Common Stock;
(ii) if during the first twenty-four months following the
issuance date, the average trading price of the
Common Stock equals or exceeds 160% or 190%, then 66
2/3% and 100%, respectively, of the outstanding
Preferred Stock converts in Common Stock; and
(iii) if, after the second anniversary of the
issuance date, the average trading price of the
Common Stock equals or exceeds 140%, 150% or 175% for
year three, four or five, respectively, following the
issuance date, then 100% of the outstanding Preferred
Stock converts into Common Stock. As discussed in
response to Item 5(c), a mandatory conversion
pursuant to (i) above occurred on July 9, 1997. The
terms of conversion are more fully set forth in
Section 4 of the Certificate of Designations.
A Stockholder's Agreement dated as of May 20, 1997 (attached
hereto as Exhibit 5 and incorporated herein by reference), was
entered into by the Issuer, Scott C. Anixter ("Anixter") and
each of the Purchasers. The Stockholders' Agreement provides
that in the event Anixter receives a bona fide written offer
to purchase 20% or more of the shares of Common Stock
beneficially owned by him, then each of the individual
Purchases shall have the right to sell a proportionate number
of their shares of Common Stock then convertible from each
Purchaser's Preferred Stock. These "Tag-Along" rights are more
fully set forth in Section 1 of the Stockholders' Agreement.
In the Limited Partnership Agreements of the US Fund and the
Offshore Fund, each dated as of September 27, 1996 attached
hereto as Exhibits 2 and 6, and incorporated herein by
reference), the Funds and their respective limited partners
agreed that (i) all investment opportunities would be
apportioned between the Funds in proportion to the relative
amounts of capital committed to each Fund and (ii) the Funds
would sell or otherwise dispose of their investments at
substantially the same time, on substantially the same terms,
in amounts proportionate to the relative size of their
investments.
<PAGE>
Item 7. Material to be Filed as Exhibits:
Exhibit 1 - Joint Filing Agreement.
Exhibit 2 - Series A Convertible Preferred Stock Purchase
Agreement.
Exhibit 3 - Limited Partnership Agreement of Fleming US
Discovery Offshore Fund III, L.P.
Exhibit 4 - Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock of
Anicom, Inc.
Exhibit 5 - Stockholders' Agreement.
Exhibit 6- Limited Partnership Agreement of Fleming US
Discovery Fund III, L.P.
Appendix 1- Address, Organization and Principal Business of Each
Reporting Person Required by Item 2
Appendix 2- Information About Each Reporting Person
Required by Item 2
Appendix 3- Information About the Disposition of the Issuer's
Common Stock Required by Item 5
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.*
July 28, 1997 Fleming US Discovery Fund III, L.P.
By: Fleming US Discovery Partners, L.P.,
its general partner
By: Fleming US Discovery, LLC, its
general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery Offshore Fund III, L.P.
By: Fleming US Discovery Partners, L.P., its
general partner
By: Fleming US Discovery, LLC, its
general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery Partners, L.P.
By: Fleming US Discovery, LLC, its
general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery, LLC
By: /s/ Robert L. Burr
Robert L. Burr, member
Robert Fleming, Inc.
By: /s/ Arthur A. Levy
Arthur A. Levy, Vice Chairman
Robert Fleming Holdings, Ltd.
By: /s/ Arthur A. Levy
Arthur A. Levy, Director
*Each of the undersigned Reporting Persons certifies only the information states
herein regarding such Reporting Person.
<PAGE>
JOINT FILING AGREEMENT
Exhibit 1
Pursuant to and in accordance with Rule 13d-1(f)(1) under the Securities
Exchange Act of 1934, the undersigned hereby agree to jointly file the Schedule
13D dated July 28, 1997 and any amendments thereto with respect to the
beneficial ownership by each of the undersigned of shares of common stock of
Anicom, Inc. Such joint filings may be executed by one or more of us on behalf
of each of the undersigned.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Executed this day of July 28, 1997.
Fleming US Discovery Fund III, L.P.
By: Fleming US Discovery Partners, L.P.,
its general partner
By: Fleming US Discovery, LLC,
its general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery Offshore Fund III, L.P.
By: Fleming US Discovery Partners, L.P.,
its general partner
By: Fleming US Discovery, LLC,
its general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery Partners, L.P.
By: Fleming US Discovery, LLC, its general partner
By: /s/ Robert L. Burr
Robert L. Burr, member
Fleming US Discovery, LLC
By: /s/ Robert L. Burr
Robert L. Burr, member
Robert Fleming, Inc.
By: /s/ Arthur A. Levy
Arthur A. Levy, Vice Chairman
Robert Fleming Holdings, Ltd.
By: /s/ Arthur A. Levy
Arthur A. Levy, Director
<PAGE>
EXHIBIT 2
EXECUTION COPY
- -------------------------------------------------------------------------------
SERIES A CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
DATED MAY 20, 1997
BY AND AMONG
ANICOM, INC.
AND
EACH OF THE PURCHASERS LISTED ON EXHIBIT A
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 Definitions................................................... 1
1.1 Defined Terms................................................. 1
SECTION 2 Authorization and Sale of Convertible Preferred Stock......... 4
2.1 Authorization of Convertible Preferred Stock.................. 4
2.2 Sale and Purchase of Convertible Preferred Stock.............. 4
2.3 Use of Proceeds............................................... 4
SECTION 3 Closing Date; Delivery........................................ 5
3.1 Closing Date.................................................. 5
3.2 Delivery...................................................... 5
SECTION 4 Representations and Warranties of the Company................. 5
4.1 Organization, Good Standing and Qualification................. 5
4.2 Capitalization................................................ 6
4.3 Subsidiaries.................................................. 6
4.4 Partnerships.................................................. 7
4.5 Authorization................................................. 7
4.6 Consents...................................................... 7
4.7 Absence of Litigation......................................... 7
4.8 Insurance..................................................... 7
4.9 Patents and Trademarks........................................ 7
4.10 Compliance with Other Instruments and Legal Requirements...... 8
4.11 Material Agreements; Action................................... 8
4.12 Disclosure.................................................... 9
4.13 Brokers' Fees................................................. 9
4.14 Registration Rights........................................... 9
4.15 Real Property................................................. 9
4.16 Tangible Personal Property.................................... 10
4.17 Environmental Matters......................................... 10
4.18 Company SEC Reports and Financial Statements.................. 11
4.19 Changes....................................................... 12
4.20 Employee Benefit Plans........................................ 13
4.21 Taxes......................................................... 15
4.22 Minute Books.................................................. 15
4.23 Labor and Employment Matters.................................. 16
SECTION 5 Representations, Warranties and Covenants of the Purchasers... 16
5.1 Accredited Investor; Experience; Risk......................... 16
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PAGE
5.2 Investment.................................................... 17
5.3 Authorization................................................. 17
5.4 Consents...................................................... 17
5.5 Brokers' Fees................................................. 17
5.6 Plan Assets................................................... 17
5.7 Restrictive Legends........................................... 17
SECTION 6 Conditions to Closing of Purchasers........................... 18
6.1 Representations and Warranties Correct........................ 18
6.2 Covenants..................................................... 18
6.3 Opinion of Company's Counsel.................................. 18
6.4 No Material Adverse Change.................................... 18
6.5 Certificate of Designation.................................... 18
6.6 State Securities Laws......................................... 19
6.7 Issuance of Shares............................................ 19
6.8 Certificates.................................................. 19
6.9 Organizational Documents...................................... 19
6.10 Stockholders' Agreement....................................... 19
SECTION 7 Conditions to Closing of the Company.......................... 19
7.1 Representations............................................... 19
7.2 Covenants..................................................... 19
7.3 Purchase Price................................................ 19
7.4 Certificate................................................... 19
7.5 Stockholders' Agreement....................................... 20
SECTION 8 Covenants of the Company...................................... 20
8.1 Information................................................... 20
8.2 Preemptive Rights............................................. 21
8.3 Shelf Registration............................................ 22
8.4 Delay and Holdback of Registration............................ 26
8.5 Negative Covenants............................................ 26
SECTION 9 Miscellaneous................................................. 27
9.1 Amendment; Waiver............................................. 27
9.2 Notices....................................................... 27
9.3 Survival of Representations, Warranties and Covenants......... 28
9.4 Severability.................................................. 28
9.5 Successors and Assigns........................................ 28
9.6 Entire Agreement.............................................. 28
9.7 Choice of Law................................................. 28
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PAGE
9.8 Counterparts.................................................. 28
9.9 Costs and Expenses............................................ 29
9.10 Indemnification............................................... 29
9.11 No Third-Party Beneficiaries.................................. 30
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ANICOM, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated May 20,
1997 (this "AGREEMENT"), by and between ANICOM, INC., a Delaware corporation
(the "COMPANY") and each purchaser set forth on Exhibit A hereto (each a
"PURCHASER" and collectively, the "PURCHASERS").
WHEREAS, the Company has issued and outstanding the shares of capital
stock described in Section 4.2 hereof and the Company has reserved for issuance
additional shares of capital stock upon the exercise of the outstanding
convertible securities identified in Section 4.2;
WHEREAS, the Company proposes to issue and sell, and the Purchasers
wish to purchase, shares of the Company's Series A Convertible Preferred Stock,
par value $.01 per share (the "CONVERTIBLE PREFERRED STOCK") on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
SECTION 1
Definitions
1.1 Defined Terms. The following terms are defined as follows:
"AFFILIATE" means, with respect to any Person, (i) any Person in which
such Person holds direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of voting securities or other
voting interests representing at least 10% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in a Person and (ii)
any brother, sister, parent, child or spouse of such Person or any Person
described in clause (i).
"BENEFIT ARRANGEMENT" means any benefit arrangement, obligation,
custom, or practice, to provide benefits, other than salary, as compensation for
services rendered, other than any obligation, arrangement, custom or practice
that is an Employee Benefit Plan, including, without limitation, employment or
change of control agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave, vacation pay,
severance pay policies, plant closing benefits, salary continuation for
disability, consulting, or other compensation arrangements, workers'
compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs and employee discounts, in each case with
respect to any present or former employees, directors, or agents.
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"CODE" means the Internal Revenue Code of 1986 (or any successor
thereto), as amended from time to time.
"COMPANY BENEFIT ARRANGEMENT" means any Benefit Arrangement sponsored
or maintained by the Company or its Subsidiaries or with respect to which the
Company or a Subsidiary has or will have any liability (whether actual,
contingent, direct or indirect) as of the Closing Date, in each case with
respect to any present or former directors, employees, or agents of the Company
or the Subsidiaries.
"COMPANY PLAN" means, as of the Closing Date, any Employee Benefit Plan
for which the Company or any Subsidiary has or will have any liability (whether
actual, contingent, direct or indirect).
"COMPANY'S KNOWLEDGE" or derivations thereof shall mean knowledge of
the executive officers of the Company, including without limitation, Alan B.
Anixter, Scott C. Anixter, Donald C. Welchko, Carl E. Putnam, Robert L. Swanson,
Robert Brzustewicz, Sr., Glen M. Nast and Lee Smela.
"EFFECTIVENESS PERIOD" means the period commencing on the Closing Date
and ending on the second (2nd) anniversary of the Closing Date.
"EMPLOYEE BENEFIT PLAN" means any Employee Benefit Plan within the
meaning of Section 3(3) of ERISA.
"ENVIRONMENTAL LAW" means any foreign, federal, state or local statute,
regulation, ordinance or rule of common law as now or hereafter in effect in any
way relating to the protection of the environment including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. ss.ss. 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. App. ss.ss. 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. ss.ss. 6901 et seq.), the Clean Water Act (33 U.S.C. ss.ss. 1251 et
seq.), the Clean Air Act (42 U.S.C. ss.ss. 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. ss.ss. 2601 et seq.), the Federal Insecticide, Fungicide,
and Rodenticide Act (7 U.S.C. ss.ss. 136 et seq.), and the Occupational Safety
and Health Act (29 U.S.C. ss.ss. 651 et seq.) and the regulations promulgated
pursuant thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" means any Person that is or was at any time treated
as a single employer with the Company under Section 414 of the Code or Section
4001 of ERISA.
"HAZARDOUS MATERIAL" means any substance, material or waste that is
regulated by the United States, the foreign jurisdictions in which the Company
or its Subsidiaries conducts business, or any
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state or local governmental authority including, without limitation, petroleum
and its by-products, asbestos, and any material or substance that is defined as
a "hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of Environmental Law.
"LIEN" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan described in
Section 3(37) of ERISA.
"NEW SECURITIES" means shares of Common Stock of the Company and any
securities or other rights convertible or exchangeable into or exercisable for
shares of Common Stock; provided, however, "New Securities" does not include (i)
Common Stock issued or issuable upon conversion of the Convertible Preferred
Stock issued to Purchasers; (ii) securities issued by the Company as part of any
public offering pursuant to an effective registration statement under the
Securities Act; (iii) equity securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; (iv) equity securities
issued to management, directors or employees of the Company pursuant to plans
and options to purchase equity securities issued in accordance with such plans
approved by the Board; or (v) securities issued in connection with any merger,
acquisition or other business combination by the Company.
"PERMITS" means any approvals, authorizations, consents, licenses,
permits or certificates.
"PERMITTED EXCEPTIONS" means (i) all defects, exceptions, restrictions,
easements, rights of way and encumbrances disclosed in policies of title
insurance that have been made available to the Purchasers; (ii) statutory Liens
for current taxes, assessments or other governmental charges not yet delinquent
or the amount or validity of which is being contested in good faith by
appropriate proceedings, provided an appropriate reserve is established
therefor; (iii) mechanics', carriers', workers', repairers' and similar Liens
arising or incurred in the ordinary course of business that are not material to
the business, operations and financial condition of the property so encumbered
or the Company or its Subsidiaries; (iv) zoning, entitlement and other land use
and environmental regulations by any governmental body, provided that such
regulations have not been violated; and (v) such other imperfections in title,
charges, easements, restrictions and encumbrances that do not materially detract
from the value of or materially interfere with the present use of any Company
Property (as hereinafter defined) subject thereto or affected thereby.
"PERSON" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
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"QUALIFIED PLAN" means any Employee Benefit Plan that meets or is
intended to meet the requirements of Section 401(a) of the Code.
"REGISTRABLE SECURITIES" means, (i) shares of Common Stock or other
securities issued or issuable upon exercise of the Convertible Preferred Stock;
(ii) shares issued in connection with the exercise of the Preemptive Rights as
set forth in Section 8.2; and (iii) any other shares of Common Stock or
securities issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalization, mergers, consolidation, share
exchange or similar events).
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal or leaching into the indoor
or outdoor environment, or into or out of any property;
"REMEDIAL ACTION" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"SUBSIDIARIES" means each corporation in which the Company owns or
controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
"WELFARE PLAN" means any Employee Benefit Plan described in
Section 3(1) of ERISA.
SECTION 2
Authorization and Sale of Convertible Preferred Stock
2.1 Authorization of Convertible Preferred Stock. At Closing, the
Company will have authorized the issuance and sale to Purchasers of 27,000
shares of Convertible Preferred Stock, having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designation attached
to this Agreement as Exhibit B hereto (the "CERTIFICATE OF DESIGNATION").
2.2 Sale and Purchase of Convertible Preferred Stock. In reliance on
the representations and warranties of the Company contained herein and subject
to the terms and conditions hereof, each Purchaser agrees to purchase from the
Company, severally, and the Company agrees to sell to each Purchaser that number
of shares of Convertible Preferred Stock set forth next to its name on Exhibit A
hereto, for the purchase price of $1,000 per share.
2.3 Use of Proceeds. The Company agrees to use the full proceeds from
the sale of the Convertible Preferred Stock to pay acquisition costs, fees and
expenses and other transaction costs and for working capital purposes.
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SECTION 3
Closing Date; Delivery
3.1 Closing Date. The closing of the purchase and sale of the
Convertible Preferred Stock hereunder (the "CLOSING") shall be held at the
offices of Katten Muchin & Zavis, 525 W. Monroe, Suite 1600, Chicago, Illinois
60661 on May 23, 1997, or on such other date or at such other place as
Purchasers and the Company shall mutually agree (the date of the Closing being
referred to herein as the "CLOSING DATE"); provided that Fleming US Discovery
Fund III, L.P., and Fleming US Discovery Offshore Fund III, L.P. (the "FLEMING
FUNDS") will close on or about June 4, 1997, or on such other date as the
Fleming Funds and the Company shall mutually agree.
3.2 Delivery. At the Closing, the Company shall deliver to each
Purchaser a certificate or certificates evidencing the shares of Convertible
Preferred Stock being purchased by it registered in such Purchaser's name
against delivery to the Company of payment in an amount equal to the full
purchase price of the shares of Convertible Preferred Stock being purchased by
such Purchaser by certified check or wire transfer to an account designated by
the Company.
SECTION 4
Representations and Warranties of the Company
The Company hereby represents and warrants to, and agrees with,
Purchasers as follows:
4.1 Organization, Good Standing and Qualification. Each of the
Company and its Subsidiaries (i) is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
(ii) has all requisite power and authority to carry on its business, (iii) is
duly qualified to transact business and is in good standing in all jurisdictions
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified would not, and reasonably could not be expected to, have a material
adverse effect on the business, operations, assets, financial condition, results
of operations or business prospects of the Company and its Subsidiaries (a
"MATERIAL ADVERSE EFFECT"). The Company has the corporate power and authority
and is in possession of all material franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on its business as now
being conducted and (ii) execute and deliver this Agreement and the documents
and instruments contemplated hereby and to consummate the transactions
contemplated hereby.
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4.2 Capitalization.
(a) The authorized capital stock of the Company consists of
30,000,000 shares of common stock, par value $.001 per share ("COMMON STOCK") of
which 15,912,999 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $.01 per share ("PREFERRED STOCK"), of which 27,000
shares are Convertible Preferred Stock authorized for issuance hereunder. Other
than the Convertible Preferred Stock issued pursuant to this Agreement, there
are no other shares of Preferred Stock outstanding. The Company has reserved for
issuance 3,130,435 shares of Common Stock upon conversion of the authorized
shares of Convertible Preferred Stock. Except as listed on SCHEDULE 4.2 and
other than obligations arising under any Company Plan also identified on
SCHEDULE 4.2, there are no outstanding securities of the Company convertible
into or evidencing the right to purchase or subscribe for any shares of capital
stock of the Company, there are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other agreements of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible into or evidencing the right to purchase or subscribe for
any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of capital
stock of the Company. No outstanding options, warrants or other securities
exercisable for or convertible into shares of capital stock of the Company
require anti-dilution adjustments by reason of the consummation of the
transactions contemplated hereby.
(b) The issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable. The
shares of Convertible Preferred Stock to be issued pursuant to this Agreement,
upon delivery to Purchaser of certificates therefor against payment in
accordance with the terms of this Agreement, and the shares of Common Stock
issuable upon conversion of such Convertible Preferred Stock of the Company when
issued upon conversion of such Convertible Preferred Stock in accordance with
the Certificate of Designation, (i) will be validly issued, fully paid and
nonassessable, (ii) will be free and clear of all Liens (excluding those of
Purchasers) and (iii) assuming that the representations of Purchasers in Section
5 hereof are true and correct, will be issued in compliance with all applicable
federal and state securities laws.
4.3 Subsidiaries. SCHEDULE 4.3 sets forth a complete and accurate
list of all Subsidiaries of the Company, showing (as to each such Subsidiary)
the date of its incorporation and the jurisdiction of its incorporation. The
Company is the sole stockholder of each Subsidiary. The outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid and
nonassessable and all such shares represented as being owned by the Company are
owned by it, free and clear of all Liens, other than Liens held by Harris Trust
and Savings Bank, the Company's senior lender. There are no outstanding
securities of any Subsidiary convertible into or evidencing the right to
purchase or subscribe for any shares of capital stock of any Subsidiary, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, commitments or any other agreements of any character obligating any
Subsidiary to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any shares
of such stock, and
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<PAGE>
there are no agreements or understandings with respect to the voting, sale,
transfer or registration of any shares of capital stock of any Subsidiary.
4.4 Partnerships. The Company is not a party to, and does not hold,
any equity interests in any partnership or limited partnership of any kind.
4.5 Authorization. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and each agreement, document or
instrument adopted, entered into or delivered in connection herewith (the
"TRANSACTION DOCUMENTS") and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of the Agreement and the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate, including stockholder, action on the part of the Company.
Each Transaction Document has been duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that rights to indemnification and contribution under this
Agreement and may be limited by federal or state securities laws or public
policy relating thereto.
4.6 Consents. Except as set forth in SCHEDULE 4.6, other than filing
the Certificate of Designation with the Delaware Secretary of State
contemporaneously herewith, no material consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, or local governmental authority or other Person
on the part of the Company is required in connection with the valid execution
and delivery by the Company of the Transaction Documents to which it is a party,
or the consummation by the Company of the transactions contemplated by the
Transaction Documents to which it is a party.
4.7 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, or any properties or
rights of the Company or its Subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, that could reasonably be expected to have a Material Adverse Effect.
4.8 Insurance. The Company and it Subsidiaries maintain adequate
insurance with respect to their respective businesses and are in compliance with
all material requirements and provisions thereof.
4.9 Patents and Trademarks. The Company and its Subsidiaries have
sufficient title and ownership of (or rights under license agreements to use)
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
proprietary rights and processes ("INTELLECTUAL PROPERTY") necessary for the
conduct of their businesses in the ordinary course. There are no outstanding
options, licenses
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or agreements of any kind relating to the foregoing, nor is the Company or any
of its Subsidiaries bound by or a party to any options, licenses or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, proprietary rights and processes of any other Person.
A list of all patents and trademarks owned by the Company or any of its
Subsidiaries is set forth on SCHEDULE 4.9(a). Except as set forth on SCHEDULE
4.9(b), within the past five years, the Company has not received any
communications alleging that the Company or any of its Subsidiaries has violated
or, by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets, proprietary
rights and processes of any other Person, nor is the Company aware of any such
violations.
4.10 Compliance with Other Instruments and Legal Requirements.
(a) None of the Company or any of its Subsidiaries is in
violation or default of any provisions of its certificate of incorporation,
by-laws, or comparable organizational documents. None of the Company or any of
its Subsidiaries is in violation or default in any material respect under any
provision, instrument, judgment, order, writ, decree, contract or agreement to
which it is a party or by which it is bound or of any provision of any federal,
state or local statute, rule or regulation applicable to the Company or any of
its Subsidiaries (including, without limitation, any law, rule or regulation
relating to protection of the environment and the maintenance of safe and
sanitary premises). The execution, delivery and performance of each Transaction
Document and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument, judgment, order, writ, decree,
contract or agreement, or require any consent, waiver or approval thereunder, or
constitute an event that results in the creation of any Lien upon any assets of
the Company or any of its Subsidiaries.
(b) The Company and its Subsidiaries have all Permits of all
governmental entities required to conduct their respective businesses as
proposed to be conducted, except to the extent that the failure to have such
Permits would not, and reasonably could not be expected to, have a Material
Adverse Effect.
4.11 Material Agreements; Action. Except as set forth on
SCHEDULE 4.11, there are no material contracts, agreements, commitments,
understandings or proposed transactions, whether written or oral, to which the
Company or any of its Subsidiaries is a party or by which it is bound which call
for an expenditure by the Company of over $100,000 in any single year regarding:
(i) any of their respective officers, directors stockholders or partners or any
Affiliate thereof; (ii) the sale of any of the assets of the Company or any of
its Subsidiaries other than in the ordinary course of business; (iii) covenants
of the Company or any of its Subsidiaries not to compete in any line of business
or with any Person in any geographical area or covenants of any other Person not
to compete with the Company or any of its Subsidiaries in any line of business
or in any geographical area, provided, however, that this subsection (iii) is
not subject to the limitation of expenditure of over $100,000 in any single
year; (iv) the acquisition by the Company or any of its Subsidiaries of any
operating business or the capital stock of any other Person; (v) the borrowing
of money; or (vi)
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the license of any Intellectual Property, other material proprietary right to or
from the Company or any of its Subsidiaries. To the Company's Knowledge, all
such agreements are in full force and effect and are the legal, valid and
binding obligation of the Company or its Subsidiaries, enforceable against them
in accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). None of the Company or any of its Subsidiaries is in material default
under any such agreements nor, to the Company's knowledge, is any other party to
any such agreements in material default thereunder in any respect.
4.12 Disclosure. Neither this Agreement nor any of the Transaction
Documents nor any exhibit hereto, nor any report, certificate, or instrument
furnished to Purchaser or its counsel in connection with the transactions
contemplated by this Agreement, when read together, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
4.13 Brokers' Fees. Except for Coopers & Lybrand Securities LLC,
whose fees will be paid solely by the Company, no broker, finder, investment
banker or other Person is entitled to any brokerage fee, finder's fee or other
commission in connection with the transactions contemplated by this Agreement.
4.14 Registration Rights. Except as set forth in SCHEDULE 4.14,
the Company has not granted or agreed to grant any registration rights,
including piggyback registration rights, to any Person.
4.15 Real Property.
(a) None of the Company or its Subsidiaries owns real property
or interests in real property. SCHEDULE 4.15 sets forth a complete list of all
real property and interests in real property leased by the Company and its
Subsidiaries (individually, a "REAL PROPERTY LEASE" and the real properties
specified in such leases being referred to herein individually as a "COMPANY
PROPERTY" and collectively as the "COMPANY PROPERTIES") as lessee or lessor. The
Company Properties constitute all interests in real property currently used or
currently held for use in connection with the business of the Company and its
Subsidiaries and which are necessary for the continued operation of the business
of the Company and its Subsidiaries as the business is currently conducted. The
Company and its Subsidiaries have a valid and enforceable leasehold interest
under each of the Real Property Leases, and none of the Company or any of its
Subsidiaries has received any written notice of any default or event which, with
notice or lapse of time, or both, would constitute a default by the Company or
any of its Subsidiaries under any of the Real Property Leases, except to the
extend such default would not, and reasonably could not be expected to, have a
Material Adverse Effect. All of the Company Property, buildings, fixtures and
improvements thereon owned or leased by the
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<PAGE>
Company and its Subsidiaries are in good operating condition and repair (subject
to normal wear and tear) except for deficiencies which do not have a Material
Adverse Effect.
(b) There does not exist any actual, or to the Company's
Knowledge, threatened or contemplated, condemnation or eminent domain
proceedings that affect any Company Property or any part thereof, and none of
the Company or any of its Subsidiaries has received any written notice of the
intention of any governmental body or other Person to take or use all or any
part thereof.
4.16 Tangible Personal Property.
(a) Schedule 4.16 sets forth all leases of personal property
("PERSONAL PROPERTY LEASES") involving annual payments in excess of $150,000
relating to personal property used in the business of the Company and its
Subsidiaries or to which the Company or any of its Subsidiaries is a party or by
which the properties or assets of the Company or any of its Subsidiaries is
bound.
(b) Each of the Company and its Subsidiaries has a valid
leasehold interest under each of the Personal Property Leases under which it is
a lessee, and there is no material default under any Personal Property Lease by
the Company or any of its Subsidiaries, by any other party thereto, and no event
has occurred which, with the lapse of time or the giving of notice or both would
constitute a material default thereunder.
(c) Except as set forth on SCHEDULE 4.16, each of the Company
and its Subsidiaries has good and marketable title to all of the items of
tangible personal property reflected in the balance sheets referred to in
Section 4.18 (except as sold or disposed of subsequent to the date thereof in
the ordinary course of business consistent with past practice), free and clear
of any and all Liens other than the Permitted Exceptions. All such items of
tangible personal property that, individually or in the aggregate, are material
to the operation of the business of the Company and its Subsidiaries are in good
condition and in a state of good maintenance and repair (ordinary wear and tear
excepted) and are suitable for the purposes used.
(d) All of the items of tangible personal property used by the
Company and its Subsidiaries under the Personal Property Leases are in good
condition and repair (ordinary wear and tear excepted) and are suitable for the
purposes used except for deficiencies which do not have a Material Adverse
Effect.
4.17 Environmental Matters.
(a) The operations of each of the Company and its Subsidiaries
are in compliance in all material respects with all applicable Environmental
Laws and all Permits issued pursuant to Environmental Laws or otherwise;
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(b) Each of the Company and its Subsidiaries has obtained all
Permits required under all applicable Environmental Laws necessary to operate
its business;
(c) Neither the Company nor any of its Subsidiaries is the
subject of any outstanding written order, agreement or arrangement with any
governmental authority or Person respecting (i) Environmental Laws, (ii)
Remedial Action or (iii) any Release or threatened Release of a Hazardous
Material;
(d) None of the Company or any of its Subsidiaries has received
any written communication alleging either or both that the Company or any of its
Subsidiaries may be in violation of any Environmental Law, or any Permit issued
pursuant to Environmental Law, or may have any liability under any Environmental
Law;
(e) None of the Company or any of its Subsidiaries has any
current contingent liability in connection with any Release of any Hazardous
Materials into the indoor or outdoor environment (whether on-site or off-site);
(f) There are no investigations of the business, operations, or
currently or previously owned, operated or leased property of the Company or any
of its Subsidiaries pending or, to the Company's Knowledge, threatened that
could lead to the imposition of any liability pursuant to Environmental Law; and
(g) There is not located at any of the properties owned, leased
or operated by the Company or any of its Subsidiaries any (i) underground
storage tanks, (ii) asbestos-containing material or (iii) equipment containing
polychlorinated biphenyls.
4.18 Company SEC Reports and Financial Statements.
(a) The Company has delivered to Purchaser true and complete
copies of all periodic reports, statements and other documents that the Company
has filed with the Securities and Exchange Commission (the "SEC") under the
Exchange Act of 1934 (the "EXCHANGE ACT") since December 31, 1995 (collectively,
the "COMPANY SEC REPORTS"), each in the form (including exhibits and any
amendments thereto) required to be filed with the SEC. As of their respective
dates, each of the Company's SEC Reports (i) complied in all material respects
with all applicable requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and the Exchange Act, and the rules and regulations
promulgated thereunder, respectively, (ii) were filed in a timely manner, and
(iii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the Subsidiaries is required to file any forms, reports
or other documents with the SEC.
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(b) Each of the audited consolidated financial statements of
the Company (including any related notes and schedules thereto) included (or
incorporated by reference) in its Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996, is accurate and complete and fairly presents, in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis through the periods involved (except as may be noted therein),
and in conformity with the SEC's Regulation S-B, the consolidated financial
position of the Company and its consolidated subsidiaries as of its date and the
consolidated results of operations and changes in financial position for the
period then ended.
(c) Except as and to the extent set forth (or incorporated by
reference) in the Company's Annual Report on Form 10-KSB for the calendar year
ended December 31, 1996, neither the Company nor any of its Subsidiaries has
incurred any liability or obligation of any nature whatsoever (whether due or to
become due, accrued, fixed, contingent, liquidated, unliquidated or otherwise)
that would be required by GAAP to be accrued on, reflected on, or reserved
against it, in a consolidated balance sheet (or in the applicable notes thereto)
of the Company or any of its Subsidiaries prepared in accordance with GAAP
consistently applied, other than liabilities or obligations which arose in the
ordinary course of business and consistent with past practices since such date
and which do not or would not individually or in the aggregate have a Material
Adverse Effect.
4.19 Changes. Except as set forth on SCHEDULE 4.19, since
December 31, 1996, there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company or any of its Subsidiaries, except changes
in the ordinary course of business that have not had, in the aggregate, a
Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results or business of the Company or any of its
Subsidiaries;
(c) any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it outside of the ordinary course
of business or that otherwise could reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect;
(d) any satisfaction or discharge of any Lien or payment of any
obligation by the Company or any of its Subsidiaries that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
(e) any change or amendment to a contract or arrangement by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound or subject that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect;
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(f) other than in the ordinary course of business, any material
increase in any compensation arrangement or agreement with any employee of the
Company or any of its Subsidiaries receiving compensation in excess of $50,000
annually;
(g) any events or circumstances that otherwise could reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect; or
(h) none of the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock or equity interests,
(ii) incurred any indebtedness for money borrowed in excess of $100,000, other
than bank borrowings in the ordinary course of business, (iii) made any loans or
advances to any Person, other than ordinary advances for travel expenses not
exceeding $50,000, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights for consideration in excess of $50,000 in any one transaction
or series of related transactions.
4.20 Employee Benefit Plans.
(a) Schedule 4.20(a) contains a complete and accurate list of
all Company Plans and Company Benefit Arrangements. Schedule 4.20(a)
specifically identifies all Company Plans (if any) that are Qualified Plans.
(b) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements and except as would not result in liability in excess of
$50,000 (for purposes of this Section 4.20, a Material Adverse Effect):
(i) each Qualified Plan that is a Company Plan qualifies
under Section 401(a) of the Code, and any trusts maintained pursuant thereto are
exempt from federal income taxation under Section 501 of the Code;
(ii) the Company and the Subsidiaries have no liability
(whether actual or contingent, direct or indirect) with respect to any Employee
Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code or Title
IV of ERISA (including any Multiemployer Plan);
(iii) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(iv) there are no pending claims or lawsuits by,
against, or relating to any Employee Benefit Plans or Benefit Arrangements that
are not Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company, and no such claim or lawsuit (other than
routine claims for benefits) has been asserted, instituted or, to the knowledge
of the Company and the Subsidiaries, threatened by, against, or relating to any
Company Plan or Company Benefit Arrangement, or the Company or the Subsidiaries.
To the knowledge of the
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Company and the Subsidiary, the Company Plans and Company Benefit Arrangements
are not presently under audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, the Department of Labor, or any
other governmental agency or entity, and no matters are pending with respect to
a Qualified Plan under the IRS's Voluntary Compliance Resolution program, its
Closing Agreement Program, or other similar programs;
(v) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement, and no payment
under any Company Plan or Company Benefit Plan arising as a result of the
transactions contemplated by this Agreement, would constitute an excess
parachute payment within the meaning of Section 280G of the Code;
(vi) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successful,
result in any liability for the Company or any Stockholder, officer, director,
or employee of the Company;
(vii) all material reporting, disclosure, and notice
requirements of ERISA and the Code have been satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(viii) payment has been made of all amounts that the
Company and each
Subsidiary is required to pay as contributions to the Company Benefit Plans as
of the last day of the most recent fiscal year of each of the plans ended before
the date of this Agreement and all benefits accrued under any unfunded Company
Plan or Company Benefit Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the Balance Sheet Date;
(ix) the Company and the Subsidiaries have no liability
(whether actual, contingent, with respect to any of its assets or otherwise)
with respect to any Employee Benefit Plan or Benefit Arrangement that is not a
Company Benefit Arrangement or with respect to any Employee Benefit Plan
sponsored or maintained (or which has been or should have been sponsored or
maintained) by any ERISA Affiliate;
(x) all group health plans of the Company and its ERISA
Affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code;
(xi) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any welfare
benefits, including, without limitation, death or medical
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benefits (whether or not insured) beyond retirement or other termination of
employment as described in Statement of Financial Accounting Standards No. 106,
other than (i) deferred compensation benefits accrued as liabilities on the
Closing Statement or listed in Schedule 4.20(a) or (ii) continuation coverage
mandated under Section 4980B of the Code or other applicable law.
(c) Schedule 4.20(c) hereto sets forth an accurate list, as of
the date hereof, of all officers, directors, and key employees of the Company
and lists all employment agreements with such officers, directors, and key
employees and the rate of compensation (and the portions thereof attributable to
salary, bonus, and other compensation respectively) of each such Person as of
(a) December 31, 1996 and (b) the date hereof.
(d) The Company has not declared or paid any bonus compensation
in contemplation of the transactions contemplated by this Agreement.
4.21 Taxes. All federal, state, local and foreign tax returns, reports
and statements required to be filed by the Company and its Subsidiaries have
been filed with the appropriate governmental agencies in all jurisdictions in
which such returns, reports and statements are required to be filed and all such
returns, reports and statements are true, complete and correct in all respects.
All taxes, charges and other impositions due and payable by the Company and its
Subsidiaries have been paid in full on a timely basis except where contested in
good faith and by appropriate proceedings if adequate reserves therefor have
been established on the books and records of the Company or Subsidiary in
accordance with GAAP consistently applied. The provision for taxes of each of
the Company and its Subsidiaries as shown in the Company SEC Reports is
sufficient for all unpaid taxes, charges and other impositions of any nature due
or accrued as of the date hereof, whether or not assessed or disputed. Proper
and accurate amounts have been withheld by the Company and its Subsidiaries from
their respective employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective governmental agencies. The Company has not received
notice of any audit or of any proposed deficiencies from any governmental
authority, and no controversy with respect to taxes of any type is pending or
threatened. Except for routine filing extensions granted as a matter of right
under applicable law, none of the Company or any of its Subsidiaries has
executed or filed with the Internal Revenue Service or any other governmental
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any taxes, charges or other
impositions. None of the Company or any of its Subsidiaries has agreed or is
required to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise. Further, none of the Company or any of
its Subsidiaries has any obligation under any tax-sharing agreement.
4.22 Minute Books. The minute books of the Company and each of its
Subsidiaries contain a complete summary of all material actions by their
respective directors and stockholders since the date of their respective
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
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4.23 Labor and Employment Matters. With respect to employees of and
service providers to the Company and the Subsidiaries: (a) the Company and the
Subsidiaries are and have been in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such laws respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, and occupational
safety and health requirements, and have not and are not engaged in any unfair
labor practice; (b) there is not now, nor within the past three years has there
been, any unfair labor practice complaint against the Company or any Subsidiary
pending or, to the Company's or any Subsidiary's knowledge, threatened before
the National Labor Relations Board or any other comparable authority; (c) there
is not now, nor within the past three years has there been, any labor strike,
slowdown or stoppage actually pending or, to the Company's or any Subsidiary's
knowledge, threatened against or directly affecting the Company or any
Subsidiary; (d) to the Company's or any Subsidiary's knowledge, no labor
representation organization effort exists nor has there been any such activity
within the past three years; (e) no grievance or arbitration proceeding arising
out of or under collective bargaining agreements is pending and, to the
Company's or any Subsidiary's knowledge, no claims therefor exist or have been
threatened; (f) the employees of the Company and the Subsidiaries are not and
have never been represented by any labor union, and no collective bargaining
agreement is binding and in force against the Company or any Subsidiary or
currently being negotiated by the Company or any Subsidiary; and (g) to the
Company's knowledge, all Persons classified by the Company or its Subsidiaries
as independent contractors do satisfy and have satisfied the requirements of law
to be so classified, and the Company and its Subsidiaries have fully and
accurately reported their compensation on IRS Forms 1099 when required to do so.
To the Company's knowledge, none of the employees of the Company or any of its
Subsidiaries is obligated under any contract or other agreement (including
licenses, covenants or commitments of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that materially
interferes with the use of the employee's best efforts to promote the interests
of the Company and its Subsidiaries or conflicts with the business as proposed
to be conducted by the Company or its Subsidiaries.
SECTION 5
Representations, Warranties and Covenants of the Purchasers
Each Purchaser severally hereby represents and warrants to and agrees
with the Company, as to itself only, as follows:
5.1 Accredited Investor; Experience; Risk. Purchaser is an accredited
investor within the definition of Regulation D promulgated under the Securities
Act. Purchaser has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase of
the Convertible Preferred Stock pursuant to this Agreement.
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5.2 Investment. Purchaser is acquiring the Convertible Preferred
Stock for investment purposes only, for its own account and not with a view to,
or for resale in connection with, any distribution thereof in violation of
applicable law.
5.3 Authorization. Purchaser represents that it has all requisite
power and authority to enter into and perform its obligations under the
Transaction Documents to which it is a party. Assuming the due authorization,
execution and delivery of the Transaction Documents by each other party thereto,
each Transaction Document to which Purchaser is a party constitutes a valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity) and except to the extent that rights to indemnification and
contribution under this Agreement may be limited by federal or state securities
laws or public policy relating thereto.
5.4 Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority or other Person on the part of
Purchaser is required in connection with the valid execution and delivery by
Purchaser of the Transaction Documents to which it is a party, or the
consummation by Purchaser of the transactions contemplated by the Transaction
Documents to which it is a party, except for such filings as have been made
prior to the Closing.
5.5 Brokers' Fees. No broker, finder, investment banker or other
Person is entitled to any brokerage fee, finder's fee or other commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by the Purchaser.
5.6 Plan Assets. Purchaser is not, and no source of the funds to be
used by Purchaser to acquire the Convertible Preferred Stock are, a "Plan Asset"
as such phrase is defined within the U.S. Department of Labor regulations
2510.3-101.
5.7 Restrictive Legends. Purchaser understands that the certificates
or other instruments representing each of the shares of Convertible Preferred
Stock and the shares of common stock issuable upon conversion thereof (the
"CONVERSION SHARES"), shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates) until such time as the sale of the Conversion Shares have
been registered under the Securities Act as contemplated hereunder:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
If such Purchaser desires to sell or otherwise dispose of all or any part of the
Convertible Preferred Stock or shares of any Conversion Shares owned by it under
an exemption from registration under the Securities Act, and if requested by the
Company, such Purchaser shall deliver to the Company an opinion of counsel,
which may be counsel for the Company, that such exemption is available.
SECTION 6
Conditions to Closing of Purchasers
Each Purchaser's obligation to purchase the Convertible Preferred Stock
at the Closing is, at the option of that Purchaser, subject to the fulfillment
on or prior to the Closing Date of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of such date.
6.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 Opinion of Company's Counsel. Purchasers shall have received from
Katten Muchin & Zavis, counsel to the Company, an opinion addressed to
Purchasers, dated the Closing Date, in substantially the form of Exhibit C
hereto.
6.4 No Material Adverse Change. Since December 31, 1996, there shall
not have occurred any events or circumstances that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
6.5 Certificate of Designation. The Certificate of Designation shall
have been duly adopted and executed by the Company and filed with the Delaware
Secretary of State.
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6.6 State Securities Laws. All registrations, qualifications and
Permits required under applicable state securities laws, if any, shall have been
obtained for the lawful execution, delivery and performance of this Agreement.
6.7 Issuance of Shares. The Company shall have issued at least 19,000
shares of Convertible Preferred Stock at the Closing pursuant to this Agreement.
6.8 Certificates. Purchasers shall have received a certificate of the
President or the Chief Financial Officer of the Company to the effect set forth
in Sections 6.1, 6.2, 6.4, and 6.5.
6.9 Organizational Documents. The Company shall have delivered to
each Purchaser certified copies of the charter and bylaws of the Company in
effect at the Closing.
6.10 Stockholders' Agreement. The Company and Scott Anixter shall
have executed and delivered to each Purchaser a stockholders' agreement
substantially in the form of Exhibit D hereto (the "Stockholders' Agreement").
6.11 Consents. The Company shall have received the consents, or
waivers thereto, set forth on Schedule 4.2.
SECTION 7
Conditions to Closing of the Company
The Company's obligation to issue and sell the Convertible Stock at the
Closing is, at the option of the Company, subject to the fulfillment of the
following conditions:
7.1 Representations. The representations and warranties made by each
Purchaser in Section 5 hereof shall be true and correct when made, and shall be
true and correct on the Closing Date with the same force and effect as if they
had been made on and as of such date.
7.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by each Purchaser on or prior to the Closing Date
shall have been performed or complied with in all respects.
7.3 Purchase Price. Each Purchaser shall have tendered the purchase
price for the Convertible Preferred Stock as set forth on Exhibit A hereto by
certified check or wire transfer, subject to the later Closing scheduled for the
Fleming Funds.
7.4 Certificate. The Company shall have received a certificate from
each Purchaser to the effect set forth in Sections 7.1 and 7.2.
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7.5 Stockholders' Agreement. Each Purchaser shall have executed and
delivered to the Company the Stockholders' Agreement.
7.6 Consents. The Company shall have obtained the consents, or
waivers thereto, set forth on Schedule 4.2.
SECTION 8
Covenants of the Company
8.1 Information. After the Closing Date and until a Purchaser (i) no
longer owns any shares of Convertible Preferred Stock or (ii) requests
otherwise, the Company will send each Purchaser any and all materials which it
sends to the holders of its Common Stock. Additionally, commencing on May 1,
1999, in the event that a Purchaser owns any of the shares of Convertible
Preferred Stock, the Company, upon written request of that Purchaser, shall
deliver to that Purchaser the information specified in this Section 8.1:
(a) Monthly Financial Statements. As soon as available, but in
any event not later than forty-five (45) days after the end of each monthly
fiscal period (other than the last monthly fiscal period of the fourth fiscal
quarter of the Company), the unaudited consolidated balance sheet of the Company
and its Subsidiaries as at the end of each such period and the related unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such fiscal year, all
in reasonable detail and stating in comparative form the figures as of the end
of and for the comparable periods of the preceding fiscal year. All such
financial statements shall be prepared in accordance with GAAP on a consistent
basis throughout the periods reflected therein except as stated therein and
shall be accompanied by a certificate of the Company's president or chief
financial officer to such effect.
(b) Board Materials. As soon as available, all materials which
the Company distributes to the members of the Board of Directors will be sent to
Purchaser.
(c) Other Reports and Statements. Promptly (but in any event
within ten (10) days) after any distribution to its stockholders generally, to
its directors or to the financial community of an annual report, definitive
proxy statement, registration statement or other similar report or
communication, a copy of each such annual report, proxy statement, registration
statement or other similar report or communication and promptly (but in any
event within ten (10) days) after any filing by the Company with the SEC or with
any national securities exchange or market system, of any publicly available
annual or periodic or special report or proxy statement or registration
statement, a copy of such report or statement and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's business.
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(d) A Purchaser who requests such information pursuant to this
Section 8.1 (a "REQUESTING PURCHASER") hereby acknowledges that it is aware of
the restrictions imposed by federal and state securities laws on a person
possessing material nonpublic information about a company. In this regard, a
Requesting Purchaser hereby agrees that while it is in possession of material
nonpublic information with respect to the Company and its subsidiaries, such
Requesting Purchaser will not purchase or sell any securities of the Company, or
communicate such information to any third party, in violation of any such laws.
Such Requesting Purchaser also agrees that, if requested by the Company, such
Requesting Purchaser will cause any of its representatives, consultants or
advisors who have been or may become apprised of any material nonpublic
information about the Company to give a written undertaking to the same effect
to the Company.
8.2 Preemptive Rights. If, after the Closing Date, the Company shall
propose to issue or sell New Securities or enters into any contracts,
commitments, agreements, understandings or arrangements of any kind relating to
the issuance or sale of any New Securities and a Purchaser still holds twenty
percent (20%) of the Convertible Preferred Stock acquired hereby by such
Purchaser, then each such Purchaser shall have the right to purchase that number
of New Securities at the same price and on the same terms proposed to be issued
or sold by the Company so that such Purchaser would after the issuance and sale
of all such New Securities, hold the same proportional interest of the then
outstanding shares of Common Stock (assuming that any outstanding securities or
other rights, including the Convertible Preferred Stock, convertible or
exchangeable into or exercisable for Common Stock have been converted, exchanged
or exercised) as was held by such Purchaser immediately prior to such issuance
and sale (the "PROPORTIONATE PERCENTAGE").
The Company shall give each Purchaser written notice of its intention
to issue and sell New Securities, describing the type of New Securities, the
price and the general terms and conditions upon which the Company proposes to
issue the same. Each Purchaser shall have twenty-five (25) days from the giving
of such notice to agree to purchase all (or any part) of its Proportionate
Percentage of New Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
If Purchasers fail to exercise in full such right within twenty-five
(25) days, the Company shall have one hundred twenty-five (125) days
thereafter to sell the New Securities in respect of which Purchasers' rights
were not exercised, at a price and upon general terms and conditions no more
favorable to the buyers thereof than specified in the Company's notice to
Purchasers pursuant to this Section. If the Company has not sold the New
Securities within such one hundred twenty-five (125) day period, the Company
shall not thereafter issue or sell any New Securities, except by giving
Purchasers the right to purchase their Proportionate Percentage in the manner
provided above.
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8.3 Shelf Registration.
(a) Within 45 days after the Closing Date, the Company shall
prepare and file with the SEC a Registration Statement for an offering to be
made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act
(a "SHELF REGISTRATION") registering the resale from time to time by Purchasers
of all of the Registrable Securities (the "INITIAL SHELF REGISTRATION"). The
Registration Statement for any Shelf Registration shall be on Form S-3 or
another appropriate form permitting registration of such Registrable Securities
for resale by Purchasers in the manner or manners designated by them. The
Company shall use its best efforts to cause the Initial Shelf Registration to
become effective under the Securities Act as promptly as is practicable and to
keep the Initial Shelf Registration continuously effective under the Securities
Act until the end of the Effectiveness Period. If the Company fails to file the
Initial Shelf Registration within 45 days after the Closing Date, then, unless
such a delay is attributable to any Purchaser not timely providing information
reasonably requested by the Company, the dividend payable upon the Convertible
Preferred Stock shall increase to 15% per annum until such Initial Shelf
Registration is filed. In such instance, upon filing such Initial Shelf
Registration, the dividend shall revert to 5%. Notwithstanding the foregoing,
until the Initial Shelf Registration is declared effective by the Securities and
Exchange Commission, no shares of Convertible Preferred Stock shall be converted
pursuant to Section 4(b) of the Certificate of Designation.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration (as defined below) ceases to be effective for any reason at any
time during the Effectiveness Period (other than because all Registrable
Securities shall have been sold or shall have ceased to be Registrable
Securities), the Company shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any event
shall within thirty days of such cessation of effectiveness amend the Shelf
Registration in a manner reasonably expected to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional Shelf
Registration covering all of the Registrable Securities (a "SUBSEQUENT SHELF
REGISTRATION"). If a Subsequent Shelf Registration is filed, the Company shall
use all reasonable efforts to cause the Subsequent Shelf Registration to become
effective as promptly as is practicable after such filing and to keep such
Registration Statement continuously effective until the end of the Effectiveness
Period.
(c) The Company shall supplement and amend the Shelf
Registration if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration, if
required by the Securities Act or the SEC, or if reasonably requested by
Purchasers.
(d) From time to time, the Company shall prepare and file with
the SEC a post-effective amendment to the Shelf Registration or a supplement to
the related Prospectus or a supplement or amendment to any document incorporated
therein by reference or any other required document, so that such Registration
Statement will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and so that, as thereafter delivered to
purchasers of the Registrable Securities
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<PAGE>
being sold thereunder, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provide Purchasers copies of any documents
filed in such numbers as Purchasers shall reasonably request; and inform
Purchasers that the Company has complied with its obligations and that the
Registration Statement and related Prospectus may be used for the purpose of
selling all or any of such Registrable Securities (or that, if the Company has
filed a post-effective amendment to the Shelf Registration which has not yet
been declared effective, the Company will notify Purchasers to that effect, will
use its best efforts to secure promptly the effectiveness of such post-effective
amendment and will immediately so notify Purchasers when the amendment has
become effective).
(e) Registration Expenses. All fees and expenses incident to
the Company's performance of or compliance with a Shelf Registration pursuant to
this Agreement shall be borne by the Company whether or not any Registration
Statement becomes effective. Such fees and expenses shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (x) with respect to filings required to be made with the
National Association of Securities Dealers, Inc. and (y) of compliance with
federal securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel to Purchasers in connection with Blue Sky
qualifications of the Registrable Securities under the laws of such
jurisdictions as Purchaser may designate)), (ii) printing expenses, (iii)
messenger, telephone and delivery expenses, (iv) reasonable fees and
disbursements of counsel for the Company and counsel for Purchasers in
connection with the Registration not to exceed $10,000, (v) fees and
disbursements of the Company's independent certified public accountants
(including the expenses of any special audit and "comfort" letters required by
or incident to such performance) and (vi) Securities Act liability insurance
obtained by the Company in its sole discretion. In addition, the Company shall
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange or the
Nasdaq Stock Market, as the case may be, on which similar securities issued by
the Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company. Notwithstanding the provisions of this
subsection, Purchasers shall pay all registration expenses to the extent the
Company is prohibited by applicable Blue Sky laws from paying for or on behalf
of Purchasers.
(f) Indemnity.
(i) In the event of the registration or qualification
of any Registrable Securities pursuant to a Shelf Registration, the Company
agrees to indemnify and hold harmless each Purchaser, each officer, director,
employee, agent and representative of each Purchaser, each underwriter, broker
or dealer, if any, of such Registrable Securities, and each other Person, if
any, who controls such Purchaser, underwriter, broker or dealer within the
meaning of the Securities Act, Exchange Act or any other applicable securities
laws, from and against any and all losses, claims, damages or liabilities (or
actions in respect thereof), joint or several, to which any of them may
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<PAGE>
become subject under the Securities Act or any other applicable securities laws
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement (including all documents incorporated therein by reference) under
which such Registrable Securities were registered or qualified under the
Securities Act or any other applicable securities laws, any preliminary
prospectus or final prospectus relating to such Registrable Securities, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation under the Securities Act or
any other applicable securities laws applicable to the Company or relating to
any action or inaction required by the Company in connection with any such
registration or qualification and will reimburse each Purchaser, each officer,
director, employee, agent and representative of each Purchaser, each such
underwriter, broker or dealer and each such controlling Person for any legal or
other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission made in such Registration Statement, such
preliminary prospectus, such final prospectus or such amendment or supplement
thereto or violation in reliance upon and in conformity with written information
furnished to the Company by any Purchaser, or any officer, director, employee,
agent or representative of any Purchaser specifically and expressly for use in
the preparation thereof; and PROVIDED, FURTHER, that the Company shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the Prospectus, as the same may be then supplemented or amended, to
the Person asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such Prospectus so long as such Prospectus, and any amendments or
supplements thereto, have been furnished to such underwriter in sufficient
numbers and in a timely-manner to permit distribution thereof.
(ii) In the event of the registration or qualification
of any Registrable Securities pursuant to a Shelf Registration, each Purchaser
severally agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 8.3(f)(i) above) the Company, its officers
and directors and each other Person, if any, who controls the Company within the
meaning of the Securities Act with respect to any untrue statement or alleged
untrue statement in, or omission or alleged omission from, such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such statement or omission (i) arises
from information provided by that Purchaser and (ii) was made in reliance upon
and in conformity with written information which that Purchaser furnished to the
Company through an instrument duly executed by it specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment or supplement. Such
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<PAGE>
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
Person and shall survive the transfer of such securities by that Purchaser.
Notwithstanding the foregoing, no Purchaser shall be liable under this Section
8.3(f)(ii) for an amount in excess of that Purchaser's purchase price as set
forth on Exhibit A.
(iii) Promptly after receipt by a Person entitled to
indemnification under this Section 8.3(f) (an "Indemnified Party") of notice of
the commencement of any action or claim relating to any Registration Statement
filed pursuant to a Shelf Registration or as to which indemnity may be sought
hereunder, such Indemnified Party will, if a claim for indemnification hereunder
in respect thereof is to be made against any other party hereto (an
"INDEMNIFYING PARTY"), give written notice to such Indemnifying Party of the
commencement of such action or claim, but the omission to so notify the
Indemnifying Party will not relieve the Indemnifying Party from any liability
that it may have to any Indemnified Party except to the extent that the
Indemnifying Party is actually prejudiced thereby. In case any such action is
brought against an Indemnified Party, and it notifies an Indemnifying Party of
the commencement thereof, the Indemnifying Party will be entitled (at its own
expense) to participate in and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense, with counsel
reasonably satisfactory to such Indemnified Party, of such action provided that
the Indemnifying Party shall not settle or compromise such action, except upon
the prior written consent of the Indemnified Party and, after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume the
defense thereof, the Indemnifying Party will not be liable to such Indemnified
Party for any legal or other expenses subsequently incurred by such Indemnified
Party in connection with the defense thereof, other than the reasonable cost of
investigation; PROVIDED, HOWEVER, that the assumption of such defense shall not
give rise in the reasonable opinion of the Indemnified Party or its counsel to
any conflict. Notwithstanding the foregoing, the Indemnified Party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (A) the
employment of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such suit, action, claim or
proceeding, (B) the Indemnifying Party shall not have employed counsel
(reasonably satisfactory to the Indemnified Party) to take charge of the defense
of such action, suit, claim or proceeding, or (C) such Indemnified Party shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it that are different from or additional to those
available to the Indemnifying Party which, if the Indemnifying Party and the
Indemnified Party were to be represented by the same counsel, could result in a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such Indemnified Party. If any of the events specified
in clauses (A), (B) or (C) of the preceding sentence shall have occurred or
shall otherwise be applicable, then the fees and expenses of one counsel or firm
of counsel selected by the Indemnified Party (and reasonably acceptable to the
Indemnifying Party) shall be borne by the Indemnifying Party. If, in any such
case, the Indemnified Party employs separate counsel, the Indemnifying Party
shall not have the right to direct the defense of such action, suit, claim or
proceeding on behalf of the Indemnified Party and the Indemnified Party shall
assume such defense and/or settle or compromise such action; PROVIDED, HOWEVER,
that an Indemnifying Party shall not
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<PAGE>
be liable for the settlement or compromise of any action, suit, claim or
proceeding effected without its prior written consent, which consent shall not
be unreasonably withheld.
(g) Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation, or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation, or reorganization, agree
in writing to assume the obligations of the Company under this Section, and for
that purpose references hereunder to "Registrable Securities" shall be deemed to
be references to the securities that Purchasers would be entitled to receive in
exchange for Registrable Securities under any such merger, consolidation, or
reorganization.
8.4 Delay and Holdback of Registration.
(a) With regard to and notwithstanding Section 8.3, the Company
may delay filing a registration statement for a period of time not to exceed
thirty (30) trading days, and may withhold efforts to cause the registration
statement to become effective, if the Company determines in good faith that such
registration might (i) interfere with or affect the negotiation or completion of
any transaction that is being contemplated by the Company (whether or not a
final decision has been made to undertake such transaction) at the time the
right to delay is exercised, or (ii) involve initial or continuing disclosure
obligations that might not be in the best interest of the Company's
stockholders. The Company may exercise its rights under this Section 8.4(a) no
more than two times per calendar year. During any period (a "TOLLING PERIOD")
for which the Company has exercised its rights under this Section 8.4(a), any
mandatory conversion under Section 4(b) of the Certificate of Designation will
be delayed until the first business day after the Tolling Period.
(b) If, after a registration statement becomes effective, the
Company advises Purchasers that the Company considers it appropriate for the
registration statement to be amended, the Company shall use its best reasonable
efforts to amend such registration statement as soon as practicable and the
holders of such shares shall suspend any further sales of their registered
shares until the Company advises them that the registration statement has been
so amended.
8.5 Negative Covenants. So long as twenty percent (20%) of the shares
of Convertible Preferred Stock issued hereunder are then outstanding, without
the prior written consent of holders owning a majority of the then outstanding
shares of Convertible Preferred Stock, the Company shall not:
(a) Issue any shares or class or series of Preferred Stock or
Common Stock which is senior to, or pari passu with, the Convertible Preferred
Stock (other than the Convertible Preferred Stock issued pursuant hereto);
(b) Declare or pay any dividend on its Common Stock if any
dividends are unpaid on the Convertible Preferred Stock; or
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<PAGE>
(c) Redeem for cash any other securities issued by the Company.
(d) Directly or indirectly, enter into any merger,
consolidation or other reorganization in which the Company shall not be the
surviving corporation, unless (i) such merger, consolidation or reorganization
is completed in compliance with Section 8.3(g) of this Agreement and Section
4(d)(iv) of the Certificate of Designations, and (ii) the surviving corporation
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Company under this Agreement and the
Certificate of Designations.
SECTION 9
Miscellaneous
9.1 Amendment; Waiver. Neither this Agreement nor any provision
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by (i) the Company and (ii) Purchasers holding a majority in
interest of the Convertible Preferred Stock issued and sold pursuant to this
Agreement and the shares of Common Stock issuable upon conversion thereof.
9.2 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if in writing and delivered in
Person, transmitted by facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such other address has
such party may notify to the other parties in writing:
(a) if to the Company:
Anicom, Inc.
6133 North River Road, Suite 1000
Rosemont, Illinois 60018-5171
Attn: Chief Financial Officer
Facsimile No.: (847) 518-8777
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attn: Jeffrey R. Patt
Facsimile No.: (312) 902-1061
(b) if to the Purchaser:
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<PAGE>
To the address listed next to each such purchaser on
Exhibit A hereto.
A notice or communication will be effective (i) if delivered in Person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three (3) business
days after dispatch.
9.3 Survival of Representations, Warranties and Covenants. All
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any Purchaser, and the sale
and purchase of the Convertible Preferred Stock and payment therefor for a
period of two (2) years; PROVIDED, HOWEVER, that the representations and
warranties made in Sections 4.17 (Environmental), 4.20 (Benefits) and 4.21
(Taxes) shall survive the applicable statutory period of limitations with
respect to any liabilities covered thereby.
9.4 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9.5 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto, including, without limitation,
each transferee of all or any portion of the Convertible Preferred Stock. No
party hereto may assign its rights or delegate its obligations under this
Agreement without the prior written consent of the other parties hereto;
provided, however, a Purchaser may assign its rights and delegate its
obligations under this Agreement upon the Company's prior written consent which
consent will not be unreasonably withheld. The Parties agree that, among other
reasons, it will be reasonable for the Company to withhold such consent if the
proposed assignee is a competitor to the Company or an Affiliate thereof.
9.6 Entire Agreement. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
9.7 Choice of Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
principles of conflict of laws.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed
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<PAGE>
the same document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
9.9 Costs and Expenses. The Company shall pay all reasonable fees and
disbursements of Purchasers' legal counsel as well as other reasonable
out-of-pocket expenses incurred by Purchasers in connection with the negotiation
and execution of the Transaction Documents (including amounts paid or owed to
third parties), not to exceed the amounts set forth in SCHEDULE 9.9.
9.10 Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Purchaser and its Affiliates, and its respective partners, co-investors,
officers, directors, employees, agents, consultants, attorneys and advisers
(each, a "PURCHASER INDEMNIFIED PARTY"), from and against any and all actual
losses, claims, damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all reasonable
fees, expenses and disbursements of counsel), joint or several (hereinafter
collectively referred to as a "LOSS" or "Losses"), which may be incurred by or
asserted or awarded against any Purchaser Indemnified Party in connection with
or in any manner arising out of or relating to any investigation, litigation or
proceeding or the preparation of any defense with respect thereto, arising out
of or in connection with or relating to this Agreement, the other Transaction
Documents or the transactions contemplated hereby or thereby or any use made or
proposal to be made with the proceeds of Purchasers' purchase of the Convertible
Preferred Stock pursuant to this Agreement, whether or not such investigation,
litigation or proceeding is brought by the Company, any of its Subsidiaries,
shareholders or creditors, whether or not any of the transactions contemplated
by this Agreement or the other Transaction Documents are consummated, except to
the extent such Loss is found in a final judgment by a court of competent
jurisdiction to have resulted from such Purchaser Indemnified Party's gross
negligence or willful misconduct.
(b) Each Purchaser severally agrees to indemnify and hold
harmless the Company and its Affiliates, and its respective officers, directors,
employees, agents, consultants, attorneys and advisers (each, a "COMPANY
INDEMNIFIED PARTY"), from and against any and all Losses, which may be incurred
by or asserted or awarded against any Company Indemnified Party in connection
with or in any manner arising out of or relating to any investigation,
litigation or proceeding or the preparation of any defense with respect thereto,
arising out of or in connection with or relating to any breach of any
representation, warranty or covenant made by such Purchaser in this Agreement.
Notwithstanding the foregoing, no Purchaser shall be liable under this Section
9.10(b) for an amount in excess of that Purchaser's purchase price as set forth
on Exhibit A.
(c) An indemnified party shall give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
within ten (10) days after the discovery by such parties of any matters giving
arise to a claim for indemnification pursuant to this Section 9.10; provided
that the failure of any indemnified party to give notice as provided herein
shall not relieve
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<PAGE>
the indemnifying party of its obligations under this Section 9.10, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action or claim is brought against any indemnified
party, the indemnifying party shall be entitled to participate in and, unless in
the reasonable good faith judgment of the indemnified party a conflict of
interest between such indemnified party and the indemnifying party may exist in
respect of such action or claim, to assume the defense thereof, with counsel
satisfactory to the indemnified party and after notice from the indemnifying
party to the indemnified party of its election so to assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party for any
legal or other expenses subsequently incurred by the latter in connection with
the defense thereof other than reasonable costs of investigation. In any event,
unless and until the indemnifying party elects in writing to assume and does so
assume the defense of any such action or claim the indemnified party's costs and
expenses arising out of the defense, settlement or compromise of any such action
or claim shall be Losses subject to indemnification hereunder. If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action or claim effected without its written
consent. Anything in this Section 9.10 to the contrary notwithstanding, the
indemnifying party shall not, without the indemnified party's prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof that imposes any future obligation on the indemnified party or
that does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party, a release from all liability
in respect of such claim.
9.11 No Third-Party Beneficiaries. Nothing in this Agreement will
confer any third party beneficiary or other rights upon any Person (specifically
including any employees of the Company and its Subsidiaries) or entity that is
not a party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have caused this
Agreement to be executed effective as of the date first above written.
ANICOM, INC.
By: _____________________________________________
Donald C. Welchko,
Chief Financial Officer
PURCHASERS:
CAHILL WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P., its
general partner
By: _______________________________________
David L. Warnock, a general partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL WARNOCK & COMPANY, L.L.C., its general
partner
By: _______________________________________
David L. Warnock, a managing member
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<PAGE>
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P., its
general partner
By: FLEMING US DISCOVERY, LLC, its general
partner
By: ___________________________________
Robert L. Burr, member
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
By: FLEMING US DISCOVERY PARTNERS, L.P., its
general partner
By: FLEMING US DISCOVERY, LLC, its general
partner
By: ___________________________________
Robert L. Burr, member
_________________________________________________
Peter H. Huizenga
_________________________________________________
Heidi A. Huizenga
PETER H. HUIZENGA TESTAMENTARY TRUST
By: ____________________________________________
Its: ___________________________________________
BETSY HUIZENGA TRUST
By: ____________________________________________
Its: ___________________________________________
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<PAGE>
GRETA HUIZENGA TRUST
By: ____________________________________________
Its: ___________________________________________
PETER HUIZENGA JR. TRUST
By: ____________________________________________
Its: ___________________________________________
TIMOTHY DEAN HUIZENGA TRUST
By: ____________________________________________
Its: ___________________________________________
SUMMER HILL PARTNERS, L.P.
By: Summer Hill, Inc., its general partner
By: _______________________________________
Richard L. Roeding, President
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<PAGE>
SUMMER HILL R.T. ENTERPRISES LIMITED PARTNERSHIP
By: Summer Hill, Inc., its general partner
By: ______________________________________
Richard L. Roeding, President
GARFAM INVESTORS LLC
By: ___________________________________________
Thomas Mueller, Treasurer
_________________________________________________
S. JAMES PERLOW
_________________________________________________
EARL PERLOW
_________________________________________________
MARK PERLOW
KA TRADING
By: ____________________________________________
Irv Kessler
Title:
KA MANAGEMENT
By: ____________________________________________
Irv Kessler
Title:
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<PAGE>
CEW PARTNERS
By: ____________________________________________
Geoffrey Colvin
Title:
TRUST INVESTMENTS, INC.
By: ____________________________________________
M. Terence Conklin
Title:
THE LINCOLN FUND, L.P.
By: MATLINS FINANCIAL CONSULTING, INC., its general
partner
By: ____________________________________________
Neal Matlins, President
THE LINCOLN FUND TAX ADVANTAGE, L.P.
By: MATLINS FINANCIAL CONSULTING, INC., its general
partner
By: ____________________________________________
Neal Matlins, President
THE GORDON FUND, L.P.
By: LIGHTHOUSE CAPITAL MANAGEMENT, L.L.C.
By: ____________________________________________
Neal Matlins, President
- 35 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Number of Shares
of Convertible
Purchaser Address Preferred Stock Purchase Price
<S> <C> <C> <C>
Cahill, Warnock One South Street 7,580 $7,580,000
Strategic Partners Suite 2150
Fund, L.P. Baltimore, MD 21202
Attn: David Warnock
Hyonmyong Cho (Hoch)
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas
Strategic Associates, L.P. One South Street 420 420,000
Suite 2150
Baltimore, MD 21202
Attn: David Warnock
Hyonmyong Cho (Hoch)
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: George P. Stamas
Fleming US Discovery 320 Park Avenue 6,895 6,895,000
Fund III, L.P. New York, NY 10022
Attn: Robert L. Burr
Chris Jones
David Edwards
with a copy to:
Morgan, Lewis, Bockius, LLP
101 Park Avenue
New York, NY 10178
Attn: David Pollack
<PAGE>
Number of Shares
of Convertible
Purchaser Address Preferred Stock Purchase Price
Fleming US Discovery 320 Park Avenue 1,105 1,105,000
Offshore Fund III, L.P. New York, NY 10022
Attn: Robert L Burr
Chris Jones
David Edwards
with a copy to:
Morgan, Lewis, Bockius, LLP
101 Park Avenue
New York, NY 10178
Attn: David Pollack
Peter H. Huizenga
Testamentary Trust 3,000 3,000,000
Peter H. Huizenga 1,000 1,000,000
Heidi A. Huizenga 500 500,000
Betsy Huizenga Trust 125 125,000
Greta Huizenga Trust 125 125,000
Peter Huizenga Jr. Trust 125 125,000
Timothy Dean Huizenga Trust 125 125,000
in each case, c/o:
Huizenga Capital 2215 York Road
Management Suite 500
Oak Brook, IL 60521
Attn: Mike Wik
with a copy to:
Hlustik, Williams &
Vander Woude
20 N. Wacker Drive
Suite 2800
Chicago, IL 60606
Attn: Paul Vander Woude
Summer Hill Partners, L.P. 1,000 1,000,000
Summer Hill R.T. Enterprises
Limited Partnership 1,000 1,000,000
Garfam Investors, L.L.C. 200 200,000
in each case, c/o:
Summer Hill, Inc. 6800 Cintas Blvd.
Mason, Ohio 45040
Attn: Thomas P. Orr
Rick Roeding, Jr.
S. James Perlow 2900 S. 25th Ave. 334 334,000
Broadview, IL 60153
<PAGE>
Number of Shares
of Convertible
Purchaser Address Preferred Stock Purchase Price
Earl Perlow 2900 S. 25th Ave. 333 333,000
Broadview, IL 60153
Mark Perlow 2900 S. 25th Ave. 333 333,000
Broadview, IL 60153
KA Trading 1712 Hopkins Crossroads 825 825,000
Minneapolis, MN 55305
Attn: Andrew Redleaf
Richard Field
KA Management 1712 Hopkins Crossroads 425 425,000
Minneapolis, MN 55305
Attn: Andrew Redleaf
Richard Field
CEW Partners 45 Rockerfeller Plaza 500 500,000
New York, NY 10020
Attn: Geoffrey Colvin
Trust Investments, Inc. 52 Stiles Road 500 500,000
Salem, NH 03079
Attn: M. Terence Conklin
The Lincoln Fund, L.P. 4 West Old State Capitol Plaza 300 300,000
Suite 810
Springfield, IL 62701
The Lincoln Fund Tax 4 West Old State Capitol Plaza 100 100,000
Advantage, L.P. Suite 810
Springfield, IL 62701
The Gordon Fund, L.P. 4 West Old State Capitol Plaza 150 150,000
Suite 810
Springfield, IL 62701
TOTAL 27,000 $27,000,000
</TABLE>
<PAGE>
EXHIBIT B
Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock
<PAGE>
EXHIBIT C
Company's Counsel Legal Opinion
<PAGE>
EXHIBIT 3
LIMITED PARTNERSHIP AGREEMENT
OF
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
(A BERMUDA LIMITED PARTNERSHIP)
DATED AS OF SEPTEMBER 27, 1996
<PAGE>
THE SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. FEDERAL
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES ("U.S. STATE
ACT") AND ARE NOT BEING OFFERED FOR SALE IN THE UNITED STATES OF AMERICA OR ITS
TERRITORIES AND POSSESSIONS OR TO CITIZENS, NATIONALS OR RESIDENTS OF, OR
ENTITIES CHARTERED UNDER THE LAWS OF OR RESIDENT IN, THE UNITED STATES OF
AMERICA OR ITS TERRITORIES AND POSSESSIONS. IN ADDITION TO OTHER RESTRICTIONS ON
TRANSFER NOTED BELOW AND SET FORTH IN THE PARTNERSHIP AGREEMENT, THE SECURITIES
REPRESENTED BY THIS DOCUMENT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF FOR A PERIOD OF NINETY DAYS AFTER THE DATE OF THIS AGREEMENT, AND
THEREAFTER MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS
(1) THE TRANSACTION IS REGISTERED UNDER THE U.S. FEDERAL ACT AND ANY APPLICABLE
U.S. STATE ACT, OR (2) AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE
U.S. FEDERAL ACT AND ANY APPLICABLE U.S. STATE ACT AND THE GENERAL PARTNERS (AS
DEFINED HEREIN) HAVE RECEIVED AN OPINION OF COUNSEL TO THAT EFFECT REASONABLY
SATISFACTORY TO THEM.
LIMITED PARTNERS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES
OF AMERICA OR ITS TERRITORIES OR POSSESSIONS MAY BE SUBJECT TO FOREIGN EXCHANGE
RISK AS TO DISTRIBUTIONS, IF ANY, THAT MAY HAVE IMPORTANT ECONOMIC AND TAX
CONSEQUENCES TO SUCH PARTNERS. DISTRIBUTIONS WILL BE MADE IN UNITED STATES
DOLLARS. DEPRECIATION OF THE UNITED STATES DOLLAR AGAINST THE LOCAL CURRENCY OF
A PARTNER MAY AFFECT SUCH PARTNER'S ULTIMATE RATE OF RETURN ON ITS INVESTMENT IN
THE PARTNERSHIP.
EXCEPT AS OTHERWISE PROVIDED IN THIS PARTNERSHIP AGREEMENT, A LIMITED
PARTNER MAY NOT SELL, ASSIGN, TRANSFER, PLEDGE OR OTHERWISE DISPOSE OF ALL OR
ANY PART OF ITS INTEREST IN THE PARTNERSHIP UNLESS THE OFFSHORE GENERAL PARTNER
(AS DEFINED HEREIN) HAS CONSENTED THERETO.
ALL REFERENCES TO "DOLLARS" OR "$" ARE TO UNITED STATES
DOLLARS UNLESS OTHERWISE INDICATED.
<PAGE>
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions
ARTICLE II
ORGANIZATION
SECTION 2.01. Formation of Limited Partnership
SECTION 2.02. Firm Name; Registered and Principal Office
SECTION 2.03. Objectives
SECTION 2.04. Powers
ARTICLE III
GENERAL PARTNERS
SECTION 3.01. Names, Addresses and Subscriptions
SECTION 3.02. Management and Control of the Partnership
SECTION 3.03. Powers
SECTION 3.04. Partnership Filings
SECTION 3.05. Management Agreement
SECTION 3.06. Salaries
SECTION 3.07. Co-Investment with Domestic Partnership
SECTION 3.08. Other Activities
SECTION 3.09. Avoidance of Conflicts of Interest
SECTION 3.10. Duty of Care
SECTION 3.11. Investment Limitations
SECTION 3.12. Borrowing and Guarantees
ARTICLE IV
LIMITED PARTNER
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<PAGE>
SECTION 4.01. Name, Address and Subscription.
SECTION 4.02. Limited Liability
SECTION 4.03. No Control of Partnership; Other Limitations
SECTION 4.04. Death, Dissolution or Bankruptcy
ARTICLE V
EXPENSES; MANAGEMENT FEE
SECTION 5.01. Organizational
SECTION 5.02. Management Fee
SECTION 5.03. Operating Expenses
ARTICLE VI
ADVISORY COMMITTEE
SECTION 6.01. Appointment and Vacancies
SECTION 6.02. Meetings
SECTION 6.03. Duties
SECTION 6.04. Voting; Rules and Procedures
SECTION 6.05. Duty of Care
ARTICLE VII
ADDITIONAL SUBSCRIPTIONS
SECTION 7.01. Additional Subscriptions Within 180 Days After Initial Closing
ARTICLE VIII
CAPITAL OF THE PARTNERSHIP
SECTION 8.01. Capital Contributions
SECTION 8.02. Failure to Make Additional Capital Contributions
SECTION 8.03. No Interest or Withdrawals
SECTION 8.04. Minimum Capital Contributions of General Partners
SECTION 8.05. Contributions and Payments on Additional Subscriptions
ARTICLE IX
ACCOUNTS
SECTION 9.01. Contributions Accounts
SECTION 9.02. Capital Accounts
SECTION 9.03. Accounting for Distributions in Kind
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<PAGE>
SECTION 9.04. Compliance With Treasury Regulations
SECTION 9.05 Limited Partner Sub-Accounts
ARTICLE X
ALLOCATIONS
SECTION 10.01. General
SECTION 10.02. Net Gain
SECTION 10.03. Net Loss
SECTION 10.04. Distributions in Kind
SECTION 10.05. Operational Rules
SECTION 10.06. Regulatory Allocations
SECTION 10.07. Adjustments to Reflect Changes in Interests
SECTION 10.08. Tax Allocations
SECTION 10.09. Timing of Allocations
ARTICLE XI
DISTRIBUTIONS
SECTION 11.01. Tax Distributions
SECTION 11.02. Timing of Distributions
SECTION 11.03. Priority of Distributions
SECTION 11.04. Operational Rules
SECTION 11.05. Tax Withholding
SECTION 11.06. Distributions on Acceptance of Additional Subscriptions
SECTION 11.07. Certain Distributions Prohibited
SECTION 11.08. Consent to Distributions
ARTICLE XII
VALUATION OF PARTNERSHIP ASSETS
SECTION 12.01. Valuation by Domestic General Partner
SECTION 12.02. Fair Market Value
SECTION 12.03. Freely Tradeable Securities
SECTION 12.04. Goodwill
ARTICLE XIII
DURATION OF THE PARTNERSHIP
SECTION 13.01. Term of Partnership
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<PAGE>
SECTION 13.02. Dissolution Upon Withdrawal of General Partners
SECTION 13.03. Dissolution by Partners
SECTION 13.04. Extension of Term
- iv -
<PAGE>
ARTICLE XIV
LIQUIDATION OF PARTNERSHIP INTERESTS
SECTION 14.01. General Provisions
SECTION 14.02. Liquidating Distributions
SECTION 14.03. Expenses of Liquidator(s)
SECTION 14.04. Duration of Liquidation
SECTION 14.05. Duty of Care
SECTION 14.06. No Liability for Return of Capital
SECTION 14.07 Domestic General Partner's Obligation to Restore Deficit
ARTICLE XV
LIMITATION ON TRANSFERS OF INTERESTS OF LIMITED PARTNER
SECTION 17.01. Limitation on Transfers of Interests of General Partner
ARTICLE XVI
WITHDRAWAL OF PARTNERSHIP INTERESTS
SECTION 16.01. Withdrawal of Partnership Interests
ARTICLE XVII
LIMITATION ON TRANSFERS OF INTERESTS OF GENERAL PARTNERS
SECTION 17.01. Limitation on Transfers of Interests of General Partners
ARTICLE XVIII
INDEMNIFICATION
SECTION 18.01. General Provisions
SECTION 18.02. Advance Payment of Expenses
SECTION 18.03. Insurance
SECTION 18.04. Sharing of Indemnification Expenses with Related Funds
SECTION 18.05. Limitation by Law
ARTICLE XIX
ACCOUNTING; RECORDS AND REPORTS; ANNUAL MEETINGS
SECTION 19.01. Fiscal Year
SECTION 19.02. Keeping of Accounts and Records
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<PAGE>
SECTION 19.03. Inspection Rights
SECTION 19.04. Annual Financial
SECTION 19.05. Quarterly Financial Statements; Investment Memoranda
SECTION 19.06. Annual Meetings
SECTION 19.07. Accounting Method
SECTION 19.08. Independent Accountants
SECTION 19.09. Amortization of Organizational Expenses
SECTION 19.10. Change of Principal Office
SECTION 19.11. Shareholder List
ARTICLE XX
WAIVER AND AMENDMENT
SECTION 20.01. Waiver and Amendment
ARTICLE XXI
GENERAL PROVISIONS
SECTION 21.01. Notices
SECTION 21.02. Power of Attorney
SECTION 21.03. Waiver of Partition
SECTION 21.04. Additional Documents
SECTION 21.05. Binding on Successors
SECTION 21.06. Counterparts
SECTION 21.07. Voting
SECTION 21.08. Governing Law
SECTION 21.09. Securities Act Matters
SECTION 21.10. Right to Rely on Authority of General Partners
SECTION 21.11. Tax Matters Partner
SECTION 21.12. Title to Partnership Assets
SECTION 21.13. Contract Construction
SECTION 21.14. Section Headings
APPENDIX A Definitions A-1
SCHEDULE A Address of Partnership; Names, Addresses and
Subscriptions of the General Partners and the
Limited Partner A-7
- vi -
<PAGE>
SCHEDULE B Management Agreement B-1
- vii -
<PAGE>
FLEMING US DISCOVERY OFFSHORE FUND III, L.P.
LIMITED PARTNERSHIP AGREEMENT
LIMITED PARTNERSHIP AGREEMENT, dated as of this 27th day of September,
1996, by and among Fleming (Bermuda) Discovery III Limited, a company
incorporated under the laws of Bermuda and Fleming US Discovery Partners, L.P.,
a limited partnership organized under the laws of the State of Delaware in the
United States, as the general partners (the "GENERAL PARTNERS"), and Discovery
III Limited, a Bermuda exempted company, as the sole limited partner (the
"LIMITED PARTNER"). The General Partners and the Limited Partner are sometimes
referred to herein collectively as the "PARTNERs".
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. Capitalized terms used herein without
definition have the meanings ascribed to them in Appendix A annexed hereto.
ARTICLE II
ORGANIZATION
SECTION 2.01. FORMATION OF LIMITED PARTNERSHIP. The Partners agree to
form and carry on a limited partnership (the "Partnership") subject to the terms
of this Agreement pursuant to and in accordance with the laws of Bermuda.
SECTION 2.02. FIRM NAME; REGISTERED AND PRINCIPAL OFFICE. The name of
the Partnership is "Fleming US Discovery Offshore Fund III, L.P." The registered
and principal office of the Partnership shall be in Hamilton, Bermuda, at its
initial address set forth in Schedule A.
SECTION 2.03. OBJECTIVES. The general objectives of the Partnership are
to generate significant returns for its Partners, with a view to long-term
capital appreciation; to locate, identify, analyze and invest primarily through
negotiated transactions in equity or equity-linked securities of publicly-held
enterprises located in the United States with market capitalizations of under
$150 million and to hold, and to sell, distribute or otherwise dispose of its
Portfolio Securities in accordance with this Agreement over such period as the
Domestic General Partner
<PAGE>
determines to be in the best interest of the Partners; and otherwise to engage
in any lawful activity for which limited partnerships may be organized under the
laws of Bermuda in furtherance of the foregoing objectives.
SECTION 2.04. POWERS. Subject to all of the terms and provisions
hereof, and consistent with the investment objectives stated herein, the
Partnership shall have the following powers:
(1)
to purchase, invest in and sell securities and interests in securities
of every kind, nature and description including, without limitation,
capital stock, hybrid securities, partnership interests, bonds, notes,
debentures, trust receipts, and other obligations, as well as rights,
warrants, options or other interests to purchase securities;
(2)
to make and perform all contracts and engage in all activities and
transactions necessary or advisable to carry out the purposes and
objectives of the Partnership, including, without limitation, the
purchase, sale, transfer, pledge and exercise of all rights, privileges
and incidents of ownership or possession with respect to any
Partnership asset or liability; the securing of payment of any
Partnership obligation by hypothecation or pledge of Partnership
assets; and the incurrence of debt and the guaranty of or becoming
surety for the debts of others, subject to Section 3.12 hereof; and
(3)
otherwise to have all the powers available to it as a limited
partnership under the laws of Bermuda.
ARTICLE III
GENERAL PARTNERS
SECTION 3.01. NAMES, ADDRESSES AND SUBSCRIPTIONS. The Names, addresses
and Subscriptions of the General Partners, and their respective contributions to
the capital of the Partnership, as well as the amount of the aggregate
Subscriptions of all Partners, are set forth in Schedule A.
- 2 -
<PAGE>
SECTION 3.02. MANAGEMENT AND CONTROL OF THE PARTNERSHIP. As among the
Partners, the investment management of the Partnership shall be vested
exclusively in the Domestic General Partner, and all other management, policies
and control of the Partnership shall be vested exclusively in the Offshore
General Partner. As between the General Partners, it is specifically agreed that
(a) the Domestic General Partner shall be responsible solely for carrying on the
investment activities of the Partnership, and (b) the Offshore General Partner
shall be responsible for carrying on all other management activities of the
Partnership, including, without limiting the foregoing, the provision of
administrative and secretarial services and performing or causing to be
performed the following functions (none of which shall be performed by the
Domestic General Partner and none of which shall be performed by the Offshore
General Partner in or from the United States, its territories or possessions):
(1)
communicating with the Partners, including the furnishing of financial
reports;
(2)
communicating with the general public (if necessary);
(3)
soliciting Subscriptions for limited partnership interests in the
Partnership (subject to contractual commitments);
(4)
accepting additional Subscriptions from the Limited Partner and
exercising the powers set forth in Article XV with respect to
Transfers;
(5)
maintaining the principal records and books of account of the
Partnership;
(6)
auditing the books of account of the Partnership, furnishing audited
financial statements to the Partners (if any), and paying legal and
accounting fees, salaries and other expenses of the Partnership;
- 3 -
<PAGE>
(7)
making distributions to the Partners;
(8)
furnishing the offering price of limited partnership interests in the
Partnership;
(9)
conducting meetings of the Partners; and
(10)
making redemptions (if any) of limited partnership interests in the
Partnership.
SECTION 3.03. POWERS. Subject to the provisions of this Agreement and
consistent with the investment objectives stated herein, each of the General
Partners, acting alone, shall have the power on behalf and in the name of the
Partnership to carry out and implement any and all of the objectives of the
Partnership set forth in Section 2.03 and to exercise any of the powers of the
Partnership set forth in Section 2.04 (but solely in connection with the
performance of its exclusive responsibilities and obligations under Section
3.02) including, without limitation, the power to:
(1)
open, maintain and close accounts with brokers and give instructions or
directions in connection therewith;
(2)
open, maintain and close bank accounts and draw checks or other orders
for the payment of money;
(3)
receive, receipt for, dispose of and manage all securities, checks,
money and other property, assets or liabilities of the Partnership;
- 4 -
<PAGE>
(4)
hire and fire employees, investment bankers, attorneys, accountants,
consultants, custodians, contractors and other agents, and pay them
compensation;
(5)
enter into, make and perform such contracts, agreements and other
undertakings, and do any and all such other acts required of the
Partnership with respect to its interest in any corporation,
partnership, limited partnership, trust, limited liability company,
association or other entity or activity, including but not limited to,
entering into agreements with respect to such interests, which
agreements may contain such terms, conditions and provisions as the
appropriate General Partner in its sole discretion shall approve;
(6)
make all elections for the Partnership that are permitted under tax or
other applicable laws, including an election under Section 754 of the
Code; and
(7)
maintain one or more offices and in connection therewith rent or
acquire office space and do such other acts as may be advisable in
connection with the maintenance of such offices.
SECTION 3.04. PARTNERSHIP FILINGS.
(a) The Offshore General Partner shall cause to be filed with the
appropriate public authorities information regarding the Partnership contained
in one or more documents (each a "CERTIFICATE") pursuant to the laws of Bermuda
setting forth such information with respect to the Partnership and the Partners
as is required by Bermuda law.
(b) The Offshore General Partner shall also cause to be filed with the
appropriate public authorities within the appropriate time limit (if any) fixed
by Bermuda law: (1) any amendments to the Certificate that may be required by
Bermuda law and (2) any amendments to the Certificate that may be desirable
under Bermuda law, including but not limited to reflecting any termination of
the capital commitments of Partners or distributions to Partners representing a
return of capital.
- 5 -
<PAGE>
(c) The Offshore General Partner shall cause to be filed, recorded and
published such statements, notices, certificates or other instruments (1) as may
be required by any provision of any applicable law that governs the formation of
the Partnership or the conduct of its activities from time to time or (2) as are
otherwise necessary to preserve the limited liability of the Limited Partner in
any jurisdiction in which the Partnership may conduct its activities.
SECTION 3.05. MANAGEMENT AGREEMENT. The Domestic General Partner, in
the name and on behalf of the Partnership, is authorized to enter into a
Management Agreement dated of even date herewith, in the form attached hereto as
Schedule B (the "MANAGEMENT AGREEMENT"), with Robert Fleming Inc. (the
"MANAGEMENT COMPANy"), with such Management Agreement to be subject to amendment
only with the consent of the Limited Partner and the limited partners of the
Domestic Partnership, voting together as a single class. If for any reason the
Management Agreement should terminate prior to the dissolution of the
Partnership, the Offshore General Partner shall (1) promptly give written
notification to the Limited Partner of such termination, (2) at the Domestic
General Partner's option, either contract with another management company, in
the name and on behalf of the Partnership, or arrange for the services
previously provided by the Management Company to be rendered directly by the
Domestic General Partner to the Partnership (subject to the limitations set
forth in Section 3.02), and (3) pay from Partnership funds on behalf of the
Partnership the fees and expenses incurred by the Partnership in clause 2 above.
The fee payable to the Management Company pursuant to the Management Agreement
(the "MANAGEMENT FEE") shall be paid by the Partnership and shall not (i) be
considered a distribution of profits or a return of capital to any General
Partner for any purpose under this Agreement or (ii) reduce the balance in any
Partner's Contributions Account, but shall constitute a Partnership expense to
be taken into account in determining Net Gain or Loss pursuant to Article X
hereof.
SECTION 3.06. SALARIES.
(a) While the Management Agreement is in effect, the General Partners,
the partners of the General Partners and the members of the Domestic General
Partner's general partner shall receive no salaries from the Partnership. In the
event that the Management Agreement is terminated prior to dissolution and
completion of liquidation of the Partnership, after the date of such
termination, the partners of the General Partners and the members of the
Domestic General Partner's general partner shall be entitled to receive such
compensation from the Partnership as the Offshore General Partner may determine,
provided that, except as otherwise approved by the Limited Partner, the
aggregate amount of compensation paid annually by the Partnership to any Person
or Persons (under this Section 3.06(a) and clause 3 of the second sentence of
Section 3.05) for services of the type previously provided to the Partnership by
the Management
- 6 -
<PAGE>
Company shall not exceed the Management Fee for the calendar year preceding the
year in which the Management Agreement was terminated.
(b) Any partners of the General Partners and any members of the
Domestic General Partner's general partner shall be permitted to receive fees,
commissions or other compensation from Persons other than the Partnership;
provided, however, that so long as the Management Agreement is in effect, or the
services provided by the Management Company are provided by the Domestic General
Partner or an Affiliate of the Domestic General Partner, neither the General
Partner, nor any (1) partner of the Domestic General Partner, (2) member of the
Domestic General Partner's general partner, (3) officer, director or employee of
the Management Company, or (4) member of the Advisory Committee, shall receive
any directors' fees, consulting fees or other remuneration for services from any
Portfolio Company, except reimbursement for expenses.
SECTION 3.07. CO-INVESTMENT WITH DOMESTIC PARTNERSHIP.
(a) The Domestic General Partner also is serving as the general partner
of the Domestic Partnership. It is the policy of the Partnership and the policy
of the Domestic Partnership to conduct their investment activities in parallel
(other than those activities involving the use of idle funds pending
investment). To implement this policy, the Domestic General Partner, to the
extent commercially reasonable, will:
(1)
apportion available investment opportunities between
the Partnership and the Domestic Partnership in proportion to
the relative amounts of capital committed to each such
partnership;
(2)
cause the Partnership and the Domestic Partnership to
sell or otherwise dispose of each such investment at
substantially the same time and on substantially the same
terms in amounts proportionate to the relative size of the
investments made by the Partnership and the Domestic
Partnership in the securities of that Portfolio Company; and
(3)
cause the Partnership or the Domestic Partnership to
sell or buy from each other securities of Portfolio Companies,
at cost, so as to maintain to the extent feasible the
relationship between the capital committed to each partnership
and the holdings of each partnership in the securities of each
Portfolio Company if the relative amounts of capital committed
to the Partnership and the Domestic
- 7 -
<PAGE>
Partnership, respectively, should change between the Initial
Closing and the Final Closing.
(b) The Partnership shall bear its proportionate share, based on the
relative amount it invests, of all expenses incurred in connection with each
investment made in parallel with the Domestic Partnership, but shall not bear
any expenses incurred solely for the benefit of the Domestic Partnership.
SECTION 3.08. OTHER ACTIVITIES.
(a) The Domestic General Partner, and the general partner of the
Domestic General Partner and the members of the Domestic General Partner's
general partner shall devote such time and effort to the activities of the
Partnership as may be necessary to promote adequately the interests of the
Partnership and the mutual interests of the Partners. It is specifically
understood and agreed that time and effort devoted by the General Partners, the
general partner of the Domestic General Partner and the members of the Domestic
General Partner's general partner to the affairs of the Partnership, the
Domestic Partnership, the Management Company, the Limited Partner and any other
entity affiliated with the Partnership, including for this purpose any Portfolio
Company, shall be considered time and effort devoted to the activities of the
Partnership only to the extent it is in or not opposed to the best interests of
the Partnership.
(b) It is specifically understood and agreed that, without the prior
written consent of a majority in interest of the Limited Partner of the
Partnership and the limited partners of the Domestic Partnership, voting
together as a single class, neither of the General Partners nor the general
partner of the Domestic General Partner and the members of the Domestic General
Partner's general partner shall act as a general partner or similar principal of
a private equity fund formed after the date hereof to pursue an investment
strategy similar to that of the Partnership (a "SUCCESSOR ENTITY") until the
earlier of (1) the date on which at least 75% of the Partnership's aggregate
Subscriptions has been invested, expended, committed to be invested, or reserved
for future investment in entities which at such time are already Portfolio
Companies or for reasonably anticipated Partnership expenses and liabilities or
(2) the end of the Commitment Period. Solely for purposes of determining whether
the 75% threshold has been met, the aggregate amount reserved for future
investment and for Partnership expenses and liabilities shall be subject to
approval of the Advisory Committee, which approval shall not be unreasonably
withheld or delayed.
(c) Neither the Partnership nor any Partner shall by virtue of this
Agreement have any right, title or interest in or to any Successor Entity.
- 8 -
<PAGE>
SECTION 3.09. AVOIDANCE OF CONFLICTS OF INTEREST. The Partnership and
the Domestic Partnership have adopted the following policies to deal with
potential conflicts of interest.
(a) Except for transactions that are specifically permitted under the
terms and provisions of this Agreement or as otherwise approved by the Advisory
Committee, the Partnership shall not engage in any investment or other financial
transaction with any Partner, or any partner of any Partner, other than
transactions entered into in the ordinary course of the Partnership's activities
on terms no less favorable to the Partnership than are generally afforded to
unrelated third parties in comparable transactions.
(b) The partners, officers, directors, managers, members and employees
of the General Partners and their Affiliates may invest for their own accounts
in the securities of any Portfolio Company only on terms no better than those
available to the Partnership, and only after the General Partners have made
available to the Partnership all investment opportunities in such Portfolio
Companies which come to the attention of the General Partners and their
partners, except for such opportunities which the General Partners and their
partners reasonably believe are not within the purposes of or appropriate for
the Partnership.
(c) The General Partners in their sole discretion may offer
co-investment opportunities to Shareholders of the Limited Partner who express
an interest in co-investment opportunities in writing. Such co-investment
opportunities shall be offered on terms identical or substantially similar to
the Partnership, and the General Partners intend to do so when possible and
appropriate. The General Partners shall not provide any investment advice to any
Shareholders of the Limited Partner with respect to any such co-investment
opportunity. Any Shareholder participating in any such co-investment opportunity
shall be responsible for making its own decision as to the merits of such
opportunity and the co-investment opportunity offered to any Shareholder shall
not contain a recommendation to any Shareholder that such investment is suitable
for the particular Shareholder. The Limited Partner hereby acknowledges and
agrees that the General Partners may also offer to other private investors,
groups, partnerships, or corporations, the right to participate in investment
opportunities made available to the Partnership whenever the General Partners,
in their discretion, so determine.
(d) Each Partner agrees that any other Partner and its respective
partners, officers, directors, members, managers, employees and Affiliates may
invest, participate, or engage in (for their own accounts or for the accounts of
others), or may possess an interest in, other financial ventures and investment
and professional activities of every kind and description, independently or with
others and may receive fees, commissions, remuneration or reimbursement of
expenses in connection with these activities, whether or not such activities may
conflict with any interest of the Partnership or any of the Partners (provided,
that, the General Partners, the general partner
- 9 -
<PAGE>
of the Domestic General Partner and the members of the Domestic General
Partner's general partner are further subject to Section 3.08 and the other
provisions of this Section 3.09). The parties hereto expressly agree that
neither the Partnership nor any Partner shall have any rights in or to
activities permitted by this Section 3.09(d) or to any fees, income, profits or
goodwill derived therefrom.
SECTION 3.10. DUTY OF CARE. It is recognized that decisions concerning
investments or potential investments involve the exercise of judgment and the
risk of loss. The Domestic General Partner and its partners shall exercise their
best judgment in making investments on behalf of the Partnership and in carrying
out their other obligations hereunder and they shall not incur any liability for
effecting such investments all to the extent they are entitled to
indemnification pursuant to Section 18.01 hereof. The General Partners, their
partners (including each such partner's officers, directors, employees,
managers, members and agents), and their Affiliates shall not be liable to the
Partnership or any other Partner for honest mistakes of judgment or for losses
due to such mistakes or for the negligence, whether of omission or commission,
dishonesty or bad faith of any employee, broker or other agent of the
Partnership selected and retained by any of them with reasonable care. The
General Partners, their partners (including each such partner's officers,
directors, employees, managers, members and agents), and their Affiliates shall
be fully protected and justified with respect to any action or omission taken or
suffered by any of them in good faith if such action or omission is taken or
suffered in reliance upon and in accordance with the opinion or advice as to
matters of law of legal counsel, or as to matters of accounting of accountants,
or as to matters of valuation of investment bankers or appraisers, selected and
retained by any of them with reasonable care.
SECTION 3.11. INVESTMENT LIMITATIONS.
(a) Without the prior approval of the Advisory Committee, the
Partnership shall not:
(1) invest more than 15% of the aggregate Subscriptions of all
Partners and subscriptions of all partners of the Domestic
Partnership, in the securities of any single Portfolio Company
(including, for this purpose, the outstanding balance of any
indebtedness of such Portfolio Company that the Partnership has
guaranteed);
(2) invest more than 15% of the aggregate Subscriptions of all
Partners and the subscriptions of all partners of the Domestic
Partnership, in companies which, at the time of such investment, do
not have any equity securities traded on a Public Securities Market;
and
(3) purchase on a Public Securities Market Portfolio Company
equity securities if the Partnership's cumulative Cost of all such
purchases held by the
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Partnership at such time would exceed 5% of the aggregate Subscriptions
of all Partners and the subscriptions of all partners of the Domestic
Partnership.
(b) The Partnership shall not participate in (i) investments actively
opposed by the board of directors of the potential Portfolio Company; (ii)
investments in companies undergoing bankruptcy liquidations; or (iii)
investments in real estate.
(c) The General Partners shall use their best efforts to cause the
Partnership to conduct its affairs in a manner that limits the Partnership's
operations to investments and other related activities which, taken together,
would not cause the Partnership to be treated for United States federal income
tax purposes as engaged in a "trade or business within the United States,"
within the meaning of Section 864(b) of the Code, during any taxable year of the
Partnership. Accordingly, the Partnership shall not:
(1)
acquire either any direct interest in United States real estate or any
other interest, including an interest in a corporation, which would be
treated as a "United States real property interest" within the meaning
of Section 897(c) of the Code at the time of its acquisition by the
Partnership;
(2)
acquire an interest in any partnership, trust or other non-corporate
entity, unless (A) the Domestic General Partner determines, after
consultation with counsel to the Partnership, that such proposed
acquisition will not cause the Partnership to be treated as engaged in
a trade or business within the United States for United States tax
purposes, and (B) such entity agrees to be bound contractually by
restrictions substantially similar to those set forth in this Section
3.11(c);
(3)
acquire and dispose of securities or other assets on a regular and
frequent basis with a view to realizing short-term gains from market
fluctuations; provided, however, that the Partnership (A) may make
temporary investments of its funds not yet invested in securities of
Portfolio Companies or used to pay Partnership expenses, and (B) shall
attempt to minimize the frequency of such investment transactions and
otherwise to conduct such temporary investment activity in a prudent
and conservative manner consistent with the Partnership's objectives as
set forth in Section 2.03;
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(4)
invest in or enter into contracts for the purchase or sale of
commodities;
(5)
invest in options or futures, including currency futures, other than
options or other contracts for the acquisition of securities of a
Portfolio Company;
(6)
make any investment with borrowed funds; provided, however, that the
limitation set forth in this Section 3.11(c)(6) shall not preclude the
Partnership from borrowing on a short-term basis or guaranteeing the
obligations of a Portfolio Company, each to the extent permitted by
Section 3.12; or
(7)
engage in or hold itself out as engaging in the performance of services
for compensation, or otherwise carry on directly a trade or business.
(d) The restrictions set forth in Section 3.11(c) are intended to
ensure that the activities of the Partnership will be conducted so as to avoid
United States federal income taxation on the income of the Partnership allocated
to the Limited Partner (other than withholding tax on dividends and certain
interest payments received from United States sources). To this end, in addition
to complying with the specific restrictions set forth in Section 3.11(c), the
General Partners shall use their best efforts, to the extent practicable and
consistent with the Partnership's investment program:
(1)
not to engage in any activity that would subject the income of the
Partnership allocated to the Limited Partner to United States federal
income taxation (other than withholding tax on dividends and certain
interest payments received from United States sources); and
(2)
in the event that the Code or the regulations promulgated thereunder
are from time to time amended so as to require additional or different
restrictions on Partnership activities
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and investments in order to avoid such taxation, to observe such
additional or different restrictions.
Notwithstanding the foregoing, in the event that legislative,
judicial or regulatory changes occurring after the date hereof may cause
Partners that are not United States Persons to become subject to United States
federal, state or local income tax on their respective shares of capital gains
realized by the Partnership that are not effectively connected with a trade or
business within the United States, within the meaning of Section 864 of the
Code, carried on by the Partnership, whether such income taxes are collected by
withholding or otherwise, the preceding sentence shall not apply with respect to
any such taxes.
(e) In making temporary investments of idle Partnership funds, the
Domestic General Partner shall use its best efforts to make such investments so
as to minimize withholding of United States income tax at the source with
respect to the shares of Partnership income and gains allocable to the Limited
Partner. In this connection, the Domestic General Partner shall not invest in
regulated investment companies that elect to be subject to Part I of Subchapter
M of the Code.
SECTION 3.12. BORROWING AND GUARANTEES. The Partnership may engage in
borrowing, but only on a short-term basis pending its receipt of Additional
Capital Contributions from the Partners. The Partnership may guarantee the
indebtedness of any Portfolio Company; provided, however, that except with the
consent of the Advisory Committee, the total amount guaranteed by the
Partnership at any one time with respect to all Portfolio Companies shall not
exceed 10% of the aggregate Subscriptions of all Partners.
ARTICLE IV
LIMITED PARTNER
SECTION 4.01. NAME, ADDRESS AND SUBSCRIPTION. The name and address of
the Limited Partner and its Subscription is set forth in Schedule A hereto.
Schedule A shall be amended from time to time to reflect any change in the
identity or the Subscriptions of the Partners or the aggregate Subscriptions of
all Partners made in accordance with this Agreement, and no such revision shall
constitute an amendment of this Agreement.
SECTION 4.02. LIMITED LIABILITY. The liability of the Limited Partner
to the Partnership shall be limited to any unpaid capital contributions which it
agreed to make to the Partnership, except as otherwise provided under Bermuda
law. The Partners acknowledge and agree that the Management Fee shall be payable
by the Partnership out of Partnership assets and will not be paid directly by
the Partners to the Management Company.
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SECTION 4.03. NO CONTROL OF PARTNERSHIP; OTHER LIMITATIONS
(a) The Limited Partner, in its capacity as such, shall not take any
part in the control/management of the affairs of the Partnership, or undertake
any transactions on behalf of the Partnership, or have any power to sign for or
to bind the Partnership.
(b) The Limited Partner shall not have the right or power to: (1)
withdraw or reduce its contribution to the capital of the Partnership except as
a result of the dissolution of the Partnership (provided that such Limited
Partner shall have no right to withdraw or reduce its contributions on
dissolution of the Partnership to the extent that the Partnership requires funds
to pay its creditors) or as otherwise provided herein; (2) cause the termination
and dissolution of the Partnership, other than the right specified in Section
13.03; or (3) demand or receive property other than cash in return for its
contribution except as otherwise provided herein.
SECTION 4.04. DEATH, DISSOLUTION OR BANKRUPTCY. The death,
incompetence, bankruptcy, liquidation or dissolution of the Limited Partner
shall not result in the termination of the Partnership, but the rights of such
Limited Partner under this Agreement shall accrue to such Limited Partner's
successor, estate or legal representative. Except as expressly provided in this
Agreement, no other event affecting the Limited Partner (including but not
limited to insolvency) shall affect this Agreement.
ARTICLE V
EXPENSES; MANAGEMENT FEE
SECTION 5.01. ORGANIZATIONAL EXPENSES. Upon execution of this
Agreement, the Partnership shall reimburse the General Partners for all
reasonable expenses incurred by the General Partners and their Affiliates that
are attributable to the organization of the Partnership and the sale of
interests in the Partnership to the Limited Partner, including the organization
of the Limited Partner; provided, however, that the organizational expenses of
the Partnership and the Domestic Partnership shall not exceed $500,000 in the
aggregate. The General Partners shall allocate such organizational expenses to
the Partnership or the Domestic Partnership to the extent such expenses can be
reasonably attributed to one of such funds and not the other. Any remaining
organizational expenses shall be allocated between the Partnership and the
Domestic Partnership in proportion to their respective total Subscriptions. Any
such expenses shall be paid by the Partnership and shall not reduce the balance
in any Partner's Contributions Account. Neither the Partnership nor the Limited
Partner shall be responsible for paying any syndication, brokerage, placement or
similar fee required to be paid to Merrill Lynch & Co. on behalf of the Limited
Partner. Such fee, if any, shall be paid by the General Partners or an Affiliate
thereof.
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SECTION 5.02. MANAGEMENT FEE. The Partnership shall pay semi-annually
in advance to the Management Company a Management Fee at the rate of (i) for the
period commencing on the date of the Initial Closing until the end of the
Commitment Period, 1.75% per year of the aggregate Subscriptions of all Partners
and (ii) for the remainder of the term hereof, 1.75% per year of the total Cost
of Portfolio Company securities held by the Partnership at the end of the
immediately preceding fiscal year, subject, in each case, to the terms and
conditions of the Management Agreement.
SECTION 5.03. OPERATING EXPENSES. The Management Company shall bear all
routine, normal operating expenses associated with the duties and services to be
rendered to the Partnership under the Management Agreement, as provided in the
Management Agreement. The Partnership shall reimburse the Offshore General
Partner, upon demand, for all reasonable expenses incurred by the Offshore
General Partner in discharging its responsibilities to the Partnership, and all
other expenses of the Partnership shall be borne by the Partnership.
ARTICLE VI
ADVISORY COMMITTEE
SECTION 6.01. APPOINTMENT AND VACANCIEs. The Partnership and the
Domestic Partnership shall have the same advisory committee (to be formed after
the date of the Initial Closing) which shall consist of at least three members
and no more than five members appointed by the Domestic General Partner and who
shall be designees of the Limited Partner and the limited partners of the
Domestic Partnership (the "ADVISORY COMMITTEE"). The Domestic General Partner
may remove any member of the Advisory Committee at any time, with or without
cause, and may fill any vacancy resulting from any removal or resignation from
the Advisory Committee.
SECTION 6.02. MEETINGS. The Advisory Committee shall meet at such times
and from time to time as the Domestic General Partner or a majority of the
members of the Advisory Committee may determine. The Domestic General Partner
shall provide notice of each meeting to the members of the Advisory Committee.
Members of the Advisory Committee shall receive from the Partnership and the
Domestic Partnership reimbursement for any expenses incurred, at the direction
of the Domestic General Partner, in connection with performing their duties
hereunder, with any such reimbursement to be borne by the Partnership and the
Domestic Partnership pro rata in proportion to their respective aggregate
capital commitments.
SECTION 6.03. DUTIES. To the extent permitted under Bermuda law for
Persons that do not thereby become liable to any party as general partners of
the Partnership, the functions of the Advisory Committee shall be to resolve
potential conflicts of interest as outlined in Section 3.09,
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to review and approve of proposed Partnership investments to the extent required
by Section 3.11, and to review certain valuations of Partnership assets.
SECTION 6.04. VOTING; RULES AND PROCEDURES. All approvals,
disapprovals, vetoes and other actions taken by the Advisory Committee shall be
authorized by a majority of its members then holding office. The Advisory
Committee shall have the authority to adopt rules and procedures, not
inconsistent with this Agreement, relating to the conduct of its affairs.
SECTION 6.05. DUTY OF CARE. The members of the Advisory Committee shall
exercise their best judgment in carrying out their functions for the
Partnership. No member of the Advisory Committee shall be liable to the
Partnership or any Partner for any loss suffered by the Partnership or any
Partner which arises out of any action or omission of such member, provided that
(1) such member determined, in good faith, that such course of conduct was in,
or not opposed to, the best interest of the Partnership and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such Person's
conduct was unlawful, and (2) such course of conduct did not constitute gross
negligence or willful misconduct of such member. The Advisory Committee and each
member thereof shall be fully protected and justified with respect to any action
or omission taken or suffered by any of them in good faith if such action or
omission is taken or suffered in reliance upon and in accordance with the
opinion or advice as to matters of law of legal counsel, or as to matters of
accounting of accountants, or as to matters of valuation of investment bankers
or appraisers, selected by any of them with reasonable care. In addition, each
member of the Advisory Committee shall be entitled to indemnification by the
Partnership to the extent provided in Article XVIII hereof.
ARTICLE VII
ADDITIONAL SUBSCRIPTIONS
SECTION 7.01. ADDITIONAL SUBSCRIPTIONS WITHIN 180 DAYS AFTER INITIAL
CLOSING. Subject to the provisions of this Agreement, during the period
commencing on the date of the Initial Closing until and through the date that is
180 days thereafter (the "Final Closing"), the Offshore General Partner is
authorized, but not obligated, to accept from time to time additional
Subscriptions from the Limited Partner. Any such additional Subscriptions shall
be accepted only if: (a) the Limited Partner contributes or pays, on or before
the date of its additional Subscription, all amounts required by Section 8.05
hereof; (b) no distribution has been made by the Partnership to the Partners
pursuant to Article XI prior to the date of the Limited Partner's additional
Subscription other than a distribution described in Sections 8.05 and 11.06; and
(c) after the acceptance of such additional Subscriptions, the sum of the
aggregate Subscriptions of all Partners and the aggregate capital commitments of
all partners of the Domestic Partnership to the Domestic Partnership does not
exceed $250 million. The Offshore General Partner shall
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cause Schedule A to be amended from time to time, without the consent of any
other Partner, to reflect any changes in the Subscriptions or identity of any
Partner or the aggregate Subscriptions of all Partners including any increase in
the Subscriptions of the General Partners which is accepted contemporaneously
with the acceptance of additional Subscriptions from the Limited Partner.
ARTICLE VIII
CAPITAL OF THE PARTNERSHIP
SECTION 8.01. CAPITAL CONTRIBUTIONS.
(a) The capital of the Partnership shall consist initially of the
initial capital contributions of the Partners, as set forth in Schedule A, which
amount shall equal in the aggregate 10% of each Partner's Subscription. In
addition, each Partner shall make additional contributions to the capital of the
Partnership ("ADDITIONAL CAPITAL CONTRIBUTIONS"), upon no less than 10 days'
prior written notice from the Offshore General Partner, so as to increase the
aggregate amount of its contributions to the Partnership to an amount equal to
such Partner's Subscription. Each such notice shall set forth the date on which
the related Additional Capital Contribution is due and shall include a general
description of the purposes and uses for which the Additional Capital
Contributions are being called including, for example, the payment of
Partnership expenses (including the Management Fee) and the purchase of
Portfolio Securities; provided that the Offshore General Partner shall not be
required to identify the purposes and uses of 100% of any Additional Capital
Contribution or be required to identify the name of any particular Portfolio
Company or proposed Portfolio Company. The amount of capital required to be
contributed by each Partner on each occasion of an Additional Capital
Contribution shall be computed by the Offshore General Partner so that each
Partner's Additional Capital Contribution bears the same relationship to the
aggregate Additional Capital Contributions to be made on such occasion as such
Partner's Subscription bears to the aggregate Subscriptions of all Partners. All
calls for contributions of additional capital by the Partners and the partners
of the Domestic Partnership to their respective partnerships shall be made on an
as-needed basis at the same times and on substantially the same terms. All
capital contributions shall be made in cash in United States dollars.
(b) From and after the end of the Commitment Period (as defined below),
the Limited Partner shall be released from any obligation to make Additional
Capital Contributions as provided for in Section 8.01(a) except to the extent
necessary to (i) pay the expenses and liabilities of the Partnership, including
the Management Fee, (ii) complete investments by the Partnership in respect of
transactions committed to by the Partnership prior to the end of the Commitment
Period and (iii) make follow-on investments in Portfolio Companies provided that
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the aggregate amount of such follow-on investments shall not exceed 20% of the
aggregate Subscriptions of all Partners. The "COMMITMENT PERIOD" shall commence
on the date of the Initial Closing and shall end on the fourth anniversary date
of the Initial Closing; provided, that, if Robert L. Burr and any one of
Christopher M.V. Jones, Eytan M. Shapiro and Timothy R.V. Parton are no longer
active in the affairs of the Partnership and the General Partners do not replace
such Persons within 60 days thereafter with investment manager(s) acceptable to
the Limited Partner, as directed by a majority in interest of the Shareholders
of the Limited Partner, then the Limited Partner, by vote of the Limited
Partner, as directed by two-thirds in interest of the Shareholders of the
Limited Partner, taken within 45 days after the end of such 60 day period, may
cause the Commitment Period to end prior to the fourth anniversary of the date
of the Initial Closing (provided that the limited partners of the Domestic
Partnership simultaneously cause the commitment period of the Domestic
Partnership to end).
(c) The Offshore General Partner may at any time, by written notice to
the Limited Partner, terminate in whole or in part the obligation of the
Partners to make Additional Capital Contributions and, upon the giving of such
notice, the obligation of the Partners to make such contributions shall
terminate to the extent specified in such notice. Any partial termination of the
outstanding obligations of the Partners to make Additional Capital Contributions
shall be accomplished by terminating in part the obligations of all Partners,
pro rata in proportion to their respective Subscriptions. The Offshore General
Partner shall not cause any termination of the Partners' obligation to make
Additional Capital Contributions unless a substantially equivalent termination
occurs contemporaneously with respect to the obligations of the partners of the
Domestic Partnership to make additional capital contributions to the Domestic
Partnership. In the event that the Offshore General Partner terminates, in whole
or in part, the obligations of the Partners to make Additional Capital
Contributions, each Partner's Subscription shall be reduced accordingly as of
the date that written notice of such termination is delivered to the Partners.
SECTION 8.02. FAILURE TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) In the event that any Partner fails to pay any amount which it is
required to pay to the Partnership on or before the date when such amount is due
and payable, it shall be deemed to be in default hereunder (a "DEFAULTING
PARTNER") and a notice of default shall be given to it by express courier
service, facsimile transmission, air mail or certified or registered mail.
(b) If the full amount of such payment is not received by the
Partnership within 45 days after the delivery of such notice, as liquidated and
agreed upon current damages for such default (it being agreed that it would be
difficult or impossible to fix the actual damages), the Partnership shall have
the option, exercisable by the Offshore General Partner in its sole discretion
by mailing notice thereof to the Defaulting Partner, to reduce each of the
Defaulting
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Partner's Contributions Account and Capital Account established pursuant to
Sections 9.01 and 9.02, respectively, by an amount equal to 50% of such
Defaulting Partner's Subscription at the time of the default (the "DEFAULT
CHARGE"). The amount of any Default Charge levied upon a Defaulting Partner
shall immediately become unrestricted monies of the Partnership and shall be
allocated to and among the respective Contributions Accounts of the
non-defaulting Partners in such proportion as the Contributions Account of each
such non-defaulting Partner then bears to the sum of the Contributions Accounts
of all non-defaulting Partners; and to and among the respective Capital Accounts
of the non-defaulting Partners in such proportion as the Capital Account of each
such non-defaulting Partner then bears to the sum of the Capital Accounts of all
non-defaulting Partners. For purposes of the preceding sentence: (1) the amount
by which a Defaulting Partner's Contributions Account or Capital Account is
reduced shall in no case exceed the positive balance in such Defaulting
Partner's Contributions Account or Capital Account, respectively, immediately
before the reduction; (2) if either of the Capital Account or the Contributions
Account of the Defaulting Partner otherwise would be reduced below zero by the
imposition of the full amount of any Default Charge, such account shall be
reduced to zero and any excess of the full amount of the Default Charge over the
positive balance in such account immediately before such reduction shall be
carried over and applied to reduce the balance in such account at such
subsequent time or times as such account has a positive balance; and (3) any
increase in the Capital Accounts or Contributions Accounts of non-defaulting
Partners as the result of the imposition of a Default Charge shall occur only at
such time or times as the corresponding reductions in the Defaulting Partner's
accounts occur.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, (1) any Defaulting Partner that does not make full payment to the
Partnership of all amounts due and payable to the Partnership on or before the
date that is 45 days after notice of a default was mailed to such Partner as
provided in Section 8.02(a) shall not receive any distributions from the
Partnership until such time as the Partnership makes its final liquidating
distribution pursuant to Article XIV; and (2) any distributions that otherwise
would be made to a Defaulting Partner during such 45-day period shall be made to
such Defaulting Partner at the end of such 45-day period if, before the end of
such period, the Defaulting Partner has paid to the Partnership all amounts then
due and payable.
(d) The application of the aforesaid liquidated damages provision shall
not relieve any Defaulting Partner of such Partner's obligation to make all
subsequent Additional Capital Contributions when due unless the Offshore General
Partner, in its sole discretion, determines that no further Additional Capital
Contribution shall be accepted from the Defaulting Partner and notifies such
Defaulting Limited Partner in writing. As of the date that such notice is sent
to the Defaulting Partner, such Defaulting Partner's Subscription shall be
reduced by an amount equal to the excess of such Defaulting Partner's original
Subscription over the aggregate paid-in capital
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contributions of such Defaulting Partner. In the event that the balances in each
of the Capital Account and the Contributions Account of any Defaulting Partner
have been reduced to zero and either (1) each Partner (other than any Defaulting
Partner) has contributed to the Partnership the full amount of such Partner's
Subscription, or (2) the Offshore General Partner has determined that such
Defaulting Partner shall not be permitted to make any subsequent Additional
Capital Contribution to the Partnership, such Defaulting Partner's interest in
the Partnership shall be extinguished completely and the Partnership shall have
no further obligation of any nature to such Person. Except as expressly set
forth herein, no Partner may contribute to the Partnership less than the full
amount of such Partner's Subscription.
(e) Notwithstanding any other language in this Section 8.02, if the
Limited Partner is deemed to be a Defaulting Partner in accordance with this
Section 8.02 on account of the failure of a Shareholder to make a call required
by the Limited Partner's bye-laws, the provisions of Section 8.02 shall apply to
such Shareholder's sub-Contributions Account and sub-Capital Account established
pursuant to Section 9.05, and any allocations of unrestricted monies of the
Partnership pursuant to Section 8.02(b) shall be made to and among the General
Partners' Contributions Accounts and Capital Accounts and each of the other
Shareholders' sub- Contributions Accounts and sub-Capital Accounts. Upon the
default of any Shareholder in making a call to the Limited Partner and a
corresponding default by the Limited Partner in making Additional Capital
Contributions to the Partnership pursuant to Section 8.01, this Section 8.02
shall be interpreted and applied as necessary to ensure, to the extent feasible,
that only the defaulting Shareholder and no other Shareholder of the Limited
Partner is adversely affected by the imposition of any Default Charge
attributable to the defaulting Shareholder's default.
SECTION 8.03. NO INTEREST OR WITHDRAWALS. No interest shall accrue on
any capital contribution made by a Partner, and no Partner shall have the right
to withdraw or to be repaid any of its capital contributions so made, except as
specifically provided in this Agreement.
SECTION 8.04. MINIMUM CAPITAL CONTRIBUTIONS OF GENERAL PARTNERS. The
General Partners shall contribute capital to the Partnership at such times and
in such amounts as necessary to ensure that the paid-in capital contributions of
the General Partners are at all times equal in the aggregate to at least 1.01%
of the paid-in capital contributions of the Limited Partner at such time.
SECTION 8.05. CONTRIBUTIONS AND PAYMENTS ON ADDITIONAL SUBSCRIPTIONS.
(a) Upon the acceptance of any additional Subscriptions in accordance
with . Section 7.01 hereof: (i) the General Partners shall amend or supplement
Schedule A hereto to reflect the additional Subscriptions of the Limited
Partner; (ii) the additional Subscriptions shall
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be included thereafter in the Partnership's aggregate Subscriptions; and (iii)
the Subscriptions of the General Partners shall be increased (if necessary) to
the amount then required by Section 8.04.
(b) The Limited Partner shall pay to the Partnership, by wire transfer
of immediately available funds, on each date of its additional Subscription the
following amounts (which amounts in clause (ii) and (iii) shall not constitute
part of the Additional Capital Contributions of the Limited Partner):
(i) a capital contribution representing the same percentage of
its additional Subscription as the percentage which the Limited
Partner had been required to contribute of its Subscription prior
to such date (treating, for this purpose, any amounts previously
returned to the Limited Partner pursuant to Section 8.05(c)(i),
and any amount required to be so returned upon the acceptance of
such additional Subscriptions, as if such amounts had not been
previously contributed by the Limited Partner);
(ii) an amount equal to interest that would have been earned if
the dollar amount of such additional Subscription's proportionate
share of the capital contributions previously used to make
investments in Portfolio Companies (unless in the discretion of
the General Partners there has been a material change or
significant event relating to a Portfolio Company which would
justify a different amount), had been invested at an interest
rate equal to the Prime Rate plus two percent (2%) per annum,
compounded annually, for the period from such investment to the
date of such acceptance of additional Subscriptions from the
Limited Partner; and
(iii) an additional amount equal to the interest that would have
been earned if the dollar amount of the additional payment of the
Management Fee made by the Partnership to the Management Company
at the time of the acceptance of such additional Subscriptions
had been invested at an interest rate equal to the Prime Rate per
annum, compounded annually, for the period from the Initial
Closing to the date of the acceptance of such additional
Subscriptions. The Partnership shall remit such additional
amounts to the Management Company as provided in Section 5.02.
(c) Upon the acceptance of an additional Subscription, the Partnership
shall distribute to the Partners:
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(i) an amount equal to such additional Subscription's
proportionate share of the capital contributions previously used
to make investment in Portfolio Companies, which shall be
apportioned among such previously admitted Partners (which such
Limited Partner shall apportion among its Shareholders of record
prior to such date), in proportion to their respective
contributions and shall increase on a dollar-for-dollar basis the
Additional Capital Contributions required to be made by each
Partner pursuant to Section 8.01 and correspondingly decrease
each Partner's Contributions Account; and
(ii) an amount equal to the additional payment made by the
Limited Partner pursuant to Section 8.05(b)(ii), which shall not
increase the Additional Capital Contributions required to be made
by any Partner pursuant to Section 8.01.
(d) Each Partner acknowledges and agrees that the intent of this
Section 8.05 is to allow each additional Shareholder of the Limited Partner to
obtain an indirect interest (based on its increase in the Limited Partner's
Subscription) in each investment in a Portfolio Company previously made by the
Partnership at the time of such additional Subscription and to cause each
additional Shareholder of the Limited Partner to bear its proportionate
additional share of the Management Fee paid prior to the acceptance of such
additional Subscriptions, in each case in exchange for the payments required
under this Section 8.05.
(e) For purposes of the provisions of Sections 8.05(b)(ii) and
8.05(b)(iii), the acceptance of additional Subscriptions after the Initial
Closing from the Limited Partner with respect to any existing Shareholder of the
Limited Partner who became a Shareholder of the Limited Partner prior to the
Final Closing, shall not require the Limited Partner to make any additional
payments pursuant to clauses (ii) or (iii) of Section 8.05(b) if and to the
extent that such additional Subscription results from the original terms or
formula by which such existing Shareholder of the Limited Partner's subscription
for Preference Shares was calculated and is made in order to allow such existing
Shareholder of the Limited Partner to maintain its percentage interest in the
Limited Partner.
ARTICLE IX
ACCOUNTS
SECTION 9.01. CONTRIBUTIONS ACCOUNTS. There shall be established on the
books of the Partnership a capital contributions account ("CONTRIBUTIONS
ACCOUNT") for each Partner
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which shall consist of such Partner's initial capital contribution to the
Partnership made pursuant to this Agreement, (a) increased by (1) any Additional
Capital Contributions made by such Partner, and (2) any part of a Default Charge
added to the Contributions Account of such Partner pursuant to Section 8.02; and
(b) decreased by (1) any Default Charge subtracted from the Contributions
Account of such Partner pursuant to Section 8.02 and (2) any distribution
pursuant to Section 8.05(c)(i). Except as provided in the preceding sentence, a
Partner's Contributions Account shall not be reduced on account of any
distributions of capital to such Partner or for any other reason.
SECTION 9.02. CAPITAL ACCOUNTS. There shall be established on the books
of the Partnership a capital account ("CAPITAL ACCOUNT") for each Partner that
shall consist of such Partner's initial capital contribution to the Partnership
made pursuant to this Agreement, (a) increased by (1) any Additional Capital
Contributions made by such Partner, (2) any part of a Default Charge added to
the Capital Account of such Partner pursuant to Section 8.02, and (3) any
amounts from time to time added to the Capital Account of such Partner pursuant
to Article X; (b) decreased by (1) any distributions made to such Partner
including pursuant to Section 8.05(c)(1), (2) any Default Charge subtracted from
the Capital Account of such Partner pursuant to Section 8.02, and (3) any
amounts subtracted from the Capital Account of such Partner pursuant to Article
X; and (c) otherwise adjusted in accordance with the tax accounting principles
set forth in Treasury Regulations Section 1.704-1(b)(2)(iv). For these purposes,
Net Gain allocated to any Partner shall be added to, and Net Loss and Loss Items
so allocated shall be subtracted from, such Partner's Capital Account.
SECTION 9.03. ACCOUNTING FOR DISTRIBUTIONS IN KIND. For purposes of
maintaining Capital Accounts when Partnership property is distributed in kind,
(a) the Partnership shall treat such property as if it had been sold for its
fair market value on the date of distribution as determined in accordance with
Article XII; (b) any difference between the fair market value of such property
as so determined and the Cost of such property shall constitute Net Gain or Loss
attributable to such distribution and shall be allocated to the Capital Accounts
of the Partners pursuant to Article X; and (c) all property distributed in kind
by the Partnership to a Partner shall be debited to that Partner's Capital
Account at the fair market value of such property on the date of distribution
(net of any liabilities secured by such distributed property that such Partner
is considered to assume or take subject to under Section 752 of the Code).
SECTION 9.04. COMPLIANCE WITH TREASURY REGULATIONS. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Section 704(b) of
the Code and Treasury Regulations Section 1.704- 1(b), and shall be interpreted
and applied in a manner consistent with such regulations. In the event that the
Offshore General Partner shall determine that it is prudent to modify the manner
in
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which the Capital Accounts, or any debits or credits thereto, are computed in
order to comply with such regulations, the Offshore General Partner may make
such modification, provided that it is not likely to have a material effect on
the amounts distributable to any Partner pursuant to Articles XI or XIV hereof.
SECTION 9.05 LIMITED PARTNER SUB-ACCOUNTS. The Partnership shall
maintain sub- accounts with respect to the Limited Partner's Contributions
Account and Capital Account in order to reflect each Shareholder's beneficial
interest in the Partnership.
ARTICLE X
ALLOCATIONS
SECTION 10.01. GENERAL. Partnership income, gain, loss, deductions and
expenses shall be allocated to the Capital Accounts of the Partners in
accordance with this Article X.
SECTION 10.02. NET GAIN. As of the end of each fiscal year of the
Partnership and after giving effect to the special allocations set forth in
Sections 10.05 and 10.06, the Net Gain (if any) of the Partnership for such
fiscal year shall be allocated to the Capital Accounts of the Partners as
follows:
(a) First, to all Partners, in proportion to the amounts of Net Loss
(if any) previously allocated to each such Partner pursuant to Section 10.03(d)
and not offset by prior allocations of Net Gain made pursuant to this Section
10.02(a), an amount of Net Gain equal to the aggregate amount of such Net Loss;
(b) Second, to the extent of any Net Gain remaining after allocations
pursuant to Section 10.02(a), to all Partners, in proportion to each Partner's
respective 8% Preferential Return Allocation, an amount of Net Gain equal to the
aggregate amount of such 8% Preferential Return Allocations;
(c) Third, to the extent of any Net Gain remaining after allocations
pursuant to Sections 10.02(a) and 10.02(b):
(1)
if the Partnership is not in an 8% Payback Period, 100% to all
Partners in proportion to their respective Contributions
Accounts; and
(2)
if the Partnership is in an 8% Payback Period, 100% to the
Domestic General
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Partner until the Domestic General Partner has received
allocations of Net Gain pursuant to this Section 10.02(c)(2)
and Sections 10.02(d) and 10.06 (net of offsetting allocations
of Net Loss and Loss Items) equal in the aggregate to its 20%
Subordinate Gain Allocation; and
(d) Fourth, to the extent of any Net Gain remaining after allocations
pursuant to Sections 10.02(a), 10.02(b) and 10.02(c), 80% to all Partners in
proportion to their respective Contributions Accounts and 20% to the Domestic
General Partner.
SECTION 10.03. NET LOSS. As of the end of each fiscal year of the
Partnership and after giving effect to the special allocations set forth in
Sections 10.05 and 10.06, the Net Loss (if any) of the Partnership for such
fiscal year shall be allocated to the Capital Accounts of the Partners as
follows:
(a) First, to all Partners, in proportion to the respective amounts of
Net Gain (if any) previously allocated to each such Partner pursuant to Section
10.02(d) and not offset by prior allocations of Net Loss made pursuant to this
Section 10.03(a) or Loss Items pursuant to Section 10.05, an amount of Net Loss
equal to the aggregate amount of such Net Gain (if any).
(b) Second, to the extent of any Net Loss remaining after allocations
pursuant to Section 10.03(a):
(1)
to the Domestic General Partner, an amount of Net Loss equal
to the aggregate amount of Net Gain previously allocated to
the Domestic General Partner pursuant to Section 10.02(c)(2)
and not offset by prior allocations of Net Loss made pursuant
to this Section 10.03(b)(1) or Loss Items pursuant to Section
10.05; and then
(2)
to all Partners, in proportion to the respective amounts of
Net Gain (if any) previously allocated to each Partner
pursuant to Section 10.02(c)(1) and not offset by prior
allocations of Net Loss made pursuant to this Section
10.03(b)(2) or Loss Items pursuant to Section 10.05, an amount
of Net Loss equal to the aggregate amount of such Net Gain.
(c) Third, to the extent of any Net Loss remaining after allocations
pursuant to Sections 10.03(a) and 10.03(b), to all Partners, in proportion to
the respective amounts of Net Gain (if any) previously allocated to each Partner
pursuant to Section 10.02(b) and not offset by
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prior allocations of Net Loss made pursuant to this Section 10.03(c) or Loss
Items pursuant to Section 10.05, an amount of Net Loss equal to the aggregate
amount of such Net Gain.
(d) Fourth, to the extent of any Net Loss remaining after allocations
pursuant to Section 10.03(a), 10.03(b) and 10.03(c), to all Partners in
proportion to their respective Contributions Accounts.
SECTION 10.04. DISTRIBUTIONS IN KIND. Net Gain or Loss attributable to
a distribution of Partnership property in kind shall be allocated, immediately
prior to the time such distribution is made, to the Partners' Capital Accounts
on the same basis as an equivalent amount of Net Gain or Loss would be allocated
for a hypothetical fiscal year ending immediately prior to such distribution.
For this purpose, there shall be taken into account any Net Gain or Loss
attributable to distributions in kind previously made during the fiscal year,
but there shall not be taken into account other items of Partnership income,
gain, loss or deduction realized or incurred since the end of the prior fiscal
year (such items being taken into account and allocated to Partners' Capital
Accounts as Net Gain, Net Loss or Loss Items only at the end of the fiscal year
in which they are realized or incurred).
SECTION 10.05. OPERATIONAL RULES.
(a) If, for any fiscal period, Net Gain is available to be allocated to
the Partners but (1) an allocation of all of such Net Gain pursuant to Section
10.02 for such fiscal period would not be sufficient to provide each Partner
with such Partner's full 8% Preferential Return Allocation for such fiscal
period, and (2) any allocation of Net Gain for any prior fiscal period has been
made pursuant to Sections 10.02(c)(2) or 10.02(d) but not previously offset by
allocations of Net Loss pursuant to Sections 10.03(a) or 10.03(b)(1) or Loss
Items pursuant to this Section 10.05, then:
(A)
Loss Items for such fiscal period shall be allocated (subject
to the remainder of this Article X) to all Partners, in
proportion to the respective amounts of Net Gain previously
allocated to each such Partner pursuant to Sections
10.02(c)(2) or 10.02(d) and not previously offset by
allocations of Net Loss made pursuant to Sections 10.03(a) or
10.03(b)(1) or Loss Items pursuant to this Section 10.05, in
an aggregate amount equal to the lesser of the aggregate
amount of such Loss Items or the aggregate amount of such Net
Gain, with such Loss Items allocated among the Partners to
offset such allocations of Net Gain in the order in which such
allocations of Net Gain previously were made; and
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(B)
the Net Gain of the Partnership for such fiscal period,
determined solely for this purpose by excluding all Loss Items
specially allocated pursuant to this Section 10.05 with
respect to such fiscal period, shall then be allocated
pursuant to Section 10.02.
(b) If, for any fiscal period which is a 8% Payback Period, Net Gain is
available to be allocated to the Partners but (1) an allocation of all of such
Net Gain pursuant to Section 10.02 for such fiscal period would be insufficient
to provide the Domestic General Partner with its full 20% Subordinate Gain
Allocation, and (2) any allocation of Net Gain for any prior fiscal period has
been made pursuant to Section 10.02(d) but not previously offset by allocations
of Net Loss pursuant to Section 10.03(a) or Loss Items pursuant to this Section
10.05, then:
(A)
Loss Items for such fiscal period shall be allocated (subject
to the remainder of this Article X) to all Partners, in
proportion to the respective amounts of Net Gain previously
allocated to each such Partner pursuant to Section 10.02(d)
and not previously offset by allocations of Net Loss made
pursuant to Section 10.03(a) or Loss Items pursuant to this
Section 10.05, in an aggregate amount equal to the lesser of
the aggregate amount of such Loss Items or the aggregate
amount of such Net Gain, with such Loss Items allocated among
the Partners to offset such allocations of Net Gain in the
order in which such allocations of Net Gain previously were
made; and
(B)
the Net Gain of the Partnership for such fiscal period,
determined solely for this purpose by excluding all Loss Items
specially allocated pursuant to this Section 10.05 with
respect to such fiscal period, shall then be allocated
pursuant to Section 10.02.
SECTION 10.06. REGULATORY ALLOCATIONS. The following provisions are
included in order to comply with tax rules set forth in the Code and to permit
the Partnership to obtain the benefits of a "SAFE HARBOR" provided by Treasury
Regulations Section 1.704-1(b)(2)(ii)(d).
(a) If and to the extent that any allocation of Net Loss or Loss Items
(or portion thereof) to any Partner would cause such Partner's Capital Account
to be negative by an amount which exceeds such Partner's Restoration Amount then
such loss (or portion thereof) shall be allocated first to the Capital Accounts
of the other Partners in proportion to the positive balances in their respective
Capital Accounts until all such Capital Accounts are reduced to zero, then to
the Capital Accounts of Partners with Restoration Amounts, in proportion to
their respective
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Restoration Amounts, until each such Partner's Capital Account is negative by an
amount equal to such Partner's Restoration Amount, and then to the Capital
Accounts of the General Partners in proportion to their relative Contributions
Accounts; provided that an allocation pursuant to this Section 10.06(a) shall be
made only if and to the extent that the deficit in such Partner's Capital
Account would exceed such Partner's Restoration Amount after all allocations
provided for in this Article X have been made tentatively as if Section 10.06
hereof were not included in this Agreement.
(b) If any Partner unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), and such adjustment, allocation or distribution causes such Partner
to have a deficit balance in such Partner's Capital Account that exceeds such
Partner's Restoration Amount or would further reduce a balance in such Partner's
Capital Account that is already negative by an amount which exceeds such
Partner's Restoration Amount, there shall be allocated to such Partner items of
income and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain for such fiscal period) in an amount
and manner sufficient to eliminate such Partner's deficit Capital Account
balance, to the extent required by Treasury Regulations Section
1.704-1(b)(2)(ii)(d), as quickly as possible; provided that an allocation
pursuant to this Section 10.06(b) shall be made only if and to the extent that
the deficit in such Partner's Capital Account would exceed such Partner's
Restoration Amount after all allocations provided for in this Article X have
been made tentatively as if this Section 10.06(b) were not included in this
Agreement. The foregoing sentence is intended to constitute a "qualified income
offset" provision as described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d), and shall be interpreted and applied in all respects in
accordance with that Section.
(c) In the event that any Partner has a negative Capital Account at the
end of any Partnership fiscal year which is in excess of such Partner's
Restoration Amount, there shall be allocated to such Partner items of
Partnership income (including gross income) and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.06(c) shall be made only if and to the extent that the deficit in
such Partner's Capital Account would exceed such Partner's Restoration Amount
after all allocations provided for in this Article X have been made tentatively
as if Section 10.06(b) hereof and this Section 10.06(c) were not included in
this Agreement.
(d) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 743(b) of the Code is required, pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account
in determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and
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such gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Treasury Regulations.
(e) The allocations set forth in Sections 10.06(a), 10.06(b), 10.06(c)
and 10.06(d) hereof (the "REGULATORY ALLOCATIONS") are intended to comply with
certain requirements of Treasury Regulations Section 1.704-1(b). Notwithstanding
any other provisions of this Article X (other than the Regulatory Allocations),
the Regulatory Allocations shall be taken into account in allocating subsequent
Net Gain, Net Loss, Loss Items and items of income, gain, loss and deduction
among the Partners so that, to the extent possible, the net amount of such
allocations of subsequent Net Gain, Net Loss, Loss Items and other items and the
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Article X if the Regulatory Allocations had not occurred.
For purposes of applying the foregoing sentence, allocations
pursuant to this Section 10.06(e) shall be made with respect to allocations
pursuant to Section 10.06(d) only to the extent the Offshore General Partner
reasonably determines that such allocations will otherwise be inconsistent with
the economic agreement among the Partners. Further, if allocations to the
Domestic General Partner include or are affected by Regulatory Allocations or
allocations pursuant to this Section 10.06(e) intended to offset such Regulatory
Allocations, the Offshore General Partner, after consulting with the
Partnership's accountants and other advisors, shall have discretion to make such
adjustments to subsequent 20% Subordinate Gain Allocations as the Offshore
General Partner deems reasonably necessary or appropriate to effectuate the
economic arrangements of the Partners.
(f) Subject only to the "QUALIFIED INCOME OFFSET" provisions of Section
10.06(b) hereof, the General Partners shall be allocated at least 1% of each
material item of Partnership income, gain, loss, deduction or credit at all
times during the existence of the Partnership. To the extent that any allocation
is made pursuant to this Section 10.06(f), such allocation shall be treated as a
Regulatory Allocation for purposes of Section 10.06(e); provided, however, that
in the event of any conflict between Section 10.06(e) and this Section 10.06(f),
this Section 10.06(f) shall govern.
SECTION 10.07. ADJUSTMENTS TO REFLECT CHANGES IN INTERESTS.
(a) Notwithstanding the foregoing but subject to Section 10.07(b), with
respect to any fiscal period during which any Partner's interest in the
Partnership changes, whether by reason of the admission of a Partner, the
withdrawal of a Partner, a non-pro rata contribution of capital to the
Partnership or any other event described in Section 706(d)(1) of the Code and
regulations issued thereunder, allocations of Net Gain, Net Loss and Loss Items
shall be adjusted
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appropriately to take into account the varying interests of the Partners during
such period. The Offshore General Partner shall consult with the Partnership's
accountants and other advisors and shall select the method of making such
adjustments, which method shall be used consistently thereafter.
(b) If any Person is admitted to the Partnership (or the Subscription
of any existing Partner is increased) after the Initial Closing in accordance
with the provisions of this Agreement, the Offshore General Partner shall adjust
the allocations otherwise provided for in this Article X of Net Gain or Loss and
Loss Items (and items of Partnership income, gain, loss and expense), for the
fiscal year in which such event occurs and for subsequent fiscal years if
necessary, so that, after such adjustments have been made, each Partner
(including any Partners admitted after the Initial Closing and all Partners
whose Subscriptions have been increased after the Initial Closing) shall have
been allocated Partnership expenses, including Organizational Expenses, equal in
amount to the aggregate amount of Partnership expenses such Partner would have
been allocated if it had been admitted to the Partnership on the Initial Closing
with a Subscription equal to that set forth in Schedule A after such schedule
has been amended to reflect such Partner's admission or the increase in its
Subscription; provided, however, that (1) no item of income, gain or deductible
loss realized (or deemed to have been realized on a distribution in kind) before
the admission of any new Partner shall be allocated to such Partner and (2)
allocations to any existing Partner of items of income, gain or deductible loss
realized (or deemed to have been realized on a distribution in kind) prior to
the increase in the Subscription of such Partner shall be limited to those
permitted by Section 706 of the Code.
SECTION 10.08. TAX ALLOCATIONS. For federal, state and local income tax
purposes, Partnership income, gain, loss, deduction or credit (or any item
thereof) for each fiscal year shall be allocated to and among the Partners in
order to reflect the allocations made pursuant to the provisions of this Article
X for such fiscal year (other than allocations of items which are not deductible
or are excluded from taxable income), taking into account any variation between
the adjusted tax basis and book value of Partnership property in accordance with
the principles of Section 704(c) of the Code.
SECTION 10.09. TIMING OF ALLOCATIONS.
(a) The Offshore General Partner shall cause the Partnership to make
the allocations described in this Article X as of any time that the Partnership
enters an 8% Payback Period on the basis of an interim closing of the
Partnership's books at such time. It is intended that this Section 10.09, in
conjunction with Section 11.04(a) and the definition of 8% Preferential Return
Allocation set forth in Appendix A, shall be interpreted so as to apportion Net
Gain of the Partnership for the full fiscal period to be divided by such interim
closing to the short fiscal
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period prior to the interim closing only to the extent necessary to provide each
Partner with the allocations of Net Gain contemplated by Sections 10.02(a) and
10.02(b), and that all remaining Net Gain for such full fiscal period shall be
deemed to be attributable to the short fiscal period following such interim
closing.
(b) The Offshore General Partner in its sole discretion may also cause
the Partnership to make such allocations on the basis of an interim closing of
the books as of the time that any distribution is made during a fiscal period
that is not an 8% Payback Period. In such event, it is intended that the
pertinent provisions of this Agreement shall be interpreted so as to apportion
Net Gain of the Partnership for the full fiscal period to be divided by such
interim closing to the short fiscal period prior to the interim closing and the
short fiscal period following such interim closing in the manner determined by
the Offshore General Partner, after consultation with the Partnership's
accountants and other advisors, to be appropriate to effectuate the economic
arrangements among the Partners as contemplated by this Agreement.
(c) If any such interim closing occurs, each short fiscal period that
results shall constitute a fiscal year for purposes of this Article X other than
Section 10.08 hereof. Tax allocations pursuant to Section 10.08 shall be made
only as of the end of each fiscal year.
ARTICLE XI
DISTRIBUTIONS
SECTION 11.01. TAX DISTRIBUTIONS.
(a) The Partnership shall distribute to each Partner (including any
tax-exempt Partners) in cash, with respect to each fiscal year, either during
such year or within 90 days thereafter, an amount equal to the aggregate state
and federal income tax liability such Partner would have incurred as a result of
such Partner's ownership of an interest in the Partnership, calculated (i) as if
such Partner were (A) subject to tax as a resident or domiciliary of New York
City, New York and (B) taxable at the maximum rates provided for with respect to
natural persons (or, if higher, with respect to taxable corporations) under
applicable federal, state and local income tax laws as determined from time to
time by the Offshore General Partner after consulting with accountants to the
Partnership; (ii) as if allocations from the Partnership were, for such year,
the sole source of income and loss for such Partner; and (iii) without regard to
the carryover of items of loss, deduction and expense previously allocated by
the Partnership to such Partner (such distributions being referred to herein as
"TAX DISTRIBUTIONS").
(b) Notwithstanding the foregoing: (1) the aggregate amount of Tax
Distributions that otherwise would be made pursuant to this Section 11.01 may be
reduced or not made with
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respect to any fiscal year to the extent determined by the Offshore General
Partner in its sole discretion, and (2) Tax Distributions that otherwise would
be made to any Partner with respect to any Fiscal Year pursuant to Section
11.01(a) shall be reduced by the amount of any other cash distributions made by
the Partnership to such Partner during such Fiscal Year or within 90 days
thereafter, provided, however, that for purposes of this clause (2) any Tax
Distribution made within 90 days after the beginning of any fiscal year with
respect to a prior year shall not be accounted for as a Tax Distribution for the
fiscal year in which it was made.
(c) The Partnership may make Tax Distributions to the Partners during
any Partnership fiscal year to enable them to satisfy their liability to make
estimated tax payments with respect to such fiscal year or the preceding fiscal
year based on calculations of the Partners' estimated tax liability made
pursuant to Section 11.01(a) as of such dates as the Offshore General Partner in
its sole discretion may determine; provided, however, that:
(1)
if the aggregate amount of Tax Distributions made to any
General Partner with respect to any fiscal year exceeds the
tax liability of such General Partner with respect to such
fiscal year (calculated as of the end of such fiscal year
pursuant to Section 11.01(a)), such excess shall be treated to
the maximum extent possible as an advance to such General
Partner against such General Partner's distributive share of
Partnership income and such General Partner shall return such
excess to the Partnership without interest promptly after the
determination of such excess amount; and
(2)
the Capital Account of a General Partner shall not be reduced
by any advances made to such General Partner pursuant to this
Section 11.01(c) during any fiscal year, but shall be reduced
as of the end of such fiscal year by an amount equal to the
aggregate amount of all such advances (net of any part of such
advances returned to the Partnership by such General Partner
pursuant to the preceding clause (1)).
SECTION 11.02. TIMING OF DISTRIBUTIONS. The Partnership shall
distribute (a) the cash proceeds of all dispositions of Portfolio Securities and
(b) all other current income, in each case net of Partnership expenses and
reserves for reasonably-estimated future expenses and liabilities at such times
as the Offshore General Partner shall determine in its sole discretion and in
any case not later than 60 days after receipt of such cash proceeds or other
current income. The Partners acknowledge that it is the General Partners'
intention to make all distributions in cash during the term of the Partnership
except when the General Partners have determined in good
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faith that a distribution of Portfolio Securities in kind, made in accordance
with the provisions of this Article XI, would yield greater value to the Limited
Partner at the time of distribution than a sale of such Portfolio Securities by
the Partnership and a subsequent distribution of the proceeds thereof to the
Limited Partner in cash.
SECTION 11.03. PRIORITY OF DISTRIBUTIONS.
(a) Distributions of cash and Partnership property in kind (other than
Tax Distributions and Liquidating Distributions) made at any time while the
Partnership is not in an 8% Payback Period shall be made 100% to all Partners as
follows:
(1)
First, in proportion to their respective Contributions
Accounts until each Partner has received aggregate
distributions, in cash or in kind, equal to the balance in
such Partner's Contributions Account; and
(2)
Thereafter, in proportion to their respective 8% Distribution
Preferences.
(b) Distributions of cash and Partnership property in kind (other than
Tax Distributions and Liquidating Distributions) made at any time while the
Partnership is in an 8% Payback Period shall be made in the following order and
priority:
(1)
First, 100% to the Domestic General Partner until the Domestic General
Partner has received additional distributions equal to 20% of the sum
of (i) the excess of the Partnership's aggregate prior distributions
(including distributions made pursuant to Section 11.03(a) on the date
that the amount of a distribution to be made pursuant to this Section
11.03(b)(1) is being determined) over the aggregate balances in the
Contributions Accounts of all Partners and (ii) the amount determined
pursuant to the preceding clause (i) multiplied by 25% (20/80); and
(2)
Second, as long as the Partnership continues to be in an 8% Payback
Period, 80% to all Partners in proportion to their respective
Contributions Accounts and 20% to the Domestic General Partner.
SECTION 11.04. OPERATIONAL RULES.
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(a) If a proposed distribution of cash or of Partnership property in
kind made in accordance with the percentages specified in Section 11.03(a) would
cause the Partnership to enter an 8% Payback Period, such cash or property shall
be deemed to be divided into two parts, a "PRE-8% PAYBACK DISTRIBUTION"
consisting of that amount of such distribution which would cause the Partnership
to enter an 8% Payback Period if distributed in accordance with Section 11.03(a)
and a "POST-8% PAYBACK DISTRIBUTION" consisting of the balance of such
distribution; the Partnership's actual distribution of such property shall be
apportioned among the Partners accordingly.
(b) Proposed distributions pursuant to Section 11.03(b) that would
cause aggregate distributions to the Domestic General Partner to exceed the
amounts described in Section 11.03(b)(1) shall be divided in a manner similar to
that provided for under Section 11.04(a).
(c) Liquidating Distributions that cause the Partnership to enter into
an 8% Payback Period shall be deemed to be divided in a manner similar to that
provided for under Section 11.04(a) for purposes of Section 10.09 and any other
pertinent provision of this Agreement.
(d) All distributions other than Liquidating Distributions shall be
made in cash or in Freely Tradeable Securities unless otherwise approved by the
Advisory Committee. The valuation of securities distributed in kind shall be
made in the manner provided in Article XII. Each class of securities to be
distributed in kind shall be distributed to the Partners in proportion to their
respective shares of the proposed distribution as provided in Section 11.03,
except to the extent that a disproportionate distribution of such securities is
necessary in order to avoid distributing fractional shares. For purposes of the
preceding sentence, each lot of stock or other securities having a separately
identifiable tax basis or holding period shall be treated as a separate class of
securities.
SECTION 11.05. TAX WITHHOLDING. If the Partnership incurs a tax
withholding obligation with respect to any Partner, any amount required to be
withheld by the Partnership with respect to such Partner shall be treated for
all purposes of this Agreement as if it had been transferred to such Partner by
the Partnership as an interest-free advance. Amounts treated as advanced to any
Partner pursuant to this Section 11.05 shall be repaid by such Partner to the
Partnership within 30 days after the Partnership delivers a written request to
such Partner for such repayment; provided, however, that if any such repayment
is not made, the Partnership, at the discretion of the Offshore General Partner,
shall (a) collect such unpaid amounts from any Partnership distributions that
otherwise would be made to such Partner and/or (b) subtract from the Capital
Account of such Partner, no later than the day prior to the Partnership's first
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liquidating distribution, the amount of any such tax withholding not so
collected, in each case treating the amount so collected or subtracted as having
been distributed to such Partner at the time of such collection or subtraction.
For purposes of this Section 11.05, any tax withholding obligation incurred by
any General Partner with respect to any Partner shall constitute a Partnership
obligation.
SECTION 11.06. DISTRIBUTIONS ON ACCEPTANCE OF ADDITIONAL SUBSCRIPTIONS.
Upon the increase in the Subscription of any existing Partner pursuant to
Section 7.01, the Offshore General Partner may, but shall not be obligated, to
cause the Partnership to distribute prior to such increase to the Persons who
were Partners prior to such increase in aggregate Subscriptions and in
proportion to such Partners' respective Contributions Accounts as of the time
immediately prior to such increase in Subscriptions, part or all of any amounts
earned by the Partnership on such Partners' paid-in capital contributions before
such contributions were invested in Portfolio Securities.
SECTION 11.07. CERTAIN DISTRIBUTIONS PROHIBITED. Anything in this
Article XI to the contrary notwithstanding, all Partnership distributions shall
be subject to the following limitations.
(a) No distribution shall be made to any Partner if, and to the extent
that, such distribution would not be permitted under any applicable provision of
Bermuda law.
(b) No distribution other than a Tax Distribution shall be made to any
Partner to the extent that such distribution, if made, would cause the deficit
balance, if any, in the Capital Account of such Partner (determined without
regard to any allocations made pursuant to Section 10.06(b) and 10.06(c)) to
exceed such Partner's Restoration Amount.
SECTION 11.08. CONSENT TO DISTRIBUTIONS. Each Partner, by becoming a
Partner, consents to any such distribution hereafter made or omitted to be made
to the Partners or any of them in accordance with this Article XI.
ARTICLE XII
VALUATION OF PARTNERSHIP ASSETS
SECTION 12.01. VALUATION BY DOMESTIC GENERAL PARTNER. Whenever
valuation of Partnership assets or net assets is required by this Agreement, the
Domestic General Partner shall determine the fair market value thereof in good
faith in accordance with this Article XII. In the event of a distribution of
securities which are not Freely Tradeable Securities, the Domestic
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General Partner shall also consult with the Advisory Committee with respect to
the determination of the fair market value of such securities.
SECTION 12.02. FAIR MARKET VALUE. The fair market value of any security
owned by the Partnership which is a Freely Tradeable Security (as defined in
Section 12.03) shall be determined as of the close of trading on the date as of
which the value is being determined by taking the last reported trade price of
such security on such trading date on the exchange where it is primarily traded
or, if such security is not traded on an exchange, such security shall be valued
at the last reported sale price on such date on the Nasdaq National Market
maintained by the United States National Association of Securities Dealers, Inc.
or, if such security is not reported on the Nasdaq National Market, such
security shall be valued at the reported closing bid price (or average of bid
prices) last quoted on such date as reported by an established quotation service
for over-the-counter securities. The determination of the fair market value of
all other assets of the Partnership shall be based upon all relevant factors,
including, without limitation, such of the following factors as may be deemed
relevant by the Domestic General Partner: current financial position and current
and historic operating results of the issuer; sales prices of recent public or
private transactions in the same or similar securities, including transactions
on any securities exchange on which such securities are listed or in the
over-the-counter market; general level of interest rates; recent trading volume
of the security and other considerations affecting market liquidity;
restrictions on transfer, including the Partnership's right, if any, to require
registration of its securities by the issuer under the securities laws;
significant recent events affecting the issuer, including any pending private
placement, public offering, merger or acquisition; the price paid by the
Partnership to acquire the asset; the percentage of the issuer's outstanding
securities that is owned by the Partnership; and all other factors affecting
value.
In making any such determination of the fair market value of the assets
of the Partnership, no allowance of any kind shall be made for goodwill or the
name of the Partnership or of either General Partner, the Partnership's office
records, files and statistical data or any intangible assets of the Partnership.
SECTION 12.03. FREELY TRADEABLE SECURITIES. For purposes of this
Agreement a security shall be deemed to be a "FREELY TRADEABLE SECURITY" if (a)
the Partnership's entire holding of such securities can be sold by the
Partnership to the general public (including a sale by any Partner of the entire
distributed amount of its holdings following a distribution of such security
from the Partnership even though a sale by the Partnership of such securities,
if not so distributed to the Partners but sold by the Partnership to the general
public, might otherwise be restricted by volume limitations) and such sale can
be effected pursuant to Rule 144 of the Securities Act or otherwise without the
necessity of any United States federal, state or local government registration
or consent (other than any ministerial notice filings of the type required
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pursuant to Rule 144(h)), and (b) such securities are traded in a Public
Securities Market and market quotations are available for such securities,
including quotations available from market makers or specialists. If only a
portion of the Partnership's holdings of a class of securities satisfies the
requirements of the preceding sentence, that portion of such class shall
constitute Freely Tradeable Securities (so that, for example, any Partner can
sell the entire distributed amount of its holdings in such security following a
distribution of such security from the Partnership).
SECTION 12.04. GOODWILL. The Partnership's name and goodwill shall, as
among the Partners, be deemed to have no value and shall belong to the
Partnership, and no Partner shall have any right or claim individually to the
use thereof. Upon termination of the Partnership, the right to the trade name of
the Partnership and any goodwill associated with the Partnership's name shall be
assigned to the Domestic General Partner.
ARTICLE XIII
DURATION OF THE PARTNERSHIP
SECTION 13.01. TERM OF PARTNERSHIP. The Partnership shall continue
until the date that is eight years after the Initial Closing unless its term is
extended as provided in Section 13.04, or unless it is sooner dissolved as
provided in Sections 13.02 or 13.03 or by operation of law.
SECTION 13.02. DISSOLUTION UPON WITHDRAWAL OF GENERAL PARTNERS. The
Partnership shall be dissolved 90 days after the occurrence with respect to
either of the General Partners of any of the following events unless the Limited
Partner, at the direction of all of the Shareholders, agrees within such 90-day
period to continue the Partnership and appoint, effective as of the date of
withdrawal, a new General Partner:
(1)
such General Partner (A) makes an assignment for the benefit of
creditors, (B) files a voluntary petition in bankruptcy, (C) is
adjudged bankrupt or insolvent, or has entered against it an order for
relief in any bankruptcy or insolvency proceeding, (D) files a petition
or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation, (E) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of this nature, or (F)
seeks, consents to, or acquiesces in, the appointment of a trustee,
receiver, or liquidator of itself or of all or any substantial part of
its properties;
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(2)
when 90 days have elapsed after the commencement of any proceeding
against such General Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation, if the proceeding has not been
dismissed before that date;
(3)
when 90 days have elapsed after the appointment without its consent or
acquiescence of a trustee, receiver, or liquidator of such General
Partner or of all or any substantial part of its properties and the
appointment is not vacated or stayed, or when 90 days have elapsed
after the expiration of any such stay, if the appointment is not
vacated before that date; or
(4)
when an involuntary certificate of dissolution or its equivalent is
filed for such General Partner or its dissolution is effected (if such
General Partner is a corporation) or when such General Partner is
dissolved and its affairs wound up (if such General Partner is a
partnership).
SECTION 13.03. DISSOLUTION BY PARTNERS. (a) The Offshore General
Partner, with the consent of the Limited Partner, may dissolve the Partnership
at any time on not less than 60 days' prior written notice of such dissolution
to the Domestic General Partner and the Shareholders; provided that the Domestic
General Partner, with the consent of at least 50% in interest of the limited
partners of the Domestic Partnership, simultaneously dissolves the Domestic
Partnership.
(b) The Limited Partner, as directed by vote of two-thirds in interest
of the Shareholders of the Limited Partner taken within 45 days after the
occurrence of any event giving rise to such right, may dissolve the Partnership
(provided that the limited partners of the Domestic Partnership simultaneously
dissolve the Domestic Partnership) if: (i) a General Partner commits a material
breach of any of its material obligations under this Agreement and such breach
continues to exist for 60 days after delivery of notice to such General Partner
of the occurrence of such breach or after such General Partner becomes aware of
such breach; or (ii) a General Partner, any partner of a General Partner or a
member of the Domestic General Partner's general partner is charged or convicted
of a felony in connection with the business of the Partnership.
SECTION 13.04. EXTENSION OF TERM. It is contemplated by the Partners
that the term of the Partnership shall terminate on the date that is eight years
after the Initial Closing and that
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the Partnership shall be considered to be dissolved on such date without any
further action being required by any of the Partners, unless sooner terminated
pursuant to Sections 13.02 or 13.03 or by operation of law. Notwithstanding the
foregoing, the term of the Partnership may be extended for two additional
one-year periods by the Offshore General Partner with the prior approval of the
Advisory Committee. The Offshore General Partner shall notify the Limited
Partner promptly of any such extension.
ARTICLE XIV
LIQUIDATION OF PARTNERSHIP INTERESTS
SECTION 14.01. GENERAL PROVISIONS. At dissolution, the Partnership's
assets shall be liquidated in an orderly manner. The General Partners shall be
the liquidators to wind up the affairs of the Partnership pursuant to this
Agreement; provided that, if there shall be no remaining General Partner at that
time, the Limited Partner may designate one or more other Persons to act as the
liquidator(s) instead of the General Partners.
SECTION 14.02. LIQUIDATING DISTRIBUTIONS. The liquidator(s) shall pay
or provide for the satisfaction of the Partnership's liabilities and obligations
to creditors. Any Net Gain or Loss realized in connection with the liquidation
of the Partnership shall be allocated among the Partners pursuant to Article X,
and the remaining assets of the Partnership shall then be distributed to the
Partners in cash (to the extent feasible) in proportion to the positive balances
in the respective Capital Accounts of the Partners (and, if a distribution in
kind is necessary, after allocating any Net Gain or Loss attributable to such
distribution). In performing their duties, the liquidator(s) are authorized to
sell, exchange or otherwise dispose of the assets of the Partnership in such
reasonable manner as the liquidator(s) shall determine to be in the best
interest of the Partners. During the liquidation of the Partnership, the
liquidator(s) shall furnish to the Partners the financial statements and other
information specified in Article XIX.
SECTION 14.03. EXPENSES OF LIQUIDATOR(S). The reasonable expenses
incurred by the liquidator(s) in connection with winding up the Partnership, all
other losses or liabilities of the Partnership incurred in accordance with the
terms of this Agreement, and reasonable compensation for the services of the
liquidator(s) (which, with respect to any liquidator who is a General Partner,
shall be paid only if the Management Agreement is no longer in effect, and in
that event shall be in an amount determined in accordance with Section 3.06)
shall be borne by the Partnership. Subject to the terms of the Management
Agreement, and provided such agreement shall not have been terminated, and
provided further, that the Limited Partner has not designated another liquidator
pursuant to Section 14.01, the Management Fee shall be continued for a period of
one year from the date of dissolution or until the liquidation is completed,
whichever is sooner, to permit the Management Company to assist in the
liquidation.
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SECTION 14.04. DURATION OF LIQUIDATION. A reasonable time shall be
allowed for the winding up of the affairs of the Partnership in order to
minimize any losses otherwise attendant upon such a winding up. The
liquidator(s) shall use its best efforts to dispose of or distribute all
Partnership assets within one year of dissolution, but shall not be bound to do
so or liable in any way to any Partner for failure to do so. The liquidator(s)
shall then make final liquidating distributions from the Partnership before the
later of (i) the end of the taxable year in which the date of liquidation of the
Partnership occurs, or (ii) 90 days after the date of the liquidation of the
Partnership. For this purpose, (x) the date of the liquidation of the
Partnership shall be the date on which the Partnership has ceased to be a going
concern, and (y) the Partnership shall not be deemed to have ceased to be a
going concern until it has sold, distributed or otherwise disposed of its
Portfolio Securities.
SECTION 14.05. DUTY OF CARE. The liquidator(s) shall not be liable to
the Partnership or any Partner for any loss attributable to any act or omission
of the liquidator(s) taken in good faith in connection with the liquidation of
the Partnership and distribution of its assets in the belief that such course of
conduct was in the best interest of the Partnership. The liquidator(s) may
consult with counsel, accountants, investment bankers and appraisers with
respect to liquidating the Partnership and distributing its assets and shall be
justified in acting or omitting to act in accordance with the advice or opinion
of such counsel, accountants, investment bankers and appraisers provided they
shall have been selected and retained with reasonable care.
SECTION 14.06. NO LIABILITY FOR RETURN OF CAPITAL. The liquidator(s),
the General Partners and their respective officers, directors, agents, partners
(including the officers, directors, employees, members, managers and agents of
the partners of the General Partner) and their Affiliates shall not be
personally liable for the return of the capital contributions of any Partner to
the Partnership. No Partner shall be obligated to restore to the Partnership any
amount with respect to a negative Capital Account; provided, however, that this
provision shall not affect the obligations of Partners to make their agreed upon
capital contributions to the Partnership.
SECTION 14.07 DOMESTIC GENERAL PARTNER'S OBLIGATION TO RESTORE DEFICIT.
Upon completion of the liquidation of the Partnership, the Domestic General
Partner shall repay to the Partnership an amount equal to the deficit (if any)
in the Capital Account of the Domestic General Partner; provided, however, that
the total amount which the Domestic General Partner shall be obligated to return
to the Partnership pursuant to this Section 14.07 shall not exceed the aggregate
amount of distributions received by the Domestic General Partner from the
Partnership reduced by the sum of (i) the aggregate amount of distributions that
the Domestic General Partner would have received if each Partnership
distribution had been made to all Partners in proportion to the balances in
their respective Contributions Accounts, and (ii) the aggregate amount of Tax
Distributions made to the Domestic General Partner as of the date of
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determination (to the extent not taken into account under the proceeding clause
(i)). The Domestic General Partner shall satisfy its repayment obligation by
delivering to the Partnership either cash or securities previously distributed
to the Domestic General Partner by the Partnership, valued in accordance with
Article XII as of the date such repayment is made. Any such repayment shall be
made before the later of (1) the end of the taxable year in which the date of
liquidation of the Partnership occurs, or (2) 90 days after the date of the
liquidation of the Partnership. For this purpose, (A) the date of the
liquidation of the Partnership shall be the date on which the Partnership has
ceased to be a going concern, and (B) the Partnership shall not be deemed to
have ceased to be a going concern until it has sold, distributed or otherwise
disposed of its Portfolio Securities. The intent of this Section 14.07, in
conjunction with the definition of "Restoration Amount," is to require the
Domestic General Partner to return to the Partnership any distributions (other
than Tax Distributions) made to the Domestic General Partner with respect to its
20% "carried interest" to the extent that such distributions exceed in the
aggregate 20% of the excess of the Net Gain of the Partnership from its
inception through and including the date of the Partnership's final liquidating
distribution over the Net Loss of the Partnership over that period, and these
provisions shall be interpreted and applied accordingly. Amounts returned by the
Domestic General Partner to the Partnership shall be paid to creditors of the
Partnership (provided that no creditor of the Partnership shall have the right
to enforce any obligation of the Domestic General Partner to make the repayments
contemplated by this Section 14.07) or distributed to the Limited Partner.
ARTICLE XV
LIMITATION ON TRANSFERS OF INTERESTS OF LIMITED PARTNER
SECTION 15.01. Limitation on Transfers of Interests of Limited Partner.
The Limited Partner shall not assign, pledge, mortgage, hypothecate, sell or
otherwise dispose of or encumber all or any part of its limited partnership
interest. Any attempted transfer of the Limited Partner's interest shall be
void. The foregoing limitation shall not restrict any Shareholder of the Limited
Partner from transferring all or any part of its interest in the Limited
Partner, and the Bye-laws of the Limited Partner shall govern any such
transfers.
ARTICLE XVI
WITHDRAWAL OF PARTNERSHIP INTERESTS
SECTION 16.01. WITHDRAWAL OF PARTNERSHIP INTERESTS. No Partner shall
have the right to withdraw its capital and profits from the Partnership.
Notwithstanding the foregoing, the General Partners may effect a partial
withdrawal of the Limited Partner's interest in the Partnership in order to
accommodate certain redemptions of the Limited Partner's Preference
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Shares pursuant to the Limited Partner's bye-laws. As promptly as practicable
following such partial withdrawal, there shall be distributed to the Limited
Partner, in full payment and satisfaction of such portion of such interest in
the Partnership, an amount equal to the amount which such Limited Partner would
have been entitled to receive with respect to such interest pursuant to Article
XIV if the Partnership had been liquidated on and as of the date of such partial
withdrawal and all of the Partnership's assets had been sold on such date for
their fair market value. No approval of the Partners shall be required prior to
the making of such distribution. For purposes of determining the amount of the
distribution to be made to the Limited Partner, and the value of each of the
Partnership's assets, the Partnership's annual or quarterly financial
statements, as the case may be, prepared in accordance with Article XIX hereof
for the period ending on the date of such partial withdrawal shall be deemed to
be conclusive. Such distribution shall be payable in cash, cash equivalents
and/or securities of Portfolio Companies, with each separate group of cash, cash
equivalents, securities of Portfolio Companies and/or other assets (determined
in a manner consistent with the last sentence of Section 11.04(d)) being
distributed to the Limited Partner with respect to such interest in proportion
to the Limited Partner's interest in the Partnership as a whole to the extent
practicable.
ARTICLE XVII
LIMITATION ON TRANSFERS OF INTERESTS OF GENERAL PARTNERS
SECTION 17.01. LIMITATION ON TRANSFERS OF INTERESTS OF GENERAL
PARTNERS. No General Partner shall assign, pledge, mortgage, hypothecate, sell
or otherwise dispose of or encumber all or any part of its general partnership
interest. Any attempted transfer of a General Partner's interest shall be void.
ARTICLE XVIII
INDEMNIFICATION
SECTION 18.01. GENERAL PROVISIONS. Each General Partner, its partners,
officers, directors, employees, members, managers and agents (including the
officers, directors, employees, members, managers, consultants and agents of
each partner of the Domestic General Partner), each director, officer, employee,
consultant and agent of the Management Company, and each member of the Advisory
Committee (herein referred to as an "INDEMNITEE") shall be indemnified by the
Partnership (only out of Partnership assets, including the proceeds of liability
insurance) against any claim, demand, controversy, dispute, cost, loss, damage,
expense (including attorneys' fees), judgment and/or liability incurred by or
imposed upon the Indemnitee in connection with any action, suit or proceeding
(including any proceeding before any administrative or legislative body or
agency) to which the Indemnitee may be a party or
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otherwise involved, or with which the Indemnitee may be threatened, by reason of
the Indemnitee's (or the Indemnitee's employee) being at the time the cause of
action arose or thereafter, a General Partner (including the Domestic General
Partner acting as Tax Matters Partner), a partner thereof (including the
officers, directors, employees, managers, members, consultants and agents of
each partner of the Domestic General Partner), an officer, director, employee,
consultant, member, manager or other agent of any General Partner, a director,
officer, employee, consultant or other agent of the Offshore General Partner or
of the Management Company or a member of the Advisory Committee, or a director,
officer, partner, employee, consultant, member, manager or other agent of any
other organization in which the Partnership owns an interest or of which the
Partnership is a creditor, which other organization the Indemnitee (or its
employee) serves or has served as a director, officer, partner, employee,
consultant, member, manager or other agent at the request of the Partnership
(whether or not the Indemnitee or its employee continues to serve in such
capacity at the time such action, suit or proceeding is brought or threatened),
except with respect to matters as to which the Indemnitee (or its employee)
shall have been finally adjudicated in any such action, suit or proceeding (i)
not to have acted in good faith and in the belief that the Indemnitee's (or
employee's) action was in accordance with such Person's obligations to the
Partnership, (ii) to have acted with gross negligence or a willful disregard of
his duties or (iii) with respect to any criminal action or proceeding, to have
had cause to believe beyond any reasonable doubt the Indemnitee's (or
employee's) conduct was criminal. In the event of settlement of any action, suit
or proceeding brought or threatened, such indemnification shall apply to all
matters covered by the settlement. The foregoing right of indemnification shall
be in addition to any rights to which any Indemnitee may otherwise be entitled
and shall inure to the benefit of the executors, administrators, personal
representatives, successors or assigns of each such Indemnitee.
SECTION 18.02. ADVANCE PAYMENT OF EXPENSES. The Partnership shall pay
the expenses incurred by an Indemnitee in defending a civil or criminal action,
suit or proceeding, or in opposing any claim arising in connection with any
potential or threatened civil or criminal action, suit or proceeding, in advance
of the final disposition of such action, suit or proceeding, upon receipt of an
undertaking by such Indemnitee to repay such payment if he shall be determined
to be not entitled to indemnification therefor as provided herein; provided,
however, that in such instance the Indemnitee is not commencing an action, suit,
or proceeding against the Partnership, or defending an action, suit or
proceeding commenced against him by the Partnership or opposing a claim by the
Partnership arising in connection with any such potential or threatened action,
suit or proceeding.
SECTION 18.03. INSURANCE. The Offshore General Partner, on behalf of
the Partnership, may cause the Partnership to purchase and maintain insurance
with such limits or coverages as the Offshore General Partner reasonably deems
appropriate, at the expense of the
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Partnership and to the extent available, for the protection of any Indemnitee
against any liability incurred by such Indemnitee in any such capacity or
arising out of his status as such, whether or not the Partnership has the power
to indemnify such Indemnitee against such liability. The Offshore General
Partner may purchase and maintain insurance on behalf of the Partnership for the
protection of any officer, director, employee, consultant or other agent of any
other organization in which the Partnership owns an interest or of which the
Partnership is a creditor against similar liabilities, whether or not the
Partnership has the power to indemnify him or it against such liabilities.
SECTION 18.04. SHARING OF INDEMNIFICATION EXPENSES WITH RELATED FUNDS.
It is understood and agreed that, with regard to any claim for indemnification
pursuant to this Article XVIII which relates to a common activity of the
Partnership and the Domestic Partnership, or any Successor Entity, the
Partnership shall be obligated to provide indemnity hereunder up to, but only to
the extent of, its pro rata share of the total of any such amounts so paid by
any or all of the Partnership, the Domestic Partnership, or any Successor Entity
(i) if such claim arises from a Portfolio Company investment, in proportion to
the respective amounts invested by the Partnership and such other funds in such
Portfolio Company, and (ii) otherwise in proportion to the respective amounts of
capital contributed (in cash and commitments) to the respective partnerships or
related funds.
SECTION 18.05. LIMITATION BY LAW. If any General Partner or the
Partnership is subject to any Bermuda or United States federal or state law,
rule or regulation which restricts the extent to which any person may be
exonerated or indemnified by the Partnership in any particular instance, then
the indemnification provisions set forth in this Article XVIII and the
exoneration provisions set forth in Sections 3.10 and 14.05 shall be deemed to
be amended, automatically and without further action by the General Partners or
the Limited Partner, to conform to such restrictions on exoneration or
indemnification as set forth in such applicable Bermuda or United States federal
or state law, rule or regulation. If any such law, statute, rule or regulation
of any jurisdiction by which the Partnership may be governed, including Bermuda
and the United States, is thereafter amended to enlarge the scope of
indemnification or eliminate or reduce the liability of any Indemnitee, then
this Agreement shall be deemed to be amended, automatically and without any
further action by the General Partners or the Limited Partner to broaden
correspondingly the exoneration or indemnification provided hereunder; provided,
however, that the scope of the exoneration or indemnification provided hereunder
shall not be enlarged beyond that which is set forth in this Article XVIII as of
the date hereof. The rights to indemnification and advancement of expenses
conferred in this Article XVIII shall not be exclusive of any other right which
any Indemnitee may have or hereafter acquire under any law, statute, rule,
regulation, charter document, by-law, contract or agreement.
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ARTICLE XIX
ACCOUNTING; RECORDS AND REPORTS; ANNUAL MEETINGS
SECTION 19.01. FISCAL YEAR. The fiscal year of the Partnership shall be
the calendar year, or such other year as is required by the Code.
SECTION 19.02. KEEPING OF ACCOUNTS AND RECORDS. At all times the
Offshore General Partner shall cause to be kept proper and complete books of
account, in which shall be entered fully and accurately the transactions of the
Partnership. Such books of account (which shall be kept on the accrual method of
accounting), together with (a) an executed copy of this Agreement (and any
amendments hereto), including Schedule A hereto; (b) the Certificate (and any
amendments thereto); (c) executed copies of any powers of attorney pursuant to
which any certificate has been executed by the Partnership; (d) a current list
of the full name, taxpayer identification number and last known address of each
Partner set forth in alphabetical order; (e) copies of all tax returns, if any,
filed by the Partnership for each of the prior three years; and (f) all
financial statements of the Partnership for each of the prior three years, shall
at all times be maintained at the principal office of the Partnership.
SECTION 19.03. INSPECTION RIGHTS. At any time while the Partnership
continues and until its complete liquidation, each Partner (or any Person duly
authorized by such Person as its attorney in fact) during normal business hours
may fully examine and audit the Partnership's books, records, accounts and
assets, including bank balances, and may make, or cause to be made, any
examination or audit at such Partner's expense. The Limited Partner (or the
designee thereof) during normal business hours may examine, or request that the
Offshore General Partner furnish, such additional information as is reasonably
necessary to enable the Limited Partner (or the designee thereof) to review the
state of the investment activities of the Partnership. Notwithstanding the
foregoing, (1) any such examination or audit shall be made (A) only upon
reasonable notice to the Offshore General Partner, (B) during normal business
hours and (C) without undue disruption; and (2) the management of the affairs of
the Partnership shall be in the complete control of the General Partners.
SECTION 19.04. ANNUAL FINANCIAL STATEMENTS. The Offshore General
Partner shall transmit to each Partner, within 90 days after the close of each
fiscal year, the financial statements of the Partnership for such fiscal year.
Such financial statements shall include balance sheets of the Partnership as of
the end of such fiscal year and of the preceding fiscal year, statements of
income and loss of the Partnership for such fiscal year and for the preceding
fiscal year, and statements of changes in Partners' Capital Accounts for such
fiscal year and for the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement, audited by a recognized
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firm of independent public accountants. The Offshore General Partner shall also
transmit to each Partner, within 90 days after the close of each fiscal year, a
report indicating such Partner's share of all items of income or gain, expense,
loss or other deduction and tax credit of the Partnership for such year, as well
as the status of its Capital Account as of the end of such year, and such
additional information as it reasonably may request to enable it to complete its
tax returns or to fulfill any other reporting requirements. For information
purposes, the Offshore General Partner shall also furnish to each Partner, as
promptly as practicable after the close of each fiscal year, a list of the
Partnership's investments, valued at fair market value as determined in
accordance with Article XII as of the end of such fiscal year, with a brief
narrative report as to the status and operations of each such investment.
SECTION 19.05. QUARTERLY FINANCIAL STATEMENTS; INVESTMENT MEMORANDA.
Each Partner shall be furnished as promptly as possible, but no later than 60
days after the end of each of the first three fiscal quarters of each fiscal
year of the Partnership, unaudited financial statements of the Partnership for
the quarter then ended prepared in accordance with generally accepted accounting
principles consistently applied in accordance with the terms of this Agreement
(except that such unaudited financial statements need not contain all of the
required footnotes), which statements shall contain data sufficient to inform
each Partner as to the current financial status of the Partnership and its
investments, with a brief narrative report as to the status and operations of
each such investment.
SECTION 19.06. ANNUAL MEETINGS. The Partnership may hold annual
meetings offering the Limited Partner's Shareholders the opportunity to review
and discuss the Partnership's investment activity and portfolio. If the Offshore
General Partner determines that the Partnership shall hold an annual meeting,
the Offshore General Partner shall notify the Limited Partner at least 45 days
in advance of the time and place of the year's annual meeting. At the Offshore
General Partner's discretion, the annual meeting for a particular year may be
held in several locations at different times to make attendance more convenient
for the Shareholders of the Limited Partners. At the Offshore General Partner's
discretion, individual meetings with interested Shareholders of the Limited
Partner may be held in lieu of, or in addition to, an annual meeting.
SECTION 19.07. ACCOUNTING METHOD. The Partnership shall use the accrual
method of accounting for United States federal income tax purposes.
SECTION 19.08. INDEPENDENT ACCOUNTANTS. The Partnership's independent
public accountants initially shall be the firm of Ernst & Young LLP, but the
Offshore General Partner may change accounting firms to another recognized
independent public accounting firm.
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SECTION 19.09. AMORTIZATION OF ORGANIZATIONAL EXPENSES. The
organizational expenses of the Partnership shall be amortized over a sixty-month
period to the extent permitted by Section 709 of the Code.
SECTION 19.10. CHANGE OF PRINCIPAL OFFICE. The principal office of the
Partnership initially shall be as set forth in Schedule A. The Offshore General
Partner may change the location of the principal office or the mailing address
of the Partnership at any time, upon written notice to all Partners indicating
the new location of such principal office or new mailing address, as the case
may be; provided, however, that the principal office of the Partnership shall be
located at all times outside the United States, its territories and its
possessions. Notwithstanding the foregoing, the situs of the Partnership shall
remain in Bermuda.
SECTION 19.11. SHAREHOLDER LIST. The Limited Partner shall furnish the
Offshore General Partner with a complete list of the names and addresses of all
record and (to the extent known) beneficial owners of its capital stock as of
the date hereof and shall update such list until the earlier of the dissolution
of the Partnership or the withdrawal of the Limited Partner.
ARTICLE XX
WAIVER AND AMENDMENT
SECTION 20.01. WAIVER AND AMENDMENT.
(a) Except as otherwise provided in this Agreement, the terms and
provisions of this Agreement may be waived, modified, terminated or amended with
the written consent of the General Partners and the Limited Partner. No such
amendment shall, however, (1) dilute the relative interest of any Partner in the
profits or capital of the Partnership or in allocations or distributions
attributable to the ownership of such interest without the written consent of
such Partner (except such dilution as may result from additional Subscriptions
from the Limited Partner), or (2) increase the Subscription of any Partner
without the written consent of such Partner, or (3) alter or waive the terms of:
(A) Section 2.03 without the written consent of each Shareholder of the Limited
Partner; and (B) Section 4.02 and this Article XX without the written consent of
any Partner which would be adversely affected thereby. The Offshore General
Partner shall promptly furnish copies of any amendments to this Agreement to all
Partners. The admission or substitution of Partners and increases in
Subscriptions shall not require the consent of, or notice to, the Limited
Partner.
(b) In addition to any amendments otherwise authorized hereby, this
Agreement may be amended from time to time by the General Partners without the
consent of the Limited Partner to cure any ambiguity or correct or supplement
any provisions hereof which may be inconsistent
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with any other provision hereof, or correct any printing, stenographic or
clerical errors or omissions.
(c) Except as otherwise specifically set forth in this Agreement, any
amendment, consent, waiver, modification or termination of the terms and
provisions of this Agreement which results in the same economic and legal
consequences to the Partners and the limited partners of the Domestic
Partnership shall require the written consent of the General Partners and the
general partner of the Domestic Partnership, and the written consent of the
Limited Partner and limited partners of the Domestic Partnership constituting,
in the aggregate, a majority in interest of the Limited Partner and all such
limited partners, voting together as a single class. In any vote under this
Agreement which includes the interest of the Limited Partner and the limited
partners of the Domestic Partnership, the Limited Partner's vote shall be
divided into separate votes in order to give effect to the differing votes of
the Limited Partner's Shareholders under the Limited Partner's bye-laws.
ARTICLE XXI
GENERAL PROVISIONS
SECTION 21.01. NOTICES. Except where otherwise specifically provided in
this Agreement, all notices, requests, consents, approvals and statements shall
be in writing and shall be deemed to have been properly given by personal
delivery or if mailed from within the country of the sender by air mail or first
class mail, postage prepaid, or if sent by prepaid telegram, electronic
facsimile transmission or telex, or if sent by courier service, addressed in
each case, at its address set forth in Schedule A, or, in each case, to such
other address or addresses as the addressee may have specified by written notice
as aforesaid to the other parties. Notices delivered by air mail shall be deemed
to be received five days after the date of the mailing.
SECTION 21.02. POWER OF ATTORNEY.
(a) Each of the undersigned by execution of this Agreement constitutes
and appoints each General Partner, acting singly, with full power to act without
the other, as its true and lawful representative and attorney-in-fact, in its
name, place and stead, to make, execute, sign, acknowledge and deliver or file
(1) all instruments, documents and certificates which may from time to time be
required by any law to effectuate, implement and continue the valid and
subsisting existence of the Partnership, (2) all instruments, documents and
certificates that may be required to effectuate the dissolution and termination
of the Partnership in accordance with the provisions hereof and Bermuda law, (3)
all other amendments of this Agreement or the Certificate contemplated by this
Agreement including, without limitation, amendments reflecting the return, in
whole or in part, of the contribution of any Partner, or the addition,
substitution or
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increased contribution of any Partner, or any action of the Partners duly taken
pursuant to this Agreement whether or not such Partner voted in favor of or
otherwise approved such action, and (4) any other instrument, certificate or
document required from time to time to admit a Partner, to effect its
substitution as a Partner, to effect the substitution of the Partner's assignee
as a Partner, or to reflect any action of the Partners provided for in this
Agreement.
(b) Each of the Partners is aware that the terms of this Agreement
permit certain amendments to this Agreement and the Certificate to be effected
and certain other actions to be taken by or with respect to the Partnership, in
each case with the approval or by the vote of less than all the Partners. If, as
and when (1) an amendment of this Agreement and the Certificate is proposed or
an action is proposed to be taken by or with respect to the Partnership which
does not require, under the terms of this Agreement, the approval of all of the
Partners, (2) Partners holding the interest in the Partnership specified in this
Agreement as being required for such amendment or action have approved such
amendment or action in the manner contemplated by this Agreement (disregarding
the consent of any Partner whose approval has been granted by any General
Partner's use of such Partner's power of attorney), and (3) a Partner has failed
or refused to approve such amendment or action (hereinafter referred to as a
non-consenting Partner), each non-consenting Partner agrees that the special
attorney specified above, with full power of substitution, is hereby authorized
and empowered to execute, acknowledge, make, swear to, verify, deliver, record,
file and/or publish, for and on behalf of such non-consenting Partner, and in
its name, place and stead, any and all instruments and documents which may be
necessary or appropriate to permit such amendment to be lawfully made or action
lawfully taken. Each Partner is fully aware that it and each other Partner has
executed this special power of attorney, and that each Partner will rely on the
effectiveness of such powers with a view to the orderly administration of the
Partnership's affairs.
(c) The powers of attorney granted herein (1) shall be deemed to be
coupled with an interest, shall be irrevocable and shall survive the death,
insanity, incompetency, or incapacity (or, in the case of a Partner that is a
corporation, association, limited liability company, partnership or trust, shall
survive the merger, dissolution or other termination of existence) of the
Partner and (2) shall survive the assignment by the Partner of the whole or any
portion of his interest, except that where the assignee of the whole or any
portion thereof has furnished a power of attorney, this power of attorney shall
survive such assignment for the sole purpose of enabling any General Partner to
execute, acknowledge, and file any instrument necessary to effect any permitted
substitution of the assignee for the assignor as a Partner and shall thereafter
terminate. In the event that the appointment conferred in this Section 21.02
would not constitute a legal and valid appointment by any Partner under the laws
of the jurisdiction in which such Partner is incorporated, established or
resident, upon the request of the General Partners, such Partner shall deliver
to the General Partners a properly authenticated and duly executed document
constituting
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a legal and valid power of attorney under the laws of the appropriate
jurisdiction covering the matters set forth in this Section 21.02. Each of the
General Partners shall have full and irrevocable power of attorney (with the
full right of substitution) to act on behalf of the Limited Partner or former
Limited Partner, and each General Partner shall have full and irrevocable power
of attorney (with the full right of substitution) to act on behalf of any other
General Partner, and the Limited Partner jointly shall have full and irrevocable
power of attorney (with the full right of substitution) to act on behalf of any
General Partner, to perform such acts as are necessary in order to perform or
complete the delivery of assets of the Partnership, in connection with the
transfer of any Partner's interest in the Partnership, in connection with the
admission of any Limited Partner to the Partnership or withdrawal of any Limited
Partner from the Partnership, or for any other reason.
(d) The General Partners shall require a power of attorney to be
executed by a transferee of a Partner as a condition of its admission as a
substitute Partner.
SECTION 21.03. WAIVER OF PARTITION. Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Partnership's property.
SECTION 21.04. ADDITIONAL DOCUMENTS. Each Partner hereby agrees to
execute all certificates, counterparts, amendments, instruments or documents
that may be required by the laws of the various jurisdictions in which the
Partnership conducts its activities, to conform with the laws of such
jurisdictions governing limited partnerships.
SECTION 21.05. BINDING ON SUCCESSORS. This Agreement shall be binding
upon and it shall inure to the benefit of the respective heirs, successors,
assigns and legal representatives of the parties hereto.
SECTION 21.06. COUNTERPARTS. This Agreement or any amendment hereto may
be signed in any number of counterparts, each of which shall be an original, but
all of which taken together shall constitute one agreement (or amendment, as the
case may be).
SECTION 21.07. VOTING. Any vote or other action required or permitted
to be taken by this Agreement may be taken by written consent signed by not less
than the requisite percentage in interest of parties required or permitted to
take such vote or other action.
SECTION 21.08. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Bermuda; provided, however, that the
nature and extent of the obligation of any member of the Advisory Committee to
Persons other than the
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Partnership and any one or more Partners in their capacities as such shall be
determined under the laws of the jurisdiction or jurisdictions imposing such
obligations.
SECTION 21.09. SECURITIES ACT MATTERS. Each Partner understands that in
addition to the restrictions on transfer contained in this Agreement, it must
bear the economic risks of its investment for an indefinite period because the
Partnership interests have not been registered under the Securities Act and,
therefore, may not be sold or otherwise transferred unless they are registered
under the Securities Act or an exemption from such registration is available.
Each Partner agrees with all other Partners that it will not sell or otherwise
transfer its interest in the Partnership unless such interest has been so
registered or in the opinion of counsel for the Partnership, or of other counsel
reasonably satisfactory to the Partnership, such an exemption is available.
SECTION 21.10. RIGHT TO RELY ON AUTHORITY OF GENERAL PARTNERS. No
Person that is not a Partner, in dealing with any General Partner, shall be
required to determine such General Partner's authority to make any commitment or
engage in any undertaking on behalf of the Partnership, or to determine any fact
or circumstance bearing upon the existence of the authority of such General
Partner, subject to any restrictions as provided herein.
SECTION 21.11. TAX MATTERS PARTNER. The "TAX MATTERS PARTNER," as
defined in Section 6231 of the Code, of the Partnership shall be the Domestic
General Partner (the "TAX MATTERS PARTNER"). The Tax Matters Partner shall not
resign as tax matters partner of the Partnership unless, on the effective date
of such resignation, the Partnership has designated another general partner as
Tax Matters Partner and that general partner has given its consent in writing to
its appointment as Tax Matters Partner. The Tax Matters Partner shall receive no
additional compensation from the Partnership for its services in that capacity,
but all expenses incurred by the Tax Matters Partner shall be borne by the
Partnership. The Tax Matters Partner is authorized to employ such accountants,
attorneys and agents as it, in its sole discretion, determines are necessary to
or useful in the performance of its duties. Any Person who serves as Tax Matters
Partner shall not be liable to the Partnership or to any Partner for any action
it takes or fails to take as Tax Matters Partner with respect to any
administrative or judicial proceeding involving "PARTNERSHIP ITEMS" (as defined
in Section 6231 of the Code) of the Partnership, unless such action or failure
to act constitutes a violation of a General Partner's duty of care set forth in
Section 3.10.
SECTION 21.12. TITLE TO PARTNERSHIP ASSETS. Without prejudice to the
economic interests in the Partnership of the Limited Partner, the General
Partners shall have the legal title to the assets acquired for or contributed to
the account of the Partnership. Such legal title shall be held by the General
Partners in proportion to their respective interests in the Partnership.
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SECTION 21.13. Contract ConstructionSECTION 21.13. Contract
Construction. Whenever the content of this Agreement permits, the masculine
gender shall include the feminine and neuter genders, and reference to singular
or plural shall be interchangeable with the other. The invalidity or
unenforceability of any one or more provisions of this Agreement shall not
affect the other provisions, and this Agreement shall be construed in all
respects as if any such invalid or unenforceable provision(s) were omitted.
References in this Agreement to particular sections of the Code or provisions of
Bermuda law shall be deemed to refer to such sections or provisions as they may
be amended after the date of this Agreement.
SECTION 21.14. SECTION HEADINGS. Captions in this Agreement are for
convenience only and do not define or limit any term of this Agreement.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY.]
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IN WITNESS WHEREOF, the undersigned have executed this Limited
Partnership Agreement of Fleming US Discovery Offshore Fund III, L.P. as of the
day, month and year first above written.
GENERAL PARTNERS:
FLEMING (BERMUDA) DISCOVERY III LIMITED
(the Offshore General Partner)
By: _____________________________
Title: __________________________
FLEMING US DISCOVERY PARTNERS, L.P.
(the Domestic General Partner)
By: Fleming US Discovery LLC
the General Partner
By:____________________________
Title:___________________________
LIMITED PARTNER:
DISCOVERY III LIMITED
By:____________________________
Title:___________________________
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APPENDIX A
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below (such meanings to be equally applicable to both
singular and plural forms of the terms so defined). Additional defined terms are
set forth in the Sections of this Agreement to which they relate.
"8% DISTRIBUTION PREFERENCE" shall mean, with respect to any Partner
and at any point in time, an amount which if distributed to such Partner at such
time would cause the aggregate amount of distributions made to such Partner and
such Partner's predecessors in interest by the Partnership (determined, with
respect to distributions in kind, pursuant to Section 9.03(c)) to equal but not
exceed the sum of (a) the balance in such Partner's Contributions Account as of
such point in time and (b) an amount equal to the sum of such Partner's (and any
such predecessor's) Aggregate 8% Preferential Return as of such point in time.
"8% PAYBACK PERIOD" shall mean any fiscal period during which the
Limited Partner (together with such Limited Partner's predecessors in interest,
if any) has received Partnership distributions (determined, with respect to
distributions in kind, pursuant to Section 9.03(c)) in aggregate amounts equal
to or in excess of the sum of (a) the balance in the Limited Partner's
Contributions Account and (b) an amount equal to the sum of the Limited
Partner's (and any such predecessor's) Aggregate 8% Preferential Return as of
the end of such fiscal period.
"8% PREFERENTIAL RETURN" shall mean, with respect to any Partner and
any calendar month, an amount (not less than zero) equal to such Partner's
Unreturned Capital Contribution as of the last day of the preceding calendar
month multiplied by .66666% (8% divided by 12 months). A Partner's 8%
Preferential Return for: (a) any fiscal period consisting of less than a full
calendar month shall be determined by proration on a daily basis, and (b) any
fiscal period that is an 8% Payback Period shall be zero.
"8% PREFERENTIAL RETURN ALLOCATION" shall mean, with respect to any
Partner and as of the end of any fiscal period: (a) such Partner's Aggregate 8%
Preferential Return determined as of the end of such fiscal period; reduced, but
not below zero, by (b) the excess (if any) of (1) the aggregate amount of Net
Gain previously allocated to such Partner and such Partner's predecessors in
interest (if any) over (2) the aggregate amount of Net Loss and Loss Items
previously allocated to such Partner and such predecessors, in each case since
the inception of the Partnership.
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"20% SUBORDINATE GAIN ALLOCATION" shall mean, as of the date for which
the 20% Subordinate Gain Allocation is being calculated, an amount (not less
than zero) equal to (a) 20% of the excess of (1) the aggregate amount of Net
Gain previously allocated to all Partners over (2) the aggregate amount of Net
Loss and Loss Items previously allocated to all Partners, in each case (A) since
the inception of the Partnership and (B) excluding (i) all Net Gain previously
allocated to the Domestic General Partner pursuant to Sections 10.02(c)(2) and
10.02(d) and (ii) all Net Loss and Loss Items previously allocated to the
Domestic General Partner pursuant to Sections 10.03(a) or 10.03(b)(1) to offset
such allocations of Net Gain, plus (b) the amount determined pursuant to the
preceding clause (a) multiplied by 25% (20/80). If two fiscal periods end on the
same date (for example, when the Partnership enters an 8% Payback Period), any
determination of the 20% Subordinate Gain Allocation shall take into account all
allocations of Net Gain, Net Loss and Loss Items occurring with respect to the
first such fiscal period.
"ADDITIONAL CAPITAL CONTRIBUTIONS" shall have the meaning set forth in
Section 8.01.
"ADVISORY COMMITTEE" shall have the meaning set forth in Section 6.01.
"AFFILIATE" means, with respect to the Person to which it refers, a
Person that directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, such subject Person.
"AGGREGATE 8% PREFERENTIAL RETURN" shall mean, with respect to any
Partner and fiscal period, the sum of such Partner's 8% Preferential Returns for
each calendar month (and partial month) from the Initial Closing through the end
of such fiscal period.
"CAPITAL ACCOUNT" shall have the meaning set forth in Section 9.02.
"CERTIFICATE" shall have the meaning set forth in Section 3.04.
"CODE" means the United States Internal Revenue Code of 1986 and
(unless the context requires otherwise) the rules and regulations promulgated
thereunder, as amended from time to time.
"COMMITMENT PERIOD" shall have the meaning set forth in Section
8.01(b).
"CONTRIBUTIONS ACCOUNT" shall have the meaning set forth in Section
9.01.
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"COST" shall mean, with respect to Partnership assets and unless the
context otherwise requires, the Partnership's adjusted tax basis in such assets
for federal income tax purposes, provided that, if the Partnership has made an
election under Section 754 of the Code, such tax basis shall be determined after
giving effect to adjustments made under Section 734 of the Code but (except as
provided in Treasury Regulation Section 1.734-2(b)(1)) without regard to
adjustments made under Section 743 of the Code.
"DEFAULT CHARGE" shall have the meaning set forth in Section 8.02.
"DEFAULTING PARTNER" shall have the meaning set forth in Section 8.02.
"DOMESTIC GENERAL PARTNER" means Fleming US Discovery Partners, L.P., a
limited partnership organized under the laws of the State of Delaware in the
United States.
"DOMESTIC PARTNERSHIP" means Fleming US Discovery Fund III, L.P., a
limited partnership organized under the laws of the State of Delaware in the
United States.
"FINAL CLOSING" shall have the meaning set forth in Section 7.01.
"FREELY TRADEABLE SECURITY" shall have the meaning set forth in Section
12.03.
"GENERAL PARTNERS" means the Offshore General Partner and the Domestic
General Partner.
"INDEMNITEE" shall have the meaning set forth in Section 18.01.
"INITIAL CLOSING" means the date on which the Limited Partner is first
admitted to the Partnership as a Limited Partner.
"LIMITED PARTNER" means Discovery III Limited, a Bermuda exempted
company limited by shares.
"LIQUIDATING DISTRIBUTION" means any distribution made pursuant to
Section 14.02.
"LOSS ITEMS" means, with respect to any fiscal period, items of gross
Partnership loss, deduction or expense for such period.
"MANAGEMENT AGREEMENT" shall have the meaning set forth in Section
3.05.
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"MANAGEMENT COMPANY" shall have the meaning set forth in Section 3.05.
"MANAGEMENT FEE" shall have the meaning set forth in Section 3.05.
"NET GAIN OR LOSS" means, with respect to any fiscal year, the sum of
the Partnership's (a) net gain or loss from the sale or exchange of the
Partnership's capital assets during such fiscal year, (b) gain or loss deemed to
have been realized by the Partnership, pursuant to Section 10.04, on a
distribution in kind of its assets during such fiscal year, and (c) other items
of income, gain, loss, deduction and expense for such fiscal year that are not
included in (a) or (b), including any income which is exempt from United States
federal income tax, all Partnership losses and all expenses properly chargeable
to the Partnership, whether deductible or non-deductible and whether described
in Section 705(a)(2)(B) of the Code, treated as so described pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), or otherwise. Net Gain or
Loss shall be determined in accordance with tax accounting principles rather
than generally accepted accounting principles.
"NON-UNITED STATES LIMITED PARTNER" means any Person that is not a
"United States person" as defined in Section 7701(a)(30) of the Code.
"OFFSHORE GENERAL PARTNER" means Fleming (Bermuda) Discovery III
Limited, a company incorporated under the laws of Bermuda.
"ORGANIZATIONAL EXPENSES" shall mean any fees, costs or expenses
incurred by the Partnership to the extent attributable to the organization of
the Partnership or the offer or sale of interests to the Limited Partner,
including the organization of the Limited Partner.
"PARTNERS" means the General Partners and the Limited Partner.
"PARTNERSHIP" means Fleming US Discovery Offshore Fund III, L.P.
"PERSON" means any individual, general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"PORTFOLIO COMPANY" means any entity in which the Partnership has made
an investment in furtherance of its primary objectives as set forth in Section
2.03 (other than a temporary investment of the Partnership's idle funds pending
the use of those funds in furtherance of those primary objectives) or a
successor in interest to such entity.
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"PORTFOLIO SECURITY" means any security of a Portfolio Company.
"PREFERENCE SHARES" means all of the issued and outstanding preference
shares of a par value of U.S. $0.01 of the Limited Partner.
"PRIME RATE" means, with respect to any fiscal period, the prime rate
for such fiscal period as reported in The Wall Street Journal.
"PUBLIC SECURITIES MARKET" means any United States national or regional
securities exchange, including but not limited to the New York Stock Exchange,
the American Stock Exchange, and regional United States exchanges, and any
recognized United States national or regional automated quotation system,
listing service or other form of securities exchange or trading forum, including
but not limited to the automated quotation system and listing services
maintained by the United States National Association of Securities Dealers,
Inc.; and the phrase "traded in a Public Securities Market" means publicly
traded on or through any such exchange, system, listing service or forum.
"REGULATORY ALLOCATIONS" shall have the meaning set forth in Section
10.06(e).
"RESTORATION AMOUNT" means (a) with respect to any Partner and at any
time, any amount of such Partner's Subscription that such Partner has not
contributed in cash to the Partnership as of such time and (b) solely with
respect to the Domestic General Partner and at any time, the aggregate amount of
distributions received by the Domestic General Partner, but only to the extent
that such aggregate amount exceeds the sum of (x) the aggregate amount of
distributions the Domestic General Partner would have received if all
distributions occurring on or prior to the date of determination had been made
to all Partners in proportion to the balances in their respective Contributions
Accounts and (y) the aggregate amount of Tax Distributions made to the Domestic
General Partner as of the date of determination (to the extent not taken into
account under the preceding clause (x)).
"SHAREHOLDERS" means any Person listed as a holder of the Limited
Partner's Preference Shares on the list furnished to the Offshore General
Partner in accordance with Section 19.11.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended from time to time.
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"SUBSCRIPTION" means, with respect to any Partner, the total amount
that such Partner has agreed to contribute to the Partnership as reflected, in
Schedule A opposite such Partner's name under the column headed "Total
Subscription."
"SUCCESSOR ENTITY" shall have the meaning set forth in Section 3.08(b).
"TAX DISTRIBUTION" means any distribution made by the Partnership
pursuant to Section 11.01; provided, however, that for purposes of determining
the aggregate amount of Tax Distributions made to any Partner with respect to
any fiscal period during the term of the Partnership, each Partnership
distribution made with respect to such fiscal period shall be treated as a Tax
Distribution to the extent such distribution, when added to all prior
distributions made to such Partner during such fiscal period, does not exceed
the amount determined pursuant to Section 11.01(a) for such fiscal period
(determined without regard to Section 11(b)).
"TAX MATTERS PARTNER" shall have the meaning set forth in Section
21.11.
"TRANSFER" means any transfer, sale, assignment, gift, pledge,
hypothecation or other disposition or encumbrance of an interest in the
Partnership.
"TREASURY REGULATIONS" mean the Procedure and Administration
Regulations promulgated by the United States Department of the Treasury under
the Code, as amended.
"UNRETURNED CAPITAL CONTRIBUTION" shall mean, with respect to any
Partner and as of any date: (a) the sum of (1) such Partner's aggregate paid-in
capital contributions as of such date plus (2) any part of a Default Charge
added to such Partner's Contributions Account as of such date; reduced (but not
below zero) by (b) the sum of (1) the aggregate amount of all distributions made
by the Partnership to such Partner as of such date (determined, with respect to
distributions in kind, pursuant to Section 9.03(c)) and (2) any Default Charge
subtracted from such Partner's Contributions Account as of such date.
For purposes of this definition: (w) any capital contribution actually
received by the Partnership from such Partner during any calendar month or
within five days thereafter shall be deemed to have been received on the last
day of such calendar month; (x) any distribution actually made to such Partner
during any calendar month shall be deemed to have been made or paid, as the case
may be, on the last day of such month; (y) any adjustment to such Partner's
Unreturned Capital Contribution attributable to a Default Charge shall be deemed
to have occurred as of the last day of the calendar month that includes the day
which is 45 days after the Offshore General Partner delivered the notice
described in Section 8.02(b) with respect to the Default Charge involved; and
(z) all contributions made to the Partnership by such Partner's
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predecessors in interest (if any), all distributions made by the Partnership to
any such predecessors, and all adjustments to the Contributions Accounts of any
such predecessors shall be taken into account as if such contributions had been
made by, such distributions had been made to, and such adjustments had been made
to the Contributions Account of, such Partner.
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EXHIBIT 4
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
ANICOM, INC.
Anicom, Inc. (the "COMPANY" or "ISSUER"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of Twenty-Seven Thousand (27,000) shares of Series A
Convertible Preferred Stock, of the Company, as follows:
RESOLVED, that the Company is authorized to issue 27,000
shares of Series A Convertible Preferred Stock, $.01 par value (the
"SERIES A PREFERRED SHARES"), which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends and Liquidation Preference.
(a) Generally. The holders of the Series A Preferred
Shares shall be entitled to receive on each share issued and
outstanding, out of assets legally available for such purpose,
cumulative preferential dividends which shall accrue and compound
annually, commencing to accrue on the date of issuance of such Series A
Preferred Share and receipt by the Company of all the full purchase
price due therefor (the "Issuance Date") at the rate of:
(i) 5% per annum during the first five
(5) years commencing on the Issuance Date; and
(ii) 15% per annum during the years
commencing on the fifth anniversary of the Issuance Date,
<PAGE>
of the Liquidation Preference (as defined below); such dividends shall
be cumulative, and accrue daily, whether or not earned, declared, or
legally available for payment, from and after the Issuance Date up to
and including the date the Series A Preferred Shares shall no longer be
outstanding. Accrued dividends shall be payable, quarterly, in arrears,
in cash or in shares of the Company's common stock, par value $.001 per
share (the "COMMON STOCK") at the Company's option, valued at the then
applicable Average Trading Price (as defined below) ending on the day
prior to the date of issuance of such shares; provided that such shares
have been registered under the Securities Act of 1933, as amended, and
listed for trading on the principal securities exchange or trading
market where the Company's Common Stock is then listed or traded (the
"DIVIDEND SHARES"). The liquidation preference of the Series A
Preferred Shares shall be $1,000.00 per share plus any accrued and
unpaid dividends (the "LIQUIDATION PREFERENCE").
(b) Special Dividend Adjustment. Notwithstanding
Section 1(a)(i) above, the dividend payable by the Company shall be
subject to adjustment pursuant to Section 8.3(a) of that certain Series
A Convertible Preferred Stock Purchase Agreement dated May 21, 1997 by
and among the Company and certain investors set forth therein.
(2) Voting Rights. On matters subject to voting by holders of
the Common Stock, holders of Series A Preferred Shares shall vote
together with the holders of Common Stock, on an as converted basis at
the then applicable Conversion Ratio (as defined below) (as if such
shares of Series A Preferred Shares had been fully converted
immediately prior to the date on which a date of record is taken for
such vote, or, if no record is taken, the date as of which the record
holders of the Common Stock entitled to vote are to be determined) as
one class. The Series A Preferred Shares will not be entitled to any
voting rights as a separate class other than with respect to any
proposed amendments to the terms and conditions of the Series A
Preferred Shares that would be adverse to the holders of the Series A
Preferred Shares.
(3) Redemption. At any time after the fifth (5th) anniversary
of the Issuance Date, Issuer, at its option, may redeem all, but not
less than all, of the then outstanding Series A Preferred Shares for an
amount (the "REDEMPTION PRICE") equal to the Liquidation Preference as
of the effective date of such redemption by giving notice (a
"REDEMPTION NOTICE") to each holder of Series A Preferred Shares and
the Company's transfer agent not less than thirty (30) days nor more
than sixty (60) days prior to the date on which such shares are to be
redeemed. Such Notice of Redemption at the Company's election shall
indicate (A) the date that such redemption is to become effective, (B)
the applicable Redemption Price, (C) where and how payment of the
Redemption Price will be made, and (D) the then current Conversion
Price. The Redemption Price may be paid, at Issuer's option, either in
cash or shares of Common Stock valued at ninety percent (90%) of the
Average Trading Price (defined below) as of the effective date of such
redemption; provided, that (i) such shares have been registered under
the Securities Act of 1933, as amended and listed for trading on the
principal securities exchange or trading market where the Company's
Common Stock is then listed or traded, and (ii) prior to
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<PAGE>
giving such a Redemption Notice, if Issuer elects to redeem with Common
Stock, Issuer will first obtain stockholder approval of the issuance to
the extent then required by the rules and regulations of the NASD or of
such other national exchange upon which Issuer's Common Stock is then
traded. Notice of redemption having been given as aforesaid, dividends
on the Series A Preferred Shares shall cease to accrue as of the
effective date of such redemption unless the Issuer defaults in the
payment of the Redemption Price.
(4) Conversion of Series A Preferred Shares. The Series A
Preferred Shares shall be convertible into shares of Common Stock on
the following terms and conditions:
(a) Conversion by Holder. Upon written notice to the
Company by the holder thereof, each Series A Preferred Share shall be
convertible at any time into a number of fully paid and nonassessable
shares (calculated to the nearest whole share) of Common Stock to be
determined by dividing the Liquidation Preference by the then current
Conversion Price (the "Conversion Ratio").
(b) Mandatory Conversion The outstanding Series A
Preferred Shares will be deemed to have been converted into shares of
Common Stock at the Conversion Ratio automatically without further
action required of the Issuer or holders thereof, upon the following
terms and conditions:
(i) If, at any time during the first
twelve (12) months following the
Issuance Date, the Average Trading
Price of the Common Stock is at
least 130% of the Conversion Price,
then 33-1/3% of the then outstanding
Series A Preferred Shares will
convert into Common Stock, such
conversion to be allocated among the
holders thereof, on a pro rata basis
based upon their respective
holdings.
(ii) If, at any time during the first
twenty-four (24) months following
the Issuance Date, the Average
Trading Price of the Common Stock is
equal to or exceeds the percentage
of the Conversion Price set forth
below, then the corresponding
percentage of the then outstanding
Series A Preferred Shares will
convert into Common Stock, such
conversion to be allocated among the
holders thereof, on a pro rata basis
based upon their respective
holdings:
<TABLE>
<S> <C>
Average Trading Price as a Percentage of Series A Preferred
Percentage of Conversion Price Shares to be Converted
- ---------------------------------------- ----------------------------------
160% 66 2/3%
190% 100%
</TABLE>
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<PAGE>
(iii) If, at any time after the second
anniversary of the Issuance Date,
the Average Trading Price of the
Common Stock is equal to or exceeds
the percentage of the Conversion
Price set forth below for each
corresponding year following the
Issuance Date, then 100% of the then
outstanding Series A Preferred
Shares will convert into Common
Stock:
<TABLE>
<S> <C>
Year Average Trading Price as a Percentage of
Conversion Price
---------------------- ------------------------------------------
3 140%
4 150%
5 175%
</TABLE>
Notwithstanding the foregoing, no mandatory conversion shall occur
unless and until the shares of Common Stock to be issued have been registered
under the Securities Act of 1933, as amended, and listed for trading on the
principal securities exchange or trading market where the Company's Common Stock
is then listed or traded. Immediately upon the occurrence of a mandatory
conversion, the Company will notify all holders of Series A Preferred Shares of
the mandatory conversion.
(c) Certain Definitions.
(i) "CONVERSION PRICE" means eight dollars
and sixty-two and one-half cents ($8.625); provided that, if the
Average Trading Price as of the second anniversary of the Issuance Date
is less than eight dollars and sixty-two and one-half cents ($8.625),
then the Conversion Price shall thereafter be adjusted downward but
never upward to equal the greater of the Average Trading Price or six
dollars ($6.00), subject to the terms and conditions of Section 4(d).
(ii) "AVERAGE TRADING PRICE" means, as of a
given date, an amount equal to the arithmetic average of the last
closing sale price of the Common Stock on the Nasdaq National Market
(the "NASDAQ-NM") for the ten (10) day period ending one day prior to
the date of determination as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Nasdaq-NM is not the principal trading market
for such security, the last closing sale price of such security on the
principal securities exchange or trading market where such security is
listed or traded for the ten (10) day period ending one day prior to
the date of determination as reported by Bloomberg, or if the foregoing
do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such
security for the ten (10) day period ending one day prior to the date
of determination as reported by Bloomberg, or, if no closing bid price
is reported for such security by Bloomberg, the last closing trade
price of such security as
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<PAGE>
reported by Bloomberg or, if no last closing trade price is reported
for such security by Bloomberg, the average of the bid prices for the
ten (10) day period ending one day prior to the date of determination
of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.
(d) Adjustment to Conversion Price. In order to
prevent dilution of the conversion rights granted to holders of Series
A Preferred Shares hereunder, the Conversion Price will be subject to
adjustment from time to time pursuant to this Section 4(d).
(i) Adjustment for Dilutive Events. If and
whenever on or after the original date of issuance of the Series A
Preferred Shares the Company issues or sells, or in accordance with
Section 4(d)(ii) below is deemed to have issued or sold, in one
transaction or a series of related transactions, any shares of Common
Stock for consideration per share less than the Conversion Price in
effect immediately prior to the time of such issue or sale (a "Dilutive
Event"), then forthwith upon the occurrence of any such Dilutive Event
the Conversion Price will be reduced so that the Conversion Price in
effect immediately following the Dilutive Event will equal the quotient
derived by dividing (i) the sum of (x) the product derived by
multiplying the Conversion Price in effect immediately prior to such
Dilutive Event times 27,000,000, plus (y) the product of (A) the Price
Per Share in the Dilutive Event, times (B) three times the
consideration received by the Company in such Dilutive Event, by (ii)
the sum of (x) 27,000,000, plus (y) three times the consideration
received by the Company in the Dilutive Event; provided that the
Conversion Price will not be reduced pursuant to this sentence if the
foregoing calculation results in a Conversion Price in excess of $8.15
(the "Threshold Price"). Notwithstanding the foregoing, the issuance by
the Company of any equity securities to management, directors or
employees of the Company pursuant to plans and options to purchase
equity securities issued in accordance with such plans approved by the
Board and in effect as of the date of the first issuance of the Series
A Preferred Shares shall not constitute a Dilutive Event.
(ii) Common Stock Deemed Outstanding. For
purposes of determining the adjusted Conversion Price pursuant to
Section 4(d)(i) above the following events shall be deemed to be an
issuance and sale of Common Stock by the Company:
(A) Issuance of Rights or Options.
If (i) the Company in any manner grants any rights or options to
subscribe for or to purchase shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (such
rights or options referred to herein as "OPTIONS" and such convertible
or exchangeable stock or securities referred to herein as "CONVERTIBLE
SECURITIES") and (ii) the Price Per Share of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Conversion
Price in effect immediately prior to the time of the granting of such
Options, then (x) the total
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<PAGE>
maximum amount of such Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum number of
Convertible Securities issuable upon the exercise of such Options will
be deemed to be Common Stock issued and sold by the Company, and (y)
the consideration received pursuant to the Dilutive Event will equal
the Price Per Share times the number of shares of Common Stock so
deemed issued and sold by the Company. For purposes of this Section
4(d)(ii)(A), the "Price Per Share" will be determined by dividing (i)
the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company
upon exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the
exercise of such Options. No further adjustment of the Conversion Price
will be made when Convertible Securities are actually issued upon the
exercise of such Options or when Common Stock is actually issued upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible
Securities. If (i) the Company in any manner issues or sells any
Convertible Securities and (ii) the Price Per Share of shares of Common
Stock issuable upon such conversion or exchange is less than the
Conversion Price in effect immediately prior to the time of such issue
or sale, then (x) the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities will be
deemed to be Common Stock issued and sold by the Company, and (y) the
consideration received pursuant to the Dilutive Event will equal the
Price Per Share times the number of shares of Common Stock so deemed
issued and sold by the Company. For the purposes of this Section
4(d)(ii)(B), the "Price Per Share" will be determined by dividing (i)
the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment
of the Conversion Price will be made when Common Stock is actually
issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments to the Conversion
Price had been or are to be made pursuant to Section 4(d)(ii)(A) above,
no further adjustment of the Conversion Price will be made by reason of
such issue or sale.
(C) Change in Option Price or
Conversion Rate. If at any time there is a change in (i) the purchase
price provided for in any Options, (ii) the additional consideration,
if any, payable upon the conversion or exchange of any
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<PAGE>
Convertible Securities, or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock, then
the Conversion Price in effect at the time of such change will be
readjusted to the Conversion Price which would have been in effect had
those Options or Convertible Securities still outstanding at the time
of such change provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the
time such Options or Convertible Securities were initially granted,
issued or sold.
(D) Calculation of Consideration
Received. If any shares of Common Stock, Option or Convertible Security
are issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor or the Price Per Share, as the case may
be, will be deemed to be the net amount received or to be received,
respectively, by the Company therefor. In case any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company or the non-cash portion of the Price
Per Share, as the case may be, will be the fair value of such
consideration received or to be received, respectively, by the Company;
except where such consideration consists of securities, in which case
the amount of consideration received or to be received, respectively,
by the Company will be the Average Trading Price thereof as of the date
of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued in connection with any merger in which the
Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as is attributable
to such shares of Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash
and securities will be determined jointly by the Company and the
holders of a majority of the outstanding Series A Preferred Shares. If
such parties are unable to reach agreement within a reasonable period
of time, the fair value of such consideration will be determined by an
independent appraiser jointly selected by the Company and the holders
of a majority of the outstanding Series A Preferred Shares.
(E) Integrated Transactions. In
case any Option is issued in connection with the issuance or sale of
other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Option by the parties thereto, the Option will be deemed to have been
issued for a consideration of $.01.
(F) Record Date. If the Company
takes a record of the holders of Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in shares of Common Stock, Options or in Convertible Securities or (ii)
to subscribe for or purchase shares of Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the
date of the issuance or sale of the shares of Common Stock deemed to
have been issued or sold upon the
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<PAGE>
declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(iii) Adjustment of Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Conversion Price, the
Threshold Price and the amounts set forth in Section 4(c)(i) in effect
immediately prior to such subdivision will be proportionately reduced,
and if the Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price, the
Threshold Price and the amounts set forth in Section 4(c)(i) in effect
immediately prior to such combination will be proportionately
increased.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "ORGANIC CHANGE."
Prior to the consummation of any Organic Change, the Company will make
appropriate provision to ensure that (I) each of the holders of the
Series A Preferred Shares will thereafter have the right to acquire and
receive in lieu of or addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred Shares had such Organic Change not taken
place and (II) each of the holders of Series A Preferred Shares will
continue to have the same rights and preferences, in any surviving
entity, as those which apply to the Series A Preferred Shares pursuant
to this Certificate. In any such case, the Company will make
appropriate provision with respect to such holders' rights and
interests to ensure that the provisions of this Section 4(d) will
thereafter be applicable to the Series A Preferred Shares. The Company
will not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument, the obligation
to deliver to each holder of Series A Preferred Shares such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. "Person" shall mean
an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v) Notices.
-8-
<PAGE>
(A) Immediately upon any adjustment
of the Conversion Price, the Company will give written notice thereof
to each holder of Series A Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(B) The Company will give written
notice to each holder of Series A Preferred Shares at least twenty (20)
days prior to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer to holders
of Common Stock or (III) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation; provided that in no
event shall such notice be provided to such holder prior to such
information being made known to the public.
(C) The Company will also give
written notice to each holder of Series A Preferred Shares at least
twenty (20) days prior to the date on which any Organic Change,
dissolution or liquidation will take place.
(D) The Company shall give written
notice to the holders of the Series A Preferred Shares promptly after
the occurrence of the automatic conversion of the Series A Preferred
Shares into Common Stock as set forth in Section 4(b) hereof.
(e) Mechanics of Conversion. Subject to and in
compliance with all federal and state securities laws, the conversion
of Series A Preferred Shares pursuant to this Section 4 will be deemed
to have been effected (and the holder thereof will be deemed to be the
registered holder of the Conversion Shares), automatically if
conversion is pursuant to Section 4(b), or, if converted at the option
of the holder of Series A Preferred Shares pursuant to Section 4(a), by
and on the date of surrender of certificates representing the Series A
Preferred Shares being converted to the Company at its principal place
of business, together with the Notice of Conversion attached hereto as
Exhibit I. As soon as practicable, but in no event later than five (5)
business days after such conversion, the Company shall cause the
transfer agent to deliver to the registered holder thereof (a) a
certificate representing the shares of Common Stock to which the holder
is entitled as a result of such conversion, and (b) a new certificate
for Series A Preferred Shares for the unconverted shares of Series A
Preferred Shares, if any, represented by the surrendered certificate.
The Company shall at all times reserve for issuance a sufficient number
of shares of Common Stock to be issued as Conversion Shares, and upon
issuance thereof, the Conversion Shares shall be fully paid and
nonassessable.
(f) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Series
A Preferred Shares shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion
Date.
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<PAGE>
(5) Change of Control. If at any time there is a Change of
Control (as defined below) of the Company, the Company shall,
immediately following the occurrence of any such event, send a notice
to each holder offering to repurchase the Series A Preferred Shares (or
at each holder's option, any portion thereof) for an amount equal to
the Liquidation Preference on the date of such repurchase. If any
holder desires to accept such offer in whole or in part, such holder
must advise the Company of such acceptance within thirty (30) days of
the date of receiving such notice. The Company shall then repurchase
the Series A Preferred Shares or portion thereof so tendered for
repurchase by such holder by paying the purchase price to the holder
(or any person or persons designated by such holder in such acceptance
notice), in immediately available funds, within ten (10) business days
of the Company's receipt of such holder's acceptance notice. If a
holder tenders only a portion of such holder's Series A Preferred
Shares, the holder shall deliver such certificate of Series A Preferred
Shares to the Company and the Company then shall issue to the holder a
new certificate of Series A Preferred Shares, representing the portion
of the Series A Preferred Shares not repurchased by the Company. For
purposes of this Section, "Change of Control" means any event or series
of events by which (i) any person or group (as defined in Rule 13d-1 of
the Exchange Act) obtains a majority (by voting or otherwise) of the
securities of the Company ordinarily having the right to vote in the
election of directors; (ii) during any two year period commencing at
any time on or after the Closing Date, individuals who at the beginning
of such period constituting the Board of Directors cease for any reason
to constitute a majority of the Board of Directors; (iii) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the
Company; (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation into the
Company with the effect that immediately after such transaction any
beneficial owner shall have become the beneficial owner of securities
of the surviving corporation of such merger or consolidation
representing a majority of the combined voting power of the outstanding
securities of the surviving corporation ordinarily having the right to
vote in the election of directors; or (v) the adoption of a plan
leading to the liquidation or dissolution of the Company.
Notwithstanding the foregoing, the Company shall not be obligated to
repurchase the Series A Preferred Shares pursuant to the terms of this
Section 5 if such repurchase in the opinion of the Company's then
current auditors, would jeopardize the "pooling" accounting treatment
of the transaction giving rise to such Change of Control.
(6) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares as herein
provided. The Company shall not be required in any event to pay any
transfer or other taxes by reason of the issuance of such Common Stock
in names other than those in which the Series A Preferred Shares
surrendered for conversion are registered on the Company's records, and
no such conversion or issuance of Common Stock shall be made unless and
until the person requesting such issuance has
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<PAGE>
paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company and its transfer agent, if any, that
such tax has been paid.
(7) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series A Preferred Shares shall be entitled
to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders
(the "PREFERRED FUNDS"), before any amount shall be paid to the holders
of any of the capital stock of the Company of any class junior in rank
to the Series A Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and
winding up of the Company, an amount per Series A Preferred Share equal
to the Liquidation Preference; provided that, if the Preferred Funds
are insufficient to pay the full amount due to the holders of Series A
Preferred Shares, then each holder of Series A Preferred Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a percentage of the full
amount of Preferred Funds payable to all holders of Series A Preferred
Shares. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or
into any other Person, nor the sale or transfer by the Company of less
than substantially all of its assets, shall, for the purposes hereof,
be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Series A Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts
provided for herein.
(8) Repurchases of Series A Preferred Stock by the Issuer.
Neither the Issuer nor any of its subsidiaries shall repurchase any
outstanding shares of Series A Preferred Stock unless the Issuer on the
same terms either (i) offers to purchase all of the then outstanding
shares of Series A Preferred Stock or (ii) offers to purchase shares of
Series A Preferred Stock from the holders in proportion to the
respective number of shares of Series A Preferred Stock held by each
holder. In any such repurchase by the Issuer or any of its
subsidiaries, if all shares of Series A Preferred Stock are not being
repurchased, then the number of shares of Series A Preferred Stock to
be repurchased shall be allocated among all shares of Series A
Preferred Stock held by holders which accept the Issuer's repurchase
offer so that the shares of Series A Preferred Stock are repurchased
from such holders in proportion to the respective number of shares of
Series A Preferred Stock held by each such holder which accepts the
Issuer's offer (or in such other proportion as agreed by all such
holders who accept the Issuer's offer).
(9) Shares to be Retired. Any share of Series A Preferred
Stock converted, redeemed, repurchased or otherwise acquired by the
Corporation shall be retired and canceled and may not be reissued.
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<PAGE>
(10) No Fractional Shares. In connection with any conversion,
liquidation, redemption, or otherwise, the Company shall only issue
Common Stock in denominations equal to the nearest, lower whole number;
fractional shares due holders will be allocated their cash value and
paid by the Company to the holder by check.
(11) Preferred Rank. All shares of Common Stock and all
additional shares of preferred stock of the Company shall be of junior
rank to all Series A Preferred Shares in respect to the preferences as
to dividends and distributions and payments upon the liquidation,
dissolution and winding up of the Company and the rights of the shares
of Common Stock and of any shares of preferred stock, other than the
Series A Preferred Stock shall be subject to the preferences and
relative rights of the Series A Preferred Shares.
(12) Vote to Change the Terms of Series A Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the holders of not less than
two-thirds (2/3) of the then outstanding Series A Preferred Shares
(excluding any Series A Preferred Shares held by the Company or
affiliates of the Company) shall be required for the Company to amend,
alter, change or repeal any of the powers, designations, preferences
and rights of the Series A Preferred Shares.
(13) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any preferred stock certificates representing the
Series A Preferred Shares, and (in the case of loss, theft or
destruction) of any indemnification undertaking by the holder to the
Company that is reasonably satisfactory to the Company, and upon
surrender and cancellation of the preferred stock certificate(s), if
mutilated, the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date. However, the Company shall not
be obligated to re-issue such lost or stolen preferred stock
certificates if holder contemporaneously requests the Company to
convert such Series A Preferred Shares into Common Stock.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by __________________________________, its ___________________________ as
of the _____ day of May 1997.
ANICOM, INC.
By: ____________________________
Title: _________________________
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<PAGE>
EXHIBIT I
ANICOM, INC.
NOTICE OF CONVERSION
Reference is made to the Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock, Series A, of Anicom, Inc. (the "DESIGNATION"). In
accordance with and pursuant to the Designation, the undersigned hereby elects
to convert the number of shares of Convertible Preferred Stock, Series A, par
value $.001 (the "SERIES A PREFERRED"), of Anicom, Inc., a Delaware corporation
(the "COMPANY"), indicated below into shares of Common Stock, par value $.001
(the "COMMON STOCK"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series A Preferred specified below as of the date
specified below:
Date of Conversion _______________________________________
Number of shares of Series A
Preferred to be converted: ______________________________________
Stock certificates no(s). of Series A
Preferred to be converted: ______________________________________
Please confirm the following information:
Conversion Price: ______________________________________
Number of shares of Common Stock
to be issued:
Please issue the Common Stock into which the Series A Preferred shares are being
converted in the following name and to the following address:
Issue to: ________________________________________
________________________________________
________________________________________
________________________________________
Phone No. of converting
holder: ________________________________________
Duly executed: By _____________________________________
Name & Title: ________________________________________
Dated: ________________________________________
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EXHIBIT 5
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is entered into as of
this ____ day of May, 1997, among Anicom, Inc., a Delaware corporation (the
"Company"), Scott C. Anixter ("Anixter") and each of the persons listed on the
signature page hereto under the caption "Purchasers" (collectively, the
"Purchasers").
RECITALS
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The Company and the Purchasers have entered into that certain Stock
Purchase Agreement (as amended from time to time, the "Stock Purchase
Agreement"), dated May ___, 1997, pursuant to which the Company has agreed to
sell, and the Purchasers have agreed to purchase, in the aggregate, 27,000
shares (the "Covered Shares") of Series A Convertible Preferred Stock, par value
of $.01 per share (the "Preferred Stock"), which shall be convertible into a
number of shares of Anicom's common stock, par value of $.001 per share (the
"Common Stock") (as converted, the "Conversion Shares"), in accordance with the
terms of the Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of Anicom, Inc. (the "Certificate of Designations")
and except as otherwise provided hereunder. The purchase price for the Preferred
Stock is $1,000.00 per share.
As a condition to the obligations set forth in the Stock Purchase
Agreement, each of the parties hereto has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company, Anixter and the
Purchasers agree as follows:
Tag-Along Rights.
-----------------
0.1 Right to Sell Proportionate Number of Shares of Common
Stock. Anixter agrees that, if he shall receive and determine to accept any bona
fide written offer (a "Notice of Offer") from a Buyer to purchase or otherwise
acquire for value, in one transaction or a series of related transactions,
shares of Common Stock (the "Offer Shares") beneficially owned by him and
representing 20% or more of all of the then issued and outstanding Common Stock
of the Company beneficially owned by Anixter, each of the Purchasers shall have
the right to participate in such transaction in the manner set forth in this
Agreement. The term "Buyer", as used herein, means a person or entity, other
than Anixter or any other person or entity directly or indirectly controlling,
controlled by or under direct or indirect common control with Anixter, that has
offered to purchase or otherwise acquire for value shares of Common Stock of the
Company (other than in connection with a registered public offering).
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0.2 Notifications. Anixter shall, promptly after his receipt
of a Notice of Offer (and in any event not later than 10 days after such
receipt), send a copy thereof to the Company and to each of the Purchasers. The
delivery of such Notice of Offer shall be effected not less than 60 days prior
to the closing of such proposed sale or other acquisition. Upon receipt of a
Notice of Offer, each Purchaser shall have 30 days to deliver a written notice
of its election to participate in such sale or other acquisition and of the
number of its Covered Shares to be included in such sale or other acquisition,
which Covered Shares shall be converted into Conversion Shares, subject to and
effective upon the closing of such sale or other acquisition; provided, however,
that such number of Conversion Shares to be included shall not exceed the number
determined in Section 1.3 below. If such written notice of election is not
received from a Purchaser within the 30-day period specified above, Anixter
shall have the right to sell or otherwise transfer the aforesaid Common Stock to
the Buyer without any participation by such Purchaser, but only (a) on the terms
and conditions stated in the Notice of Offer and (b) if the sale or other
transfer is consummated not later than 60 days after the end of the aforesaid
60-day period.
0.3 Selling a Proportionate Number of Shares of Common Stock.
Each Purchaser shall have the right to sell or transfer, pursuant to the Notice
of Offer, Conversion Shares representing the same percentage of the Conversion
Shares into which all Covered Shares owned by such Purchaser are then
convertible as the Offer Shares are of all shares of Common Stock then
beneficially owned by Anixter. In the event the number of Conversion Shares for
which Purchasers elect to exercise such right, along with the Offer Shares and
any other shares of the Company to be sold or transferred by other shareholders
of the Company pursuant to any similar rights granted to such other shareholders
prior to the date hereof, exceed the number of shares which the Buyer is willing
to purchase, the number of shares to be sold or transferred to the Buyer by each
transferor shall be reduced so that each transferor is entitled to sell or
transfer the same percentage of its shares as each other transferor.
0.4 Purchase Price of Covered Shares. The purchase price for
each Conversion Share ("Purchase Price") of the Purchasers under this Agreement
and the terms of the purchase or other acquisition thereof shall be the same as
are applicable to the purchase or other acquisition of each share of Common
Stock of Anixter and shall be as set forth in such Notice of Offer; provided,
however, that the Purchasers shall not be required to provide any
representation, warranty or other undertaking other than with respect to their
ownership of, and authority to sell or transfer, such Conversion Shares free of
any liens or encumbrances.
0.5 Closing of Sale. Each Purchaser in respect of a Notice of
Offer shall deliver to the Buyer in respect of such Notice of Offer, against
payment of the total purchase price for the Covered Shares to be purchased (at
the price per share specified above in Section 1.4), on the closing date
specified in such Notice of Offer, a certificate or certificates representing
the number of such Covered Shares which it has elected to sell pursuant to this
Agreement, together with appropriate instruments of transfer duly endorsed in
blank.
1. Entire Agreement. his Agreement and the other documents referenced
herein contain the entire agreement between the parties with respect to the
subject matter hereof and
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supersede any and all prior arrangements and understandings, both written and
oral, with respect thereto.
2. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibits or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
3. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
4. Governing Law. This Agreement shall be construed in accordance with
and governed by the law of the State of Delaware, without giving effect to the
principles of conflict of laws thereof.
5. Counterparts; Effectiveness. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereof and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
6. Notice. Whenever a party to this Agreement is required to give
notice to any other party hereunder, such notice shall be given at the address
set forth next to such party's name on the signature page of this Agreement or
at such other address as the parties designate to each by giving notice
hereunder, and such notice shall be made in writing and deemed to have been duly
delivered when (a) delivered by hand (b) one day after upon confirmation of
delivery by a nationally recognized overnight delivery service or (c) three days
after sent by Certified U.S. Mail, return receipt requested. A copy of any such
notices delivered to Anixter or the Company shall also be delivered to:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Attention: Jeffrey R. Patt, Esq.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ANICOM, INC. PURCHASERS:
By: CAHILL, WARNOCK STRATEGIC
Scott C. Anixter, Chairman PARTNERS FUND, L.P.
and Chief Executive Officer By: CAHILL, WARNOCK STRATEGIC
PARTNERS, L.P., its
general partner
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Scott C. Anixter By: /s/ David L. Warnock
David L. Warnock, a
general partner
Address: One South Street
Suite 2150
Baltimore, MD 21202
Attn: David Warnock
Hyonmyong Cho (Hoch)
With a copy to: Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: George P. Stamas
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY,
L.L.C., a managing member
By: /s/ David L. Warnock
David L. Warnock, a
managing member
Address: One South Street
Suite 2150
Baltimore, MD 21202
Attn: David Warnock
Hyonmyong Cho (Hoch)
With a copy to: Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
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Attn: George P. Stamas
FLEMING US DISCOVERY FUND III, L.P.
By: FLEMING US DISCOVERY
PARTNERS, L.P., its
general partner
By: FLEMING US DISCOVERY,
LLC, its general partner
By: /s/ Robert L. Burr
Robert L. Burr,
member
Address: 320 Park Avenue
New York, NY 10022
Attn: Robert L. Burr
Chris Jones
David Edwards
With a copy to: Morgan, Lewis,
Bockius, LLP
101 Park Avenue
New York, NY 10178
Attn: David Pollack
FLEMING US DISCOVERY OFFSHORE
FUND III, L.P.
By: FLEMING US DISCOVERY
PARTNERS, L.P., its
general partner
By: FLEMING US DISCOVERY,
LLC, its general partner
By: /s/ Robert L. Burr
Robert L. Burr,
member
Address: 320 Park Avenue
New York, NY 10022
Attn: Robert L. Burr
Chris Jones
David Edwards
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<PAGE>
With a copy to: Morgan, Lewis,
Bockius, LLP
101 Park Avenue
New York, NY 10178
Attn: David Pollack
/s/ Peter H. Huizenga
Peter H. Huizenga
/s/ Heidi A. Huizenga
Heidi A. Huizenga
PETER H. HUIZENGA TESTAMENTARY TRUST
By: _______________________________
Its: ___________________________
BETSY HUIZENGA TRUST
By: _______________________________
Its: ___________________________
GRETA HUIZENGA TRUST
By: _______________________________
Its: __________________________
PETER HUIZENGA JR. TRUST
By: ______________________________
Its: _________________________
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<PAGE>
TIMOTHY DEAN HUIZENGA TRUST
By: ______________________________
Its: _________________________
In each case, c/o Huizenga Capital Management
Address: 2215 York Road
Suite 500
Oak Brook, IL 60521
Attn: Mike Wik
With a copy to: Hlustik, Williams &
Vander Woude
20 N. Wacker Drive
Suite 2800
Chicago, IL 60606
Attn: Paul Vander Woude
SUMMER HILL PARTNERS, L.P.
By: Summer Hill, Inc., its general partner
By: /s/ Richard L. Roeding
Richard L. Roeding, President
SUMMER HILL R.T. ENTERPRISES LIMITED PARTNERSHIP
By: Summer Hill, Inc., its general partner
By: /s/ Richard L. Roeding
Richard L. Roeding, President
GARFAM INVESTORS LLC
By: /s/ Thomas Mueller
Thomas Mueller, Treasurer
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S. JAMES PERLOW
By:
Name:
Title:
Address: 2900 S. 25th Ave.
Broadview, IL 60153
With a copy to: ____________________
____________________
____________________
EARL PERLOW
By:
Name:
Title:
Address: 2900 S. 25th Ave.
Broadview, IL 60153
With a copy to: ____________________
____________________
____________________
MARK PERLOW
By:
Name:
Title:
Address: 2900 S. 25th Ave.
Broadview, IL 60153
With a copy to: ____________________
____________________
____________________
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<PAGE>
KA TRADING
By: /s/ Irv Kessler
Irv Kessler
Title:
Address: 1712 Hopkins Crossroads
Minneapolis, MN 55305
Attn: Andrew Redleaf
Richard Field
KA MANAGEMENT
By: /s/ Irv Kessler
Irv Kessler
Title:
Address: 1712 Hopkins Crossroads
Minneapolis, MN 55305
Attn: Andrew Redleaf
Richard Field
With a copy to: ____________________
____________________
____________________
CEW PARTNERS
By:
Name:
Title:
Address: 45 Rockerfeller Plaza
New York, NY 10020
Attn: Geoffrey Colvin
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With a copy to: ____________________
____________________
____________________
TRUST INVESTMENTS, INC.
By:
Name:
Title:
Address: 52 Stiles Road
Salem, NH 03079
Attn: M. Terence Conklin
With a copy to: ____________________
____________________
____________________
THE LINCOLN FUND, L.P.
By: MATLINS FINANCIAL
CONSULTING, INC., its
general partner
By: /s/ Neal Matlins
Neal Matlins, President
Address: 4 West Old State Capitol Plaza
Suite 810
Springfield, IL 62701
THE LINCOLN FUND TAX
ADVANTAGE, L.P.
By: MATLINS FINANCIAL
CONSULTING, INC., its
general partner
By: /s/ Neal Matlins
Neal Matlins, President
Address: 4 West Old State Capitol Plaza
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Suite 810
Springfield, IL 62701
THE GORDON FUND, L.P.
By: LIGHTHOUSE CAPITAL
MANAGEMENT, L.L.C.
By: /s/ Neal Matlins
Neal Matlins, President
4 West Old State Capitol Plaza
Suite 810
Springfield, IL 62701
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EXHIBIT 6
LIMITED PARTNERSHIP AGREEMENT
OF
FLEMING US DISCOVERY FUND III, L.P.
(A Delaware Limited Partnership)
Dated as of September 27, 1996
<PAGE>
THE LIMITED PARTNERSHIP INTERESTS REPRESENTED BY THIS LIMITED PARTNERSHIP
AGREEMENT ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM AND WITH THE APPROVAL OF THE GENERAL PARTNER. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
FLEMING US DISCOVERY FUND III, L.P.
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.............................................. 1
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ARTICLE II
ORGANIZATION
SECTION 2.01 Formation of Limited Partnership............................ 1
SECTION 2.02 Firm Name; Registered and Principal Office.................. 1
SECTION 2.03 Objectives.................................................. 1
SECTION 2.04 Powers...................................................... 2
ARTICLE III
GENERAL PARTNER
SECTION 3.01 Name, Address and Subscription.............................. 2
SECTION 3.02 Management and Control of the Partnership................... 2
SECTION 3.03 Powers...................................................... 2
SECTION 3.04 Certificate of Limited Partnership.......................... 3
SECTION 3.05 Management Agreement........................................ 3
SECTION 3.06 Salaries.................................................... 4
SECTION 3.07 Co-Investment with Offshore Partnership..................... 4
SECTION 3.08 Other Activities............................................ 5
SECTION 3.09 Avoidance of Conflicts of Interest.......................... 6
SECTION 3.10 Duty of Care................................................ 6
SECTION 3.11 Investment Limitations...................................... 7
SECTION 3.12 Unrelated Business Taxable Income........................... 7
SECTION 3.13 ERISA Matters............................................... 8
SECTION 3.14 Borrowing and Guarantees.................................... 8
ARTICLE IV
LIMITED PARTNERS
SECTION 4.01 Names, Addresses and Subscriptions.......................... 9
SECTION 4.02 Limited Liability........................................... 9
SECTION 4.03 No Control of Partnership; Other Limitations................ 9
SECTION 4.04 Death, Dissolution or Bankruptcy............................ 9
ARTICLE V
EXPENSES; MANAGEMENT FEE
SECTION 5.01 Organizational Expenses..................................... 9
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SECTION 5.02 Management Fee..............................................10
SECTION 5.03 Operating Expenses..........................................10
ARTICLE VI
ADVISORY COMMITTEE
SECTION 6.01 Appointment and Vacancies...................................10
SECTION 6.02 Meetings....................................................10
SECTION 6.03 Duties......................................................11
SECTION 6.04 Voting; Rules and Procedures................................11
SECTION 6.05 Duty of Care................................................11
ARTICLE VII
ADDITIONAL LIMITED PARTNERS
SECTION 7.01 Additional Subscriptions Within 180 Days
After Initial Closing....................................11
SECTION 7.02 Accession to Agreement......................................12
ARTICLE VIII
CAPITAL OF THE PARTNERSHIP
SECTION 8.01 Capital Contributions.......................................12
SECTION 8.02 Failure to Make Additional Capital Contributions ...........13
SECTION 8.03 No Interest or Withdrawals..................................14
SECTION 8.04 Minimum Capital Contribution of the General Partner ........15
SECTION 8.05 Contributions and Payments on Admission of Additional
Limited Partners........................................15
ARTICLE IX
ACCOUNTS
SECTION 9.01 Contributions Accounts......................................17
SECTION 9.02 Capital Accounts............................................17
SECTION 9.03 Accounting for Distributions in Kind........................17
SECTION 9.04 Compliance With Treasury Regulations........................18
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ARTICLE X
ALLOCATIONS
SECTION 10.01 General....................................................18
SECTION 10.02 Net Gain...................................................18
SECTION 10.03 Net Loss...................................................19
SECTION 10.04 Distributions in Kind......................................20
SECTION 10.05 Operational Rules..........................................20
SECTION 10.06 Regulatory Allocations.....................................21
SECTION 10.07 Adjustments to Reflect Changes in Interests................23
SECTION 10.08 Tax Allocation.............................................23
SECTION 10.09 Timing of Allocations......................................23
ARTICLE XI
DISTRIBUTIONS
SECTION 11.01 Tax Distributions..........................................24
SECTION 11.02 Timing of Distributions....................................25
SECTION 11.03 Priority of Distributions..................................25
SECTION 11.04 Operational Rules..........................................26
SECTION 11.05 Tax Withholding............................................27
SECTION 11.06 Distributions on Admission of Additional Partners .........27
SECTION 11.07 Certain Distributions Prohibited...........................27
SECTION 11.08 Consent to Distributions...................................28
ARTICLE XII
VALUATION OF PARTNERSHIP ASSETS
SECTION 12.01 Valuation by General Partner...............................28
SECTION 12.02 Fair Market Value..........................................28
SECTION 12.03 Freely Tradeable Securities................................29
SECTION 12.04 Goodwill...................................................29
ARTICLE XIII
DURATION OF THE PARTNERSHIP
SECTION 13.01 Term of Partnership........................................29
SECTION 13.02 Dissolution Upon Withdrawal of General Partner ............29
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SECTION 13.03 Dissolution by Partners....................................29
SECTION 13.04 Extension of Term..........................................30
ARTICLE XIV
LIQUIDATION OF PARTNERSHIP INTERESTS
SECTION 14.01 General Provisions.........................................30
SECTION 14.02 Liquidating Distributions..................................30
SECTION 14.03 Expenses of Liquidator(s)..................................30
SECTION 14.04 Duration of Liquidation....................................31
SECTION 14.05 Duty of Care...............................................31
SECTION 14.06 No Liability for Return of Capital.........................31
ARTICLE XV
LIMITATION ON TRANSFERS OF INTERESTS OF LIMITED PARTNERS
SECTION 15.01 Consent of General Partner to Transfers....................31
SECTION 15.02 Opinion of Counsel.........................................31
SECTION 15.03 Expenses...................................................33
SECTION 15.04 Substituted Limited Partners...............................33
SECTION 15.05 Covenants of Limited Partners..............................33
ARTICLE XVI
WITHDRAWAL OF PARTNERSHIP INTERESTS
SECTION 16.01 Withdrawal of Partnership Interests........................34
SECTION 16.02 ERISA Partner Withdrawal...................................34
SECTION 16.03 Cure Period; Time of Withdrawal............................34
SECTION 16.04 Effects of ERISA Partner Withdrawal........................35
SECTION 16.05 Distribution to ERISA Partner..............................35
SECTION 16.06 Conforming Amendment.......................................35
SECTION 16.07 PERISA Partner Withdrawal..................................35
ARTICLE XVII
LIMITATION ON TRANSFER OF INTEREST OF GENERAL PARTNER
SECTION 17.01 Limitation on Transfer of Interest of The General Partner .36
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ARTICLE XVIII
INDEMNIFICATION
SECTION 18.01 General Provisions.........................................36
SECTION 18.02 Advance Payment of Expenses................................37
SECTION 18.03 Insurance..................................................37
SECTION 18.04 Sharing of Indemnification Expenses with Related Funds ....37
SECTION 18.05 Limitation by Law..........................................38
ARTICLE XIX
ACCOUNTING; RECORDS AND REPORTS; ANNUAL MEETINGS
SECTION 19.01 Fiscal Year................................................38
SECTION 19.02 Keeping of Accounts and Records............................38
SECTION 19.03 Inspection Rights..........................................38
SECTION 19.04 Annual Financial Statements................................39
SECTION 19.05 Quarterly Financial Statements; Investment Memoranda ......39
SECTION 19.06 Annual Meetings............................................39
SECTION 19.07 Accounting Method..........................................40
SECTION 19.08 Independent Accountants....................................40
SECTION 19.09 Amortization of Organizational Expenses....................40
SECTION 19.10 Change of Principal Office.................................40
ARTICLE XX
WAIVER AND AMENDMENT
SECTION 20.01 Waiver and Amendment.......................................40
ARTICLE XXI
GENERAL PROVISIONS
SECTION 21.01 Notices....................................................41
SECTION 21.02 Power of Attorney..........................................41
SECTION 21.03 Waiver of Partition........................................42
SECTION 21.04 Additional Documents.......................................42
SECTION 21.05 Binding on Successors......................................42
SECTION 21.06 Counterparts...............................................43
SECTION 21.07 Action by Limited Partners.................................43
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SECTION 21.08 Voting.....................................................43
SECTION 21.09 Governing Law..............................................43
SECTION 21.10 Securities Act Matters.....................................43
SECTION 21.11 Right to Rely on Authority of General Partner .............43
SECTION 21.12 Tax Matters Partner........................................43
SECTION 21.13 Contract Construction......................................44
SECTION 21.14 Section Headings...........................................44
APPENDIX A Definitions...............................................A-1
SCHEDULE A Address of Partnership; Names, Addresses and Subscriptions
of the General Partner and the Limited Partners ..........A-7
SCHEDULE B Management Agreement......................................B-1
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FLEMING US DISCOVERY FUND III, L.P.
LIMITED PARTNERSHIP AGREEMENT
LIMITED PARTNERSHIP AGREEMENT, dated as of this 27th day of September,
1996, by and among Fleming US Discovery Partners, L.P., a limited partnership
organized under the laws of the State of Delaware in the United States, as the
General Partner (the "GENERAL PARTNER"), and those firms, corporations and other
Persons listed in the Partnership's records as limited partners who execute a
counterpart of this Agreement as Limited Partners. The General Partner and the
Limited Partners are sometimes referred to herein collectively as the
"PARTNERS".
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein without
definition have the meanings ascribed to them in APPENDIX A annexed hereto.
ARTICLE II
ORGANIZATION
SECTION 2.01. Formation of Limited Partnership. The Partners agree to
form and carry on a limited partnership (the "PARTNERSHIP") subject to the terms
of this Agreement pursuant to and in accordance with the Delaware Revised
Uniform Limited Partnership Act, as amended (the "DELAWARE ACT").
SECTION 2.02. Firm Name; Registered and Principal Office. The name of
the Partnership is "Fleming US Discovery Fund III, L.P." The initial address of
the Partnership's registered office in Delaware is 1209 Orange Street,
Wilmington, Dover, County of New Castle, and its initial registered agent at
such address for service of process is The Corporation Trust Company. The
General Partner may change the locations of the registered office and principal
office of the partnership to such locations within the United States as the
General Partner may determine at any time, upon written notice to all the
Partners indicating the locations of such registered office and principal
office. The General Partner may cause the Partnership to open such additional
offices at such other locations as the General Partner in its sole discretion
may determine.
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SECTION 2.03. Objectives. The general objectives of the Partnership are
to generate significant returns for its Partners, with a view to long-term
capital appreciation; to locate, identify, analyze and invest primarily through
negotiated transactions in equity or equity-linked securities of publicly-held
enterprises located in the United States with market capitalizations of under
$150 million and to hold, and to sell, distribute or otherwise dispose of its
Portfolio Securities in accordance with this Agreement over such period as the
General Partner determines to be in the best interest of the Partners; and
otherwise to engage in any lawful activity for which limited partnerships may be
organized under the laws of the State of Delaware in furtherance of the
foregoing objectives.
SECTION 2.04. Powers. Subject to all of the terms and provisions hereof
and consistent with the investment objectives stated herein, the Partnership
shall have the following powers:
(1) to purchase, invest in and sell securities and interests in
securities of every kind, nature and description, including,
without limitation, capital stock, hybrid securities, partnership
interests, bonds, notes, debentures, trust receipts, and other
obligations, as well as rights, warrants, options or other
interests to purchase securities;
(2) to make and perform all contracts and engage in all
activities and transactions necessary or advisable to carry out the
purposes and objectives of the Partnership, including, without
limitation, the purchase, sale, transfer, pledge and exercise of
all rights, privileges and incidents of ownership or possession
with respect to any Partnership asset or liability; the securing of
payment of any Partnership obligation by hypothecation or pledge of
Partnership assets; and the incurrence of debt and the guaranty of
or becoming surety for the debts of others, subject to Section 3.14
hereof; and
(3) otherwise to have all the powers available to it as a limited
partnership under the laws of the State of Delaware.
ARTICLE III
GENERAL PARTNER
SECTION 3.01. Name, Address and Subscription. The name, address and
Subscription of the General Partner, and its contribution to the capital of the
Partnership, as well as the amount of the aggregate Subscriptions of all
Partners, are set forth in SCHEDULE A.
SECTION 3.02. Management and Control of the Partnership. The
management, policies, and control of the Partnership shall be vested exclusively
in the General Partner. The
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Limited Partners may, to the extent expressly provided in this Agreement,
possess or exercise any of the powers, or have or act in any of the capacities
permitted under Section 17-303(b) of the Delaware Act for limited partners who
are deemed thereby not to participate in the control of the affairs of a limited
partnership.
SECTION 3.03. Powers. Subject to the provisions of this Agreement and
consistent with the investment objectives stated herein, the General Partner
shall have the power on behalf and in the name of the Partnership to carry out
and implement any and all of the objectives of the Partnership set forth in
Section 2.03 and to exercise any of the powers of the Partnership set forth in
Section 2.04 including, without limitation, the power to:
(1) open, maintain and close accounts with brokers and give
instructions or directions in connection therewith;
(2) open, maintain and close bank accounts and draw checks or
other orders for the payment of money;
(3) receive, receipt for, dispose of and manage all securities,
checks, money and other property, assets or liabilities of the
Partnership;
(4) hire and fire employees, investment bankers, attorneys,
accountants, consultants, custodians, contractors and other agents,
and pay them compensation;
(5) enter into, make and perform such contracts, agreements and
other undertakings, and do any and all such other acts required of
the Partnership with respect to its interest in any corporation,
partnership, limited partnership, trust, limited liability company,
association or other entity or activity, including but not limited
to, entering into agreements with respect to such interests, which
agreements may contain such terms, conditions and provisions as the
General Partner in its sole discretion shall approve;
(6) make all elections for the Partnership that are permitted
under tax or other applicable laws, including an election under
Section 754 of the Code; and
(7) m aintain one or more offices and in connection therewith rent
or acquire office space and do such other acts as may be advisable
in connection with the maintenance of such offices.
SECTION 3.04. Certificate of Limited Partnership. The General Partner
shall file for public record with the appropriate public authorities, and, if
required, publish the Certificate of Limited Partnership of the Partnership (the
"CERTIFICATE") and any amendments thereto and take
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all such other action as may be required to preserve the limited liability of
the Limited Partners in any jurisdiction in which the Partnership shall conduct
operations.
SECTION 3.05. Management Agreement. The General Partner, in the name
and on behalf of the Partnership, is authorized to enter into a Management
Agreement dated of even date herewith, in the form attached hereto as SCHEDULE B
(the "MANAGEMENT AGREEMENT"), with Robert Fleming Inc. (the "MANAGEMENT
COMPANY"), with such Management Agreement to be subject to amendment only with
the consent of the Limited Partners and the limited partner of the Offshore
Partnership, voting together as a single class. If for any reason the Management
Agreement should terminate prior to the dissolution of the Partnership, the
General Partner shall (1) promptly give written notification to the Limited
Partners of such termination, (2) at the General Partner's option, either
contract with another management company, in the name and on behalf of the
Partnership, or arrange for the services previously provided by the Management
Company to be rendered directly by the General Partner to the Partnership, and
(3) pay from Partnership funds on behalf of the Partnership the fees and
expenses incurred by the Partnership in clause (2) above. The fee payable to the
Management Company pursuant to the Management Agreement (the "MANAGEMENT FEE")
shall be paid by the Partnership and shall not (i) be considered a distribution
of profits or a return of capital to the General Partner for any purpose under
this Agreement or (ii) reduce the balance in any Partner's Contributions
Account, but shall constitute a Partnership expense to be taken into account in
determining Net Gain or Loss pursuant to Article X hereof.
SECTION 3.06. Salaries.
(a) While the Management Agreement is in effect, the General Partner,
the partners of the General Partner and the members of the General Partner's
general partner shall receive no salaries from the Partnership. In the event
that the Management Agreement is terminated prior to dissolution and completion
of liquidation of the Partnership, after the date of such termination, the
partners of the General Partner and the members of the General Partner's general
partner shall be entitled to receive such compensation from the Partnership as
the General Partner may determine, provided that, except as otherwise approved
by a majority in interest of the Limited Partners, the aggregate amount of
compensation paid annually by the Partnership to any Person or Persons (under
this Section 3.06(a) and clause 3 of the second sentence of Section 3.05) for
services of the type previously provided to the Partnership by the Management
Company shall not exceed the Management Fee for the calendar year preceding the
year in which the Management Agreement was terminated.
(b) Any partner of the General Partner and any member of the General
Partner's general partner shall be permitted to receive fees, commissions or
other compensation from Persons other than the Partnership; provided, however,
that so long as the Management Agreement is in effect, or the services provided
by the Management Company are provided by the General Partner or an Affiliate of
the General Partner, neither the General Partner, nor any
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(1) partner of the General Partner, (2) member of the General Partner's general
partner, (3) officer, director or employee of the Management Company or (4)
member of the Advisory Committee shall receive any directors' fees, consulting
fees or other remuneration for services from any Portfolio Company, except
reimbursement for expenses.
SECTION 3.07. Co-Investment with Offshore Partnership.
(a) The General Partner also is serving as a general partner of the
Offshore Partnership. It is the policy of the Partnership and the policy of the
Offshore Partnership to conduct their investment activities in parallel (other
than those activities involving the use of idle funds pending investment). To
implement this policy, the General Partner, to the extent commercially
reasonable, will:
(1) apportion available investment opportunities between the
Partnership and the Offshore Partnership in proportion to the
relative amounts of capital committed to each such partnership;
(2) cause the Partnership and the Offshore Partnership to sell or
otherwise dispose of each such investment at substantially the same
time and on substantially the same terms in amounts proportionate
to the relative size of the investments made by the Partnership and
the Offshore Partnership in the securities of that Portfolio
Company; and
(3) cause the Partnership or the Offshore Partnership to sell or
buy from each other securities of Portfolio Companies, at cost, so
as to maintain to the extent feasible the relationship between the
capital committed to each partnership and the holdings of each
partnership in the securities of each Portfolio Company if the
relative amounts of capital committed to the Partnership and the
Offshore Partnership, respectively, should change between the
Initial Closing and the Final Closing.
(b) The Partnership shall bear its proportionate share, based on the
relative amount it invests, of all expenses incurred in connection with each
investment made in parallel with the Offshore Partnership, but shall not bear
any expenses incurred solely for the benefit of the Offshore Partnership.
SECTION 3.08. Other Activities.
(a) The General Partner, the general partner of the General Partner
and the members of the General Partner's general partner shall devote such time
and effort to the activities of the Partnership as may be necessary to promote
adequately the interests of the Partnership and the mutual interests of the
Partners. It is specifically understood and agreed that time and effort
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devoted by the General Partner, the general partner of the General Partner and
the members of the General Partner's general partner to the affairs of the
Partnership, the Offshore Partnership, the Management Company and any other
entity affiliated with the Partnership, including for this purpose any Portfolio
Company, shall be considered time and effort devoted to the activities of the
Partnership only to the extent it is in or not opposed to the best interests of
the Partnership.
(b) It is specifically understood and agreed that, without the prior
written consent of a majority in interest of the Limited Partners of the
Partnership and the limited partner of the Offshore Partnership, voting together
as a single class, neither the General Partner nor the general partner of the
General Partner and the members of the General Partner's general partner, shall
act as a general partner or similar principal of a private equity fund formed
after the date hereof to pursue an investment strategy similar to that of the
Partnership (a "SUCCESSOR ENTITY") until the earlier of (1) the date on which at
least 75% of the Partnership's aggregate Subscriptions has been invested,
expended, committed to be invested, or reserved for future investment in
entities which at such time are already Portfolio Companies or for reasonably
anticipated Partnership expenses and liabilities or (2) the end of the
Commitment Period. Solely for the purposes of determining whether the 75%
threshold has been met, the aggregate amount reserved for future investment and
for Partnership expenses and liabilities shall be subject to approval of the
Advisory Committee, which approval shall not be unreasonably withheld or
delayed.
(c) Neither the Partnership nor any Partner shall by virtue of this
Agreement have any right, title or interest in or to any Successor Entity.
SECTION 3.09. Avoidance of Conflicts of Interest. The Partnership and
the Offshore Partnership have adopted the following policies to deal with
potential conflicts of interest.
(a) Except for transactions that are specifically permitted under the
terms and provisions of this Agreement or as otherwise approved by the Advisory
Committee, the Partnership shall not engage in any investment or other financial
transaction with any Partner, or any partner of any Partner, other than
transactions entered into in the ordinary course of the Partnership's activities
on terms no less favorable to the Partnership than are generally afforded to
unrelated third parties in comparable transactions.
(b) The partners, officers, directors, managers, members and employees
of the General Partner and its general partner may invest for their own accounts
in the securities of any Portfolio Company only on terms no better than those
available to the Partnership, and only after the General Partner has made
available to the Partnership all investment opportunities in such Portfolio
Companies which come to the attention of the General Partner and its partners,
except for such opportunities which the General Partner and its partners
reasonably believe are not within the purposes of or appropriate for the
Partnership.
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(c) The General Partner in its sole discretion may offer co-investment
opportunities to Limited Partners who express an interest in co-investment
opportunities in writing. Such co-investment opportunities shall be offered on
terms identical or substantially similar to the Partnership, and the General
Partner intends to do so when possible and appropriate. The General Partner
shall not provide any investment advice to any Limited Partner with respect to
any such co-investment opportunity. Any Limited Partner participating in any
such co-investment opportunity shall be responsible for making its own decision
as to the merits of such opportunity and the co-investment opportunity offered
to any Limited Partner shall not contain a recommendation to any Limited Partner
that such investment is suitable for the particular Limited Partner. The Limited
Partners hereby acknowledge and agree that the General Partner may also offer to
other private investors, groups, partnerships, or corporations, the right to
participate in investment opportunities made available to the Partnership
whenever the General Partner, in its discretion, so determines.
(d) Each Partner agrees that any other Partner and its respective
partners, officers, directors, members, managers, employees and Affiliates may
invest, participate, or engage in (for their own accounts or for the accounts of
others), or may possess an interest in, other financial ventures and investment
and professional activities of every kind and description, independently or with
others and may receive fees, commissions, remuneration or reimbursement of
expenses in connection with these activities, whether or not such activities may
conflict with any interest of the Partnership or any of the Partners (provided,
that, the General Partner, the general partner of the General Partner and the
members of the General Partner's general partner are further subject to Section
3.08 and the other provisions of this Section 3.09). The parties hereto
expressly agree that neither the Partnership nor any Partner shall have any
rights in or to activities permitted by this Section 3.09(d) or to any fees,
income, profits or goodwill derived therefrom.
SECTION 3.10. Duty of Care. It is recognized that decisions concerning
investments or potential investments involve the exercise of judgment and the
risk of loss. The General Partner and its partners shall exercise their best
judgment in making investments on behalf of the Partnership and in carrying out
their other obligations hereunder and they shall not incur any liability for
effecting such investments all to the extent they are entitled to
indemnification pursuant to Section 18.01 hereof. The General Partner, its
partners (including each such partner's officers, directors, employees,
managers, members and agents), and their Affiliates shall not be liable to the
Partnership or any other Partner for honest mistakes of judgment or for losses
due to such mistakes or for the negligence, whether of omission or commission,
dishonesty or bad faith of any employee, broker or other agent of the
Partnership selected and retained by any of them with reasonable care. The
General Partner, its partners (including each such partner's officers,
directors, employees, members, managers and agents), and their Affiliates shall
be fully protected and justified with respect to any action or omission taken or
suffered by any of them in good faith if such action or omission is taken or
suffered in reliance upon and in accordance with the opinion or advice as to
matters of law of legal counsel, or as to matters of accounting of
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accountants, or as to matters of valuation of investment bankers or appraisers,
selected and retained by any of them with reasonable care.
SECTION 3.11. Investment Limitations.
(a) Without the prior approval of the Advisory Committee, the
Partnership shall not:
(1)
invest more than 15% of the aggregate Subscriptions of all Partners
and subscriptions of all partners of the Offshore Partnership, in
the securities of any single Portfolio Company (including, for this
purpose, the outstanding balance of any indebtedness of such
Portfolio Company that the Partnership has guaranteed);
(2)
invest more than 15% of the aggregate Subscriptions of all Partners
and subscriptions of all partners of the Offshore Partnership, in
companies which, at the time of such investment, do not have any
equity securities traded on a Public Securities Market; and
(3)
purchase on a Public Securities Market Portfolio Company equity
securities if the Partnership's cumulative Cost of all such
purchases held by the Partnership at such time would exceed 5% of
the aggregate Subscriptions of all Partners and the subscriptions
of all partners of the Offshore Fund.
(b) The Partnership shall not participate in (i) investments actively
opposed by the board of directors of the potential Portfolio Company; (ii)
investments in companies undergoing bankruptcy liquidations; or (iii)
investments in real estate.
(c) The General Partner shall use its best efforts to cause the
Partnership to conduct its affairs in a manner that limits the Partnership's
operations to investments and other related activities which, taken together,
would not cause the Partnership to be treated for United States federal income
tax purposes as engaged in a "trade or business within the United States,"
within the meaning of Section 864(b) of the Code, during any taxable year of the
Partnership.
Accordingly, the Partnership shall not:
(1)
acquire either any direct interest in United States real estate or
any other interest, including an interest in a corporation, which
would be treated as a "United States real property interest" within
the meaning of Section 897(c) of the Code at the time of its
acquisition by the Partnership;
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(2)
acquire an interest in any partnership, trust or other
non-corporate entity, unless (A) the General Partner determines,
after consultation with counsel to the Partnership, that such
proposed acquisition will not cause the Partnership to be treated
as engaged in a trade or business within the United States for
United States tax purposes, and (B) such entity agrees to be bound
contractually by restrictions substantially similar to those set
forth in this Section 3.11(c);
(3)
acquire and dispose of securities or other assets on a regular and
frequent basis with a view to realizing short-term gains from
market fluctuations; provided, however, that the Partnership (A)
may make temporary investments of its funds not yet invested in
securities of Portfolio Companies or used to pay Partnership
expenses, and (B) shall attempt to minimize the frequency of such
investment transactions and otherwise to conduct such temporary
investment activity in a prudent and conservative manner consistent
with the Partnership's objectives as set forth in Section 2.03;
(4)
invest in or enter into contracts for the purchase or sale of
commodities;
(5)
invest in options or futures, including currency futures, other
than options or other contracts for the acquisition of securities
of a Portfolio Company;
(6)
make any investment with borrowed funds; provided, however, that
the limitation set forth in this Section 3.11(c)(6) shall not
preclude the Partnership from borrowing on a short-term basis or
guaranteeing the obligations of a Portfolio Company, each to the
extent permitted by Section 3.14; or
(7)
engage in or hold itself out as engaging in the performance of
services for compensation, or otherwise carry on directly a trade
or business.
(d) The restrictions set forth in Section 3.11(c) are intended to
ensure that the activities of the Partnership will be conducted so as to avoid
United States federal income taxation on the income of the Partnership allocated
to the Limited Partners (other than
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withholding tax on dividends and certain interest payments received from United
States sources). To this end, in addition to complying with the specific
restrictions set forth in Section 3.11(c), the General Partner shall use its
best efforts, to the extent practicable and consistent with the Partnership's
investment program:
(1)
not to engage in any activity that would subject the income of the
Partnership allocated to the Limited Partners to United States
federal income taxation (other than withholding tax on dividends
and certain interest payments received from United States sources);
and
(2)
in the event that the Code or the regulations promulgated
thereunder are from time to time amended so as to require
additional or different restrictions on Partnership activities and
investments in order to avoid such taxation, to observe such
additional or different restrictions.
Notwithstanding the foregoing, in the event that legislative,
judicial or regulatory changes occurring after the date hereof may cause
Partners that are not United States Persons to become subject to United States
federal, state or local income tax on their respective shares of capital gains
realized by the Partnership that are not effectively connected with a trade or
business within the United States, within the meaning of Section 864 of the
Code, carried on by the Partnership, whether such income taxes are collected by
withholding or otherwise, the preceding sentence shall not apply with respect to
any such taxes.
(e) In making temporary investments of idle Partnership funds, the
General Partner shall use its best efforts to make such investments so as to
minimize withholding of United States income tax at the source with respect to
the shares of Partnership income and gains allocable to the Limited Partners. In
this connection, the General Partner shall not invest in regulated investment
companies that elect to be subject to Part I of Subchapter M of the Code.
SECTION 3.12. Unrelated Business Taxable Income.
(a) The General Partner shall use its best efforts to cause the
Partnership to conduct its affairs in a manner that does not cause any Limited
Partner or partner of any Limited Partner exempt from income taxation pursuant
to Section 501 of the Code to have any "UNRELATED BUSINESS TAXABLE INCOME" (as
that term is defined in Section 512 of the Code).
(b) The obligation of the General Partner under subsection (a) shall
include, but shall not be limited to, the following:
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(1)
The General Partner shall use best efforts to avoid taking any
action which will cause any Limited Partner or partner of any
Limited Partner to realize any taxable income from services
performed;
(2)
The General Partner shall use best efforts to avoid causing any
Limited Partner or partner of any Limited Partner to realize
"unrelated debt-financed income" as that term is defined in Section
514(a) of the Code; and
(3)
The General Partner shall not cause the Partnership to acquire an
interest in another partnership, trust or non-corporate entity
unless the General Partner determines that such proposed
acquisition could not reasonably be expected to cause any Limited
Partner or partner of any Limited Partner to realize any unrelated
business taxable income.
SECTION 3.13. ERISA Matters. The General Partner shall use its best
efforts to cause the Partnership to conduct its activities so that:
(1)
the Partnership will qualify at all times as a "VENTURE CAPITAL
OPERATING COMPANY" as defined in the Plan Assets Regulations; and
(2)
the assets of the Partnership therefore do not constitute plan
assets subject to the fiduciary standards of Part 4 of Title I of
ERISA.
This Section 3.13 shall not have, or shall cease to have any force or effect if
the participation of "benefit plan investors [in the Partnership] is not
significant" within the meaning of the Plan Assets Regulations, or if such
Regulations are no longer in effect. In the event that the General Partner were
to be deemed a "FIDUCIARY" of any ERISA Limited Partner under Section 3(21) of
ERISA in a manner which would make Section 406 of ERISA and Section 4975 of the
Code applicable to the General Partner, then, in addition to whatever action it
may take or be required to take because it was such a fiduciary, the General
Partner will use best efforts to avoid the occurrence of any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the
Code.
SECTION 3.14. Borrowing and Guarantees. Subject to Section 3.12, the
Partnership may engage in borrowing, but only on a short-term basis pending its
receipt of Additional Capital Contributions from the Partners. The Partnership
may guarantee the indebtedness of any
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Portfolio Company; provided, however, that except with the consent of the
Advisory Committee, the total amount guaranteed by the Partnership at any one
time with respect to all Portfolio Companies shall not exceed 10% of the
aggregate Subscriptions of all Partners.
ARTICLE IV
LIMITED PARTNERS
SECTION 4.01. Names, Addresses and Subscriptions. The names and
addresses of the Limited Partners and their respective Subscriptions are set
forth in SCHEDULE A hereto. SCHEDULE A shall be amended from time to time to
reflect any change in the identity or Subscription of any Partner or the
aggregate Subscriptions of all Partners made in accordance with this Agreement,
and no such revision shall constitute an amendment of this Agreement.
SECTION 4.02. Limited Liability. The liability of each of the Limited
Partners to the Partnership shall be limited to any unpaid capital contributions
which it agreed to make to the Partnership, except as otherwise provided under
the Delaware Act. The Partners acknowledge and agree that the Management Fee
shall be payable by the Partnership out of Partnership assets and will not be
paid directly by the Partners to the Management Company.
SECTION 4.03. No Control of Partnership; Other Limitations.
(a) No Limited Partner, in its capacity as such, shall take any part
in the control of the affairs of the Partnership, or undertake any transactions
on behalf of the Partnership, or have any power to sign for or to bind the
Partnership.
(b) No Limited Partner shall have the right or power to: (1) withdraw
or reduce its contribution to the capital of the Partnership except as a result
of the dissolution of the Partnership (provided that Limited Partners shall have
no right to withdraw or reduce their contributions on dissolution of the
Partnership to the extent that the Partnership requires funds to pay its
creditors) or as otherwise provided herein; (2) cause the termination and
dissolution of the Partnership, other than the right specified in Section 13.03;
or (3) demand or receive property other than cash in return for its contribution
except as otherwise provided herein.
SECTION 4.04. Death, Dissolution or Bankruptcy. The death,
incompetence, bankruptcy, liquidation or dissolution of a Limited Partner shall
not result in the termination of the Partnership, but the rights of such Limited
Partner under this Agreement shall accrue to such Limited Partner's successor,
estate or legal representative. Except as expressly provided in this Agreement,
no other event affecting a limited partner (including but not limited to
insolvency) shall affect this Agreement.
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ARTICLE V
EXPENSES; MANAGEMENT FEE
SECTION 5.01. Organizational Expenses. Upon execution of this
Agreement, the Partnership shall reimburse the General Partner for all
reasonable expenses incurred by the General Partner and its Affiliates that are
attributable to the organization of the Partnership and the sale of interests in
the Partnership to the Limited Partners; PROVIDED, HOWEVER, that the
organizational expenses of the Partnership and the Offshore Partnership shall
not exceed $500,000 in the aggregate. The General Partner shall allocate such
organizational expenses to the Partnership or the Offshore Partnership to the
extent such expenses can be reasonably attributed to one of such funds and not
the other. The remaining organizational expenses shall be allocated between the
Partnership and the Offshore Partnership in proportion to their respective total
Subscriptions. Any such expenses shall be paid by the Partnership and shall not
reduce the balance in any Partner's Contributions Account. Neither the
Partnership nor any Limited Partner shall be responsible for paying any
syndication, brokerage, placement or similar fee required to be paid to Merrill
Lynch & Co. on behalf of any Limited Partner. Such fees, if any, shall be paid
by the General Partner or an Affiliate thereof.
SECTION 5.02. Management Fee. The Partnership shall pay semi-annually
in advance to the Management Company a Management Fee at the rate of (i) for the
period commencing on the date of the Initial Closing until the end of the
Commitment Period, 1.75% per year of the aggregate Subscriptions of all
Partners, and (ii) for the remainder of the term hereof, 1.75% per year of the
total Cost of Portfolio Company securities held by the Partnership at the end of
the immediately preceding fiscal year, subject, in each case, to the terms and
conditions of the Management Agreement.
SECTION 5.03. Operating Expenses. The Management Company shall bear all
routine, normal operating expenses associated with the duties and services to be
rendered to the Partnership under the Management Agreement, as provided in the
Management Agreement. The Partnership shall reimburse the General Partner, upon
demand, for all reasonable expenses incurred by the General Partner in
discharging its responsibilities to the Partnership, and all other expenses of
the Partnership shall be borne by the Partnership.
ARTICLE VI
ADVISORY COMMITTEE
SECTION 6.01. Appointment and Vacancies. The Partnership and the
Offshore Partnership shall have the same advisory committee (to be formed after
the date of the Initial Closing) which shall consist of at least three members
and no more than five members appointed
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by the General Partner and who shall be designees of the Limited Partners and
the limited partner of the Offshore Partnership (the "ADVISORY COMMITTEE"). The
General Partner may remove any member of the Advisory Committee at any time,
with or without cause, and may fill any vacancy resulting from any removal or
resignation from the Advisory Committee.
SECTION 6.02. Meetings. The Advisory Committee shall meet at such times
and from time to time as the General Partner or a majority of the members of the
Advisory Committee may determine. The General Partner shall provide notice of
each meeting to the members of the Advisory Committee. Members of the Advisory
Committee shall receive from the Partnership and the Offshore Partnership
reimbursement for any expenses incurred, at the direction of the General
Partner, in connection with performing their duties hereunder, with any such
reimbursement to be borne by the Partnership and the Offshore Partnership pro
rata in proportion to their respective aggregate capital commitments.
SECTION 6.03. Duties. To the extent permitted under Section 17-303 of
the Delaware Act for Persons that do not thereby become liable to any party as
general partners of the Partnership, the functions of the Advisory Committee
shall be to resolve potential conflicts of interest as outlined in Section 3.09,
to review and approve proposed Partnership investments to the extent required by
Section 3.11 and to review certain valuations of Partnership assets.
SECTION 6.04. Voting; Rules and Procedures. All approvals,
disapprovals, vetoes and other actions taken by the Advisory Committee shall be
authorized by a majority of its members then holding office. The Advisory
Committee shall have the authority to adopt rules and procedures, not
inconsistent with this Agreement, relating to the conduct of its affairs.
SECTION 6.05. Duty of Care. The members of the Advisory Committee shall
exercise their best judgment in carrying out their functions for the
Partnership. No member of the Advisory Committee shall be liable to the
Partnership or any Partner for any loss suffered by the Partnership or any
Partner which arises out of any action or omission of such member, provided that
(1) such member determined, in good faith, that such course of conduct was in,
or not opposed to, the best interest of the Partnership and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such Person's
conduct was unlawful, and (2) such course of conduct did not constitute gross
negligence or willful misconduct of such member. The Advisory Committee and each
member thereof shall be fully protected and justified with respect to any action
or omission taken or suffered by any of them in good faith if such action or
omission is taken or suffered in reliance upon and in accordance with the
opinion or advice as to matters of law of legal counsel, or as to matters of
accounting of accountants, or as to matters of valuation of investment bankers
or appraisers, selected by any of them with reasonable care. In addition, each
member of the Advisory Committee shall be entitled to indemnification by the
Partnership to the extent provided in Article XVIII hereof.
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ARTICLE VII
ADDITIONAL LIMITED PARTNERS
SECTION 7.01. Additional Subscriptions Within 180 Days After Initial
Closing. Subject to the provisions of this Agreement, during the period
commencing on the date of the Initial Closing until and through the date that is
180 days thereafter (the "FINAL CLOSING"), the General Partner is authorized,
but not obligated, to accept from time to time additional Subscriptions from the
Partners and to select and admit other Persons to the Partnership as additional
Limited Partners. Any such additional Subscriptions shall be accepted and any
such additional Limited Partners shall be admitted to the Partnership only if:
(a) such Partner or additional Limited Partner contributes or pays on or before
the date of its additional Subscription or admission, all amounts required by
Section 8.05 hereof; (b) no distribution has been made by the Partnership to the
Partners pursuant to Article XI prior to the date of such Partner's additional
Subscription or such additional Limited Partner's admission other than a
distribution described in Sections 8.05 and 11.06; and (c) after such admission
or the acceptance of such additional Subscriptions, the sum of the aggregate
Subscriptions of all Partners and the aggregate capital commitments of all
partners of the Offshore Partnership to the Offshore Partnership does not exceed
$250 million.
SECTION 7.02. Accession to Agreement. Each Person who is to be admitted
as an additional or substitute Limited Partner pursuant to this Agreement shall
accede to this Agreement by executing, together with the General Partner, a
counterpart signature page to this Agreement providing for such admission, which
shall be deemed for all purposes to constitute an amendment to this Agreement
providing for such admission but shall not require the consent or approval of
any other Partner. In addition, the General Partner shall make any necessary
filings with the appropriate governmental authorities and take such actions as
are necessary under applicable law to effectuate such admission. The admission
of additional or substitute Limited Partners to the Partnership shall be
effective upon the execution of the necessary counterpart signature page to this
Agreement or such later effective date as is set forth in any instrument
executed by the General Partner and any newly-admitted Partner. The General
Partner shall cause SCHEDULE A to be amended from time to time, without the
consent of any other Partner, to reflect any changes in the Subscriptions or
identity of any Partner, the aggregate Subscriptions of all Partners including
any increase in the Subscription of the General Partner if accepted
contemporaneously with the acceptance of additional Subscriptions from the
Limited Partners, or the admission of Limited Partners.
ARTICLE VIII
CAPITAL OF THE PARTNERSHIP
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SECTION 8.01. Capital Contributions.
(a) The capital of the Partnership shall consist initially of the
initial capital contributions of the Partners, as set forth in SCHEDULE A, which
amount shall equal in the aggregate 10% of each Partner's Subscription.
Notwithstanding the foregoing, if the provisions of Section 3.13 apply to the
Partnership, the initial capital contribution of any ERISA Partner shall be
deferred until such time as such ERISA Partner is permitted to make such initial
capital contribution under ERISA (i.e., until the Partnership makes its first
investment in a portfolio company with respect to which the Partnership has
"management rights" as defined in the Plan Assets Regulations). In addition,
each Partner shall make additional contributions to the capital of the
Partnership ("ADDITIONAL CAPITAL CONTRIBUTIONS"), upon no less than 10 days'
prior written notice from the General Partner, so as to increase the aggregate
amount of its contributions to the Partnership to an amount equal to such
Partner's Subscription. Each such notice shall set forth the date on which the
related Additional Capital Contribution is due and shall include a general
description of the purposes and uses for which the Additional Capital
Contributions are being called including, for example, the payment of
Partnership expenses (including the Management Fee) and the purchase of
Portfolio Securities; provided that the General Partner shall not be required to
identify the purposes and uses of 100% of any Additional Capital Contribution or
be required to identify the name of any particular Portfolio Company or proposed
Portfolio Company. The amount of capital required to be contributed by each
Partner on each occasion of an Additional Capital Contribution shall be computed
by the General Partner so that each Partner's Additional Capital Contribution
bears the same relationship to the aggregate Additional Capital Contributions to
be made on such occasion as such Partner's Subscription bears to the aggregate
Subscriptions of all Partners. All calls for contributions of additional capital
by the Partners and the partners of the Offshore Partnership to their respective
partnerships shall be made on an as-needed basis at the same times and on
substantially the same terms. All capital contributions shall be made in cash in
United States dollars.
(b) From and after the end of the Commitment Period (as defined
below), the Limited Partners shall be released from any obligation to make
Additional Capital Contributions as provided for in Section 8.01(a) except to
the extent necessary to (i) pay the expenses and liabilities of the Partnership,
including the Management Fee, (ii) complete investments by the Partnership in
respect of transactions committed to by the Partnership prior to the end of the
Commitment Period and (iii) make follow-on investments in Portfolio Companies
provided that the aggregate amount of such follow-on investments shall not
exceed 20% of the aggregate Subscriptions of all Partners. The "COMMITMENT
PERIOD" shall commence on the date of the Initial Closing and shall end on the
fourth anniversary date of the Initial Closing; provided, that, if Robert L.
Burr and any one of Christopher M.V. Jones, Eytan M. Shapiro and Timothy R.V.
Parton are no longer active in the affairs of the Partnership and the General
Partner does not replace such Persons within 60 days thereafter with investment
manager(s) acceptable to a majority in interest of the Limited Partners, then
the Limited Partners, by vote of two-thirds in
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interest of the Limited Partners taken within 45 days after the end of such 60
day period, may cause the Commitment Period to end prior to the fourth
anniversary of the date of the Initial Closing (provided that the limited
partner of the Offshore Partnership simultaneously causes the commitment period
of the Offshore Partnership to end).
(c) The General Partner may at any time, by written notice to the
Limited Partners, terminate in whole or in part the obligation of the Partners
to make Additional Capital Contributions and, upon the giving of such notice,
the obligation of the Partners to make such contributions shall terminate to the
extent specified in such notice. Any partial termination of the outstanding
obligations of the Partners to make Additional Capital Contributions shall be
accomplished by terminating in part the obligations of all Partners, pro rata in
proportion to their respective Subscriptions. The General Partner shall not
cause any termination of the Partners' obligation to make Additional Capital
Contributions unless a substantially equivalent termination occurs
contemporaneously with respect to the obligations of the partners of the
Offshore Partnership to make additional capital contributions to the Offshore
Partnership. In the event that the General Partner terminates, in whole or in
part, the obligations of the Partners to make Additional Capital Contributions,
each Partner's Subscription shall be reduced accordingly as of the date that
written notice of such termination is delivered to the Partners.
SECTION 8.02. Failure to Make Additional Capital Contributions.
(a) In the event that any Partner fails to pay any amount which it is
required to pay to the Partnership on or before the date when such amount is due
and payable, it shall be deemed to be in default hereunder (a "DEFAULTING
PARTNER") and a notice of default shall be given to it by express courier
service, facsimile transmission, air mail or certified or registered mail.
(b) If the full amount of such payment is not received by the
Partnership within 45 days after the delivery of such notice, as liquidated and
agreed upon current damages for such default (it being agreed that it would be
difficult or impossible to fix the actual damages), the Partnership shall have
the option, exercisable by the General Partner in its sole discretion by mailing
notice thereof to the Defaulting Partner, to reduce each of the Defaulting
Partner's Contributions Account and Capital Account established pursuant to
Sections 9.01 and 9.02, respectively, by an amount equal to 50% of such
Defaulting Partner's Subscription at the time of the default (the "DEFAULT
CHARGE"). The amount of any Default Charge levied upon a Defaulting Partner
shall immediately become unrestricted monies of the Partnership and shall be
allocated to and among the respective Contributions Accounts of the
non-defaulting Partners in such proportion as the Contributions Account of each
such non-defaulting Partner then bears to the sum of the Contributions Accounts
of all non-defaulting Partners; and to and among the respective Capital Accounts
of the non-defaulting Partners in such proportion as the Capital Account of each
such non-defaulting Partner then bears to the sum of the Capital Accounts of all
non-defaulting Partners. For purposes of the preceding sentence: (1) the amount
by which a Defaulting Partner's Contributions Account or Capital Account is
reduced shall in no case exceed
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the positive balance in such Defaulting Partner's Contributions Account or
Capital Account, respectively, immediately before the reduction; (2) if either
of the Capital Account or the Contributions Account of the Defaulting Partner
otherwise would be reduced below zero by the imposition of the full amount of
any Default Charge, such account shall be reduced to zero and any excess of the
full amount of the Default Charge over the positive balance in such account
immediately before such reduction shall be carried over and applied to reduce
the balance in such account at such subsequent time or times as such account has
a positive balance; and (3) any increase in the Capital Accounts or
Contributions Accounts of non-defaulting Partners as the result of the
imposition of a Default Charge shall occur only at such time or times as the
corresponding reductions in the Defaulting Partner's accounts occur.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, (1) any Defaulting Partner that does not make full payment to the
Partnership of all amounts due and payable to the Partnership on or before the
date that is 45 days after notice of a default was mailed to such Partner as
provided in Section 8.02(a) shall not receive any distributions from the
Partnership until such time as the Partnership makes its final liquidating
distribution pursuant to Article XIV; and (2) any distributions that otherwise
would be made to a Defaulting Partner during such 45-day period shall be made to
such Defaulting Partner at the end of such 45-day period if, before the end of
such period, the Defaulting Partner has paid to the Partnership all amounts then
due and payable.
(d) The application of the aforesaid liquidated damages provision
shall not relieve any Defaulting Partner of such Partner's obligation to make
all subsequent Additional Capital Contributions when due unless the General
Partner, in its sole discretion, determines that no further Additional Capital
Contribution shall be accepted from the Defaulting Partner and notifies such
Defaulting Limited Partner in writing. As of the date that such notice is sent
to the Defaulting Partner, such Defaulting Partner's Subscription shall be
reduced by an amount equal to the excess of such Defaulting Partner's original
Subscription over the aggregate paid-in capital contributions of such Defaulting
Partner. In the event that the balances in each of the Capital Account and the
Contributions Account of any Defaulting Partner have been reduced to zero and
either (1) each Partner (other than any Defaulting Partner) has contributed to
the Partnership the full amount of such Partner's Subscription, or (2) the
General Partner has determined that such Defaulting Partner shall not be
permitted to make any subsequent Additional Capital Contribution to the
Partnership, such Defaulting Partner's interest in the Partnership shall be
extinguished completely and the Partnership shall have no further obligation of
any nature to such Person. Except as expressly set forth herein, no Partner may
contribute to the Partnership less than the full amount of such Partner's
Subscription.
SECTION 8.03. No Interest or Withdrawals. No interest shall accrue on
any capital contribution made by a Partner, and no Partner shall have the right
to withdraw or to be repaid any of its capital contributions so made, except as
specifically provided in this Agreement.
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SECTION 8.04. Minimum Capital Contribution of the General Partner. The
General Partner shall contribute capital the Partnership at such times and in
such amounts as necessary to ensure that the paid-in capital contributions of
the General Partner are at all times equal in the aggregate to at least 1.01% of
the paid-in capital contributions of the Limited Partners at such times.
SECTION 8.05. Contributions and Payments on Admission of Additional
Limited Partners
(a) Upon the admission of any additional Limited Partner in accordance
with Section 7.01 hereof: (i) the General Partner shall amend or supplement
Schedule A hereto to reflect the name, address and Subscription of such
additional Limited Partner; (ii) the Subscription of any such additional Limited
Partner shall be included thereafter in the Partnership's aggregate
Subscriptions; and (iii) the Subscription of the General Partner shall be
increased (if necessary) to the amount then required by Section 8.04.
(b) Each additional Limited Partner shall pay to the Partnership, by
wire transfer of immediately available funds, on the date of its admission as a
Limited Partner the following amounts (which amounts in clause (ii) and (iii)
shall not constitute part of the Additional Capital Contributions of such
additional Limited Partner):
(i) a capital contribution representing the same percentage of
its Subscription as the percentage which each other Partner
has been required to contribute of its Subscription prior
to such date (treating, for this purpose, any amounts
previously returned to any Partner pursuant to Section
8.05(c)(i), and any amount required to be so returned upon
the admission of such additional Limited Partner, as if
such amounts had not been previously contributed by such
previously admitted Partner);
(ii) an amount equal to interest that would have been earned if
the dollar amount of such additional Limited Partner's
proportionate share of the capital contributions previously
used to make investments in Portfolio Companies (unless in
the discretion of the General Partner there has been a
material change or significant event relating to a
Portfolio Company which would justify a different amount),
had been invested at an interest rate equal to the Prime
Rate plus two percent (2%) per annum, compounded annually,
for the period from such investment to the date of such
additional Limited Partner's admission to the Partnership;
and
(iii) an additional amount equal to the interest that would have
been earned if the dollar amount of the additional payment
of the Management Fee made by the Partnership to the
Management Company at the time of the admission of such
additional Limited Partner
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that is attributable to the Partnership's acceptance of
such Limited Partner's initial Subscription had been
invested at an interest rate equal to the Prime Rate per
annum, compounded annually, for the period from the Initial
Closing to the date of the admission of such additional
Limited Partner. The Partnership shall remit such
additional amounts to the Management Company as provided in
Section 5.02.
(c) Upon the admission of an additional Limited Partner, the
Partnership shall distribute to the Partners (other than any Limited Partners
admitted on such admission date):
(i) an amount equal to such additional Partner's proportionate
share of the capital contributions previously used to make
investment in Portfolio Companies, which shall be
apportioned among such previously admitted Limited
Partners, in proportion to their respective contributions
and shall increase on a dollar-for-dollar basis the
Additional Capital Contributions required to be made by
each Partner pursuant to Section 8.01 and correspondingly
decrease each such Partner's Contributions Account; and
(ii) an amount equal to the additional payment made by such
additional Limited Partner pursuant to Section 8.05(b)(ii),
which shall not increase the Additional Capital
Contributions required to be made by any Partner pursuant
to Section 8.01.
(d) Each Partner acknowledges and agrees that the intent of this
Section 8.05 is to allow such additional Limited Partner to obtain an indirect
interest (based on relative Subscriptions) in each investment in a Portfolio
Company previously made by the Partnership at the time such additional Limited
Partner makes such initial capital contribution and to cause each additional
Limited Partner to bear its proportionate additional share of the Management Fee
paid prior to the acceptance of such additional Limited Partners, in each case
in exchange for the payments required under this Section 8.05. Subject to the
foregoing, each additional Limited Partner shall be treated in all respects as
if it had been an original Limited Partner of the Partnership, and shall be
subject to all of the obligations of the Limited Partners hereunder including,
without limitation, the obligation to make all Additional Capital Contributions
required by Section 8.01.
(e) For purposes of the provisions of Sections 8.05(b)(ii) and
8.05(b)(iii), the acceptance of additional Subscriptions after the Initial
Closing from any existing Limited Partner that was originally admitted as a
Limited Partner prior to the Final Closing shall not be treated as an admission
of an additional Limited Partner if and to the extent that such additional
Subscription results from the original terms or formula by which such existing
Limited Partner's Subscription was calculated and is made in order to allow such
Limited Partner to maintain its relative Subscription as a percentage of the
aggregate Subscriptions of all Partners. Accordingly,
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no such existing Limited Partner shall be required to make any additional
payments pursuant to clauses (ii) or (iii) of Section 8.05(b). Similarly, if the
initial capital contribution of any ERISA Partner is deferred pursuant to
Section 8.01, such ERISA Partner shall not be required to make any additional
payments pursuant to clauses (ii) or (iii) of Section 8.05(b) when it makes that
initial capital contribution, and no interest shall be paid by the Partnership
to the Management Company with respect to any resulting deferred payment of the
Management Fee. Any previously-admitted Limited Partner that (i) is not
described in either of the three preceding sentences and (ii) increases its
Subscription after the Initial Closing shall be treated as an additional Limited
Partner with respect to such increase only, for purposes of Sections 8.05(a) and
8.05(b).
(f) Solely for tax purposes, each Limited Partner that is not an
additional Limited Partner shall be deemed to have sold a proportionate part of
its interest in the Partnership to the additional Limited Partner for a purchase
price equal to the amount distributed to such Limited Partner pursuant to
Section 8.05(c) upon the admission of an additional Limited Partner.
ARTICLE IX
ACCOUNTS
SECTION 9.01. Contributions Accounts. There shall be established on the
books of the Partnership a capital contributions account ("CONTRIBUTIONS
ACCOUNT") for each Partner which shall consist of such Partner's initial capital
contribution to the Partnership made pursuant to this Agreement, (a) increased
by (1) any Additional Capital Contributions made by such Partner, and (2) any
part of a Default Charge added to the Contributions Account of such Partner
pursuant to Section 8.02; and (b) decreased by (1) any Default Charge subtracted
from the Contributions Account of such Partner pursuant to Section 8.02 and (2)
any distributions pursuant to Section 8.05(c)(i). Except as provided in the
preceding sentence, a Partner's Contributions Account shall not be reduced on
account of any distributions of capital to such Partner or for any other reason.
SECTION 9.02. Capital Accounts. There shall be established on the books
of the Partnership a capital account ("CAPITAL ACCOUNT") for each Partner that
shall consist of such Partner's initial capital contribution to the Partnership
made pursuant to this Agreement, (a) increased by (1) any Additional Capital
Contributions made by such Partner, (2) any part of a Default Charge added to
the Capital Account of such Partner pursuant to Section 8.02, and (3) any
amounts from time to time added to the Capital Account of such Partner pursuant
to Article X; (b) decreased by (1) any distributions made to such Partner
including pursuant to Section 8.05(c)(i), (2) any Default Charge subtracted from
the Capital Account of such Partner pursuant to Section 8.02, and (3) any
amounts subtracted from the Capital Account of such
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Partner pursuant to Article X; and (c) otherwise adjusted in accordance with the
tax accounting principles set forth in Treasury Regulations Section
1.704-1(b)(2)(iv). For these purposes, Net Gain allocated to any Partner shall
be added to, and Net Loss and Loss Items so allocated shall be subtracted from,
such Partner's Capital Account.
SECTION 9.03. Accounting for Distributions in Kind. For purposes of
maintaining Capital Accounts when Partnership property is distributed in kind,
(a) the Partnership shall treat such property as if it had been sold for its
fair market value on the date of distribution as determined in accordance with
Article XII; (b) any difference between the fair market value of such property
as so determined and the Cost of such property shall constitute Net Gain or Loss
attributable to such distribution and shall be allocated to the Capital Accounts
of the Partners pursuant to Article X; and (c) all property distributed in kind
by the Partnership to a Partner shall be debited to that Partner's Capital
Account at the fair market value of such property on the date of distribution
(net of any liabilities secured by such distributed property that such Partner
is considered to assume or take subject to under Section 752 of the Code).
SECTION 9.04. Compliance With Treasury Regulations. The foregoing
provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Section 704(b) of
the Code and Treasury Regulations Section 1.704- 1(b), and shall be interpreted
and applied in a manner consistent with such regulations. In the event that the
General Partner shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto, are computed in order to
comply with such regulations, the General Partner may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Partner pursuant to Articles XI or XIV hereof.
ARTICLE X
ALLOCATIONS
SECTION 10.01. General. Partnership income, gain, loss, deductions
and expenses shall be allocated to the Capital Accounts of the Partners in
accordance with this Article X.
SECTION 10.02. Net Gain. As of the end of each fiscal year of the
Partnership and after giving effect to the special allocations set forth in
Sections 10.05 and 10.06, the Net Gain (if any) of the Partnership for such
fiscal year shall be allocated to the Capital Accounts of the Partners as
follows:
(a) First, to all Partners, in proportion to the amounts of Net Loss
(if any) previously allocated to each such Partner pursuant to Section 10.03(d)
and not offset by prior allocations of
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Net Gain made pursuant to this Section 10.02(a), an amount of Net Gain equal to
the aggregate amount of such Net Loss;
(b) Second, to the extent of any Net Gain remaining after allocations
pursuant to Section 10.02(a), to all Partners, in proportion to each Partner's
respective 8% Preferential Return Allocation, an amount of Net Gain equal to the
aggregate amount of such 8% Preferential Return Allocations;
(c) Third, to the extent of any Net Gain remaining after allocations
pursuant to Sections 10.02(a) and 10.02(b):
(1)
if the Partnership is not in an 8% Payback Period, 100% to
all Partners in proportion to their respective
Contributions Accounts; and
(2)
if the Partnership is in an 8% Payback Period, 100% to the
General Partner until the General Partner has received
additional allocations of Net Gain pursuant to this Section
10.02(c)(2) and Sections 10.02(d) and 10.06 (net of
offsetting allocations of Net Loss and Loss Items) equal in
the aggregate to its 20% Subordinate Gain Allocation; and
(d) Fourth, to the extent of any Net Gain remaining after allocations
pursuant to Sections 10.02(a), 10.02(b) and 10.02(c), 80% to all Partners in
proportion to their respective Contributions Accounts and 20% to the General
Partner.
SECTION 10.03. Net Loss. As of the end of each fiscal year of the
Partnership and after giving effect to the special allocations set forth in
Sections 10.05 and 10.06, the Net Loss (if any) of the Partnership for such
fiscal year shall be allocated to the Capital Accounts of the Partners as
follows:
(a) First, to all Partners, in proportion to the respective amounts of
Net Gain (if any) previously allocated to each such Partner pursuant to Section
10.02(d) and not offset by prior allocations of Net Loss made pursuant to this
Section 10.03(a) or Loss Items pursuant to Section 10.05, an amount of Net Loss
equal to the aggregate amount of such Net Gain (if any).
(b) Second, to the extent of any Net Loss remaining after allocations
pursuant to Section 10.03(a):
(1)
to the General Partner, an amount of Net Loss equal to the
aggregate amount of Net Gain previously allocated to the
General Partner pursuant to
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Section 10.02(c)(2) and not offset by prior allocations of
Net Loss made pursuant to this Section 10.03(b)(1) or Loss
Items pursuant to Section 10.05; and then
(2)
to all Partners, in proportion to the respective amounts of
Net Gain (if any) previously allocated to each Partner
pursuant to Section 10.02(c)(1) and not offset by prior
allocations of Net Loss made pursuant to this Section
10.03(b)(2) or Loss Items pursuant to Section 10.05, an
amount of Net Loss equal to the aggregate amount of such
Net Gain.
(c) Third, to the extent of any Net Loss remaining after allocations
pursuant to Sections 10.03(a) and 10.03(b), to all Partners, in proportion to
the respective amounts of Net Gain (if any) previously allocated to each Partner
pursuant to Section 10.02(b) and not offset by prior allocations of Net Loss
made pursuant to this Section 10.03(c) or Loss Items pursuant to Section 10.05,
an amount of Net Loss equal to the aggregate amount of such Net Gain.
(d) Fourth, to the extent of any Net Loss remaining after allocations
pursuant to Section 10.03(a), 10.03(b) and 10.03(c), to all Partners in
proportion to their respective Contributions Accounts.
SECTION 10.04. Distributions in Kind. Net Gain or Loss attributable to
a distribution of Partnership property in kind shall be allocated, immediately
prior to the time such distribution is made, to the Partners' Capital Accounts
on the same basis as an equivalent amount of Net Gain or Loss would be allocated
for a hypothetical fiscal year ending immediately prior to such distribution.
For this purpose, there shall be taken into account any Net Gain or Loss
attributable to distributions in kind previously made during the fiscal year,
but there shall not be taken into account other items of Partnership income,
gain, loss or deduction realized or incurred since the end of the prior fiscal
year (such items being taken into account and allocated to Partners' Capital
Accounts as Net Gain, Net Loss or Loss Items only at the end of the fiscal year
in which they are realized or incurred).
SECTION 10.05. Operational Rules.
(a) If, for any fiscal period, Net Gain is available to be allocated
to the Partners but (1) an allocation of all of such Net Gain pursuant to
Section 10.02 for such fiscal period would not be sufficient to provide each
Partner with such Partner's full 8% Preferential Return Allocation for such
fiscal period, and (2) any allocation of Net Gain for any prior fiscal period
has been made pursuant to Sections 10.02(c)(2) or 10.02(d) but not previously
offset by allocations of Net Loss pursuant to Sections 10.03(a) or 10.03(b)(1)
or Loss Items pursuant to this Section 10.05, then:
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(A)
Loss Items for such fiscal period shall be allocated
(subject to the remainder of this Article X) to all
Partners, in proportion to the respective amounts of Net
Gain previously allocated to each such Partner pursuant to
Sections 10.02(c)(2) or 10.02(d) and not previously offset
by allocations of Net Loss made pursuant to Sections
10.03(a) or 10.03(b)(1) or Loss Items pursuant to this
Section 10.05, in an aggregate amount equal to the lesser
of the aggregate amount of such Loss Items or the aggregate
amount of such Net Gain, with such Loss Items allocated
among the Partners to offset such allocations of Net Gain
in the order in which such allocations of Net Gain
previously were made; and
(B)
the Net Gain of the Partnership for such fiscal period,
determined solely for this purpose by excluding all Loss
Items specially allocated pursuant to this Section 10.05
with respect to such fiscal period, shall then be allocated
pursuant to Section 10.02.
(b) If, for any fiscal period which is an 8% Payback Period, Net Gain
is available to be allocated to the Partners but (1) an allocation of all of
such Net Gain pursuant to Section 10.02 for such fiscal period would be
insufficient to provide the General Partner with its full 20% Subordinate Gain
Allocation, and (2) any allocation of Net Gain for any prior fiscal period has
been made pursuant to Section 10.02(d) but not previously offset by allocations
of Net Loss pursuant to Section 10.03(a) or Loss Items pursuant to this Section
10.05, then:
(A)
Loss Items for such fiscal period shall be allocated
(subject to the remainder of this Article X) to all
Partners, in proportion to the respective amounts of Net
Gain previously allocated to each such Partner pursuant to
Section 10.02(d) and not previously offset by allocations
of Net Loss made pursuant to Section 10.03(a) or Loss Items
pursuant to this Section 10.05, in an aggregate amount
equal to the lesser of the aggregate amount of such Loss
Items or the aggregate amount of such Net Gain, with such
Loss Items allocated among the Partners to offset such
allocations of Net Gain in the order in which such
allocations of Net Gain previously were made; and
(B)
the Net Gain of the Partnership for such fiscal period,
determined solely for this purpose by excluding all Loss
Items specially allocated pursuant to this Section 10.05
with respect to such fiscal period, shall then be allocated
pursuant to Section 10.02.
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SECTION 10.06. Regulatory Allocations. The following provisions are
included in order to comply with tax rules set forth in the Code and to permit
the Partnership to obtain the benefits of a "SAFE HARBOR" provided by Treasury
Regulations Section 1.704-1(b)(2)(ii)(d).
(a) If and to the extent that any allocation of Net Loss or Loss Items
(or portion thereof) to any Partner would cause such Partner's Capital Account
to be negative by an amount which exceeds such Partner's Restoration Amount then
such loss (or portion thereof) shall be allocated first to the Capital Accounts
of the other Partners in proportion to the positive balances in their respective
Capital Accounts until all such Capital Accounts are reduced to zero, then to
the Capital Accounts of Partners with Restoration Amounts, in proportion to
their respective Restoration Amounts, until each such Partner's Capital Account
is negative by an amount equal to such Partner's Restoration Amount, and then to
the Capital Account of the General Partner; provided that an allocation pursuant
to this Section 10.06(a) shall be made only if and to the extent that the
deficit in such Partner's Capital Account would exceed such Partner's
Restoration Amount after all allocations provided for in this Article X have
been made tentatively as if Section 10.06 hereof were not included in this
Agreement.
(b) If any Partner unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), and such adjustment, allocation or distribution causes such Partner
to have a deficit balance in such Partner's Capital Account that exceeds such
Partner's Restoration Amount or would further reduce a balance in such Partner's
Capital Account that is already negative by an amount which exceeds such
Partner's Restoration Amount, there shall be allocated to such Partner items of
income and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain for such fiscal period) in an amount
and manner sufficient to eliminate such Partner's deficit Capital Account
balance, to the extent required by Treasury Regulations Section
1.704-1(b)(2)(ii)(d), as quickly as possible, provided that an allocation
pursuant to this Section 10.06(b) shall be made only if and to the extent that
the deficit in such Partner's Capital Account would exceed such Partner's
Restoration Amount after all allocations provided for in this Article X have
been made tentatively as if this Section 10.06(b) were not included in this
Agreement. The foregoing sentence is intended to constitute a "QUALIFIED INCOME
OFFSET" provision as described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d), and shall be interpreted and applied in all respects in
accordance with that Section.
(c) In the event that any Partner has a negative Capital Account at
the end of any Partnership fiscal year which is in excess of such Partner's
Restoration Amount, there shall be allocated to such Partner items of
Partnership income (including gross income) and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 10.06(c) shall be made only if and to the extent that the deficit in
such Partner's Capital Account would exceed such Partner's Restoration Amount
after all allocations provided for in this Article X have been made tentatively
as if Section 10.06(b) hereof and this Section 10.06(c) were not included in
this Agreement.
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<PAGE>
(d) To the extent that an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 743(b) of the Code is required, pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account
in determining Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Treasury Regulations.
(e) The allocations set forth in Sections 10.06(a), 10.06(b), 10.06(c)
and 10.06(d) hereof (the "REGULATORY ALLOCATIONS") are intended to comply with
certain requirements of Treasury Regulations Section 1.704-1(b). Notwithstanding
any other provisions of this Article X (other than the Regulatory Allocations),
the Regulatory Allocations shall be taken into account in allocating subsequent
Net Gain, Net Loss, Loss Items and items of income, gain, loss and deduction
among the Partners so that, to the extent possible, the net amount of such
allocations of subsequent Net Gain, Net Loss, Loss Items and other items and the
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Article X if the Regulatory Allocations had not occurred.
For purposes of applying the foregoing sentence, allocations pursuant
to this Section 10.06(e) shall be made with respect to allocations pursuant to
Section 10.06(d) only to the extent the General Partner reasonably determines
that such allocations will otherwise be inconsistent with the economic agreement
among the Partners. Further, if allocations to the General Partner include or
are affected by Regulatory Allocations or allocations pursuant to this Section
10.06(e) intended to offset such Regulatory Allocations, the General Partner,
after consulting with the Partnership accountants and other advisors, shall have
discretion to make such adjustments to subsequent 20% Subordinate Gain
Allocations as the General Partner deems reasonably necessary or appropriate to
effectuate the economic arrangements of the Partners.
(f) Subject only to the "QUALIFIED INCOME OFFSET" provisions of
Section 10.06(b) hereof, the General Partner shall be allocated at least 1% of
each material item of Partnership income, gain, loss, deduction or credit at all
times during the existence of the Partnership. To the extent that any allocation
is made pursuant to this Section 10.06(f), such allocation shall be treated as a
Regulatory Allocation for purposes of Section 10.06(e); PROVIDED, HOWEVER, that
in the event of any conflict between Section 10.06(e) and this Section 10.06(f),
this Section 10.06(f) shall govern.
SECTION 10.07. Adjustments to Reflect Changes in Interests.
(a) Notwithstanding the foregoing but subject to Section 10.07(b),
with respect to any fiscal period during which any Partner's interest in the
Partnership changes, whether by reason of
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the admission of a Partner, the withdrawal of a Partner, a non-pro rata
contribution of capital to the Partnership or any other event described in
Section 706(d)(1) of the Code and regulations issued thereunder, allocations of
Net Gain, Net Loss and Loss Items shall be adjusted appropriately to take into
account the varying interests of the Partners during such period. The General
Partner shall consult with the Partnership's accountants and other advisors and
shall select the method of making such adjustments, which method shall be used
consistently thereafter.
(b) If any Person is admitted to the Partnership (or the Subscription
of any existing Partner is increased) after the Initial Closing in accordance
with the provisions of this Agreement, the General Partner shall adjust the
allocations otherwise provided for in this Article X of Net Gain or Loss and
Loss Items (and items of Partnership income, gain, loss and expense), for the
fiscal year in which such event occurs and for subsequent fiscal years if
necessary, so that, after such adjustments have been made, each Partner
(including any Partners admitted after the Initial Closing and all Partners
whose Subscriptions have been increased after the Initial Closing) shall have
been allocated Partnership expenses, including Organizational Expenses, equal in
amount to the aggregate amount of Partnership expenses such Partner would have
been allocated if it had been admitted to the Partnership on the Initial Closing
with a Subscription equal to that set forth in SCHEDULE A after such schedule
has been amended to reflect such Partner's admission or the increase in its
Subscription; provided, however, that (1) no item of income, gain or deductible
loss realized (or deemed to have been realized on a distribution in kind) before
the admission of any new Partner shall be allocated to such Partner and (2)
allocations to any existing Partner of items of income, gain or deductible loss
realized (or deemed to have been realized on a distribution in kind) prior to
the increase in the Subscription of such Partner shall be limited to those
permitted by Section 706 of the Code.
SECTION 10.08. Tax Allocations. For federal, state and local income tax
purposes, Partnership income, gain, loss, deduction or credit (or any item
thereof) for each fiscal year shall be allocated to and among the Partners in
order to reflect the allocations made pursuant to the provisions of this Article
X for such fiscal year (other than allocations of items which are not deductible
or are excluded from taxable income), taking into account any variation between
the adjusted tax basis and book value of Partnership property in accordance with
the principles of Section 704(c) of the Code.
SECTION 10.09. Timing of Allocations.
(a) The General Partner shall cause the Partnership to make the
allocations described in this Article X as of any time that the Partnership
enters an 8% Payback Period on the basis of an interim closing of the
Partnership's books at such time. It is intended that this Section 10.09, in
conjunction with Section 11.04(a) and the definition of 8% Preferential Return
Allocation set forth in APPENDIX A, shall be interpreted so as to apportion Net
Gain of the Partnership for the full fiscal period to be divided by such interim
closing to the short fiscal period prior to the
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interim closing only to the extent necessary to provide each Partner with the
allocations of Net Gain contemplated by Sections 10.02(a) and 10.02(b), and that
all remaining Net Gain for such full fiscal period shall be deemed to be
attributable to the short fiscal period following such interim closing.
(b) The General Partner in its sole discretion may also cause the
Partnership to make such allocations on the basis of an interim closing of the
books as of the time that any distribution is made during a fiscal period that
is not an 8% Payback Period. In such event, it is intended that the pertinent
provisions of this Agreement shall be interpreted so as to apportion Net Gain of
the Partnership for the full fiscal period to be divided by such interim closing
to the short fiscal period prior to the interim closing and the short fiscal
period following such interim closing in the manner determined by the General
Partner, after consultation with the Partnership's accountants and other
advisors, to be appropriate to effectuate the economic arrangements among the
Partners as contemplated by this Agreement.
(c) If any such interim closing occurs, each short fiscal period that
results shall constitute a fiscal year for purposes of this Article X other than
Section 10.08 hereof. Tax allocations pursuant to Section 10.08 shall be made
only as of the end of each fiscal year.
ARTICLE XI
DISTRIBUTIONS
SECTION 11.01. Tax Distributions.
(a) The Partnership shall distribute to each Partner (including any
tax-exempt Partners) in cash, with respect to each fiscal year, either during
such year or within 90 days thereafter, an amount equal to the aggregate state
and federal income tax liability such Partner would have incurred as a result of
such Partner's ownership of an interest in the Partnership, calculated (i) as if
such Partner were (A) subject to tax as a resident or domiciliary of New York
City, New York and (B) taxable at the maximum rates provided for with respect to
natural persons (or, if higher, with respect to taxable corporations) under
applicable federal, state and local income tax laws as determined from time to
time by the General Partner after consulting with accountants to the
Partnership; (ii) as if allocations from the Partnership were, for such year,
the sole source of income and loss for such Partner; and (iii) without regard to
the carryover of items of loss, deduction and expense previously allocated by
the Partnership to such Partner (such distributions being referred to herein as
"TAX DISTRIBUTIONS").
(b) Notwithstanding the foregoing: (1) the aggregate amount of Tax
Distributions that otherwise would be made pursuant to this Section 11.01 may be
reduced or not made with respect to any fiscal year to the extent determined by
the General Partner in its sole discretion,
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and (2) Tax Distributions that otherwise would be made to any Partner with
respect to any Fiscal Year pursuant to Section 11.01(a) shall be reduced by the
amount of any other cash distributions made by the Partnership to such Partner
during such Fiscal Year or within 90 days thereafter, PROVIDED, HOWEVER, that
for purposes of this clause (2) any Tax Distribution made within 90 days after
the beginning of any fiscal year with respect to a prior year shall not be
accounted for as a Tax Distribution for the fiscal year in which it was made.
(c) The Partnership may make Tax Distributions to the Partners during
any Partnership fiscal year to enable them to satisfy their liability to make
estimated tax payments with respect to such fiscal year or the preceding fiscal
year based on calculations of the Partners' estimated tax liability made
pursuant to Section 11.01(a) as of such dates as the General Partner in its sole
discretion may determine; PROVIDED, HOWEVER, that:
(1)
if the aggregate amount of Tax Distributions made to the
General Partner with respect to any fiscal year exceeds the
tax liability of the General Partner with respect to such
fiscal year (calculated as of the end of such fiscal year
pursuant to Section 11.01(a)), such excess shall be treated
to the maximum extent possible as an advance to the General
Partner against the General Partner's distributive share of
Partnership income and the General Partner shall return
such excess to the Partnership without interest promptly
after the determination of such excess amount; and
(2)
the Capital Account of the General Partner shall not be
reduced by any advances made to the General Partner
pursuant to this Section 11.01(c) during any fiscal year,
but shall be reduced as of the end of such fiscal year by
an amount equal to the aggregate amount of all such
advances (net of any part of such advances returned to the
Partnership by the General Partner pursuant to the
preceding clause (1)).
SECTION 11.02. Timing of Distributions. The Partnership shall
distribute (a) the cash proceeds of all dispositions of Portfolio Securities and
(b) all other current income, in each case net of Partnership expenses and
reserves for reasonably-estimated future expenses and liabilities at such times
as the General Partner shall determine in its sole discretion and in any case
not later than 60 days after receipt of such cash proceeds or other current
income. The Partners acknowledge that it is the General Partner's intention to
make all distributions in cash during the term of the Partnership EXCEPT when
the General Partner has determined in good faith that a distribution of
Portfolio Securities in kind, made in accordance with the provisions of this
Article XI, would yield greater value to the Limited Partners at the time of
distribution than a sale of such Portfolio Securities by the Partnership and a
subsequent distribution of the proceeds thereof to the Limited Partners in cash.
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SECTION 11.03. Priority of Distributions.
(a) Distributions of cash and Partnership property in kind (other than
Tax Distributions and Liquidating Distributions) made at any time while the
Partnership is not in an 8% Payback Period shall be made 100% to all Partners as
follows:
(1)
First, in proportion to their respective Contributions
Accounts until each Partner has received aggregate
distributions, in cash or in kind, equal to the balance in
such Partner's Contributions Account; and
(2)
Thereafter, in proportion to their respective 8%
Distribution Preferences.
(b) Distributions of cash and Partnership property in kind (other than
Tax Distributions and Liquidating Distributions) made at any time while the
Partnership is in an 8% Payback Period shall be made in the following order and
priority:
(1)
First, 100% to the General Partner until the General
Partner has received additional distributions equal to 20%
of the sum of (i) the excess of the Partnership's aggregate
prior distributions (including distributions made pursuant
to Section 11.03(a) on the date that the amount of a
distribution to be made pursuant to this Section
11.03(b)(1) is being determined over the aggregate balances
in the Contributions Accounts of all Partners and (ii) the
amount determined pursuant to the preceding clause (i)
multiplied by 25% (20/80); and
(2)
Second, as long as the Partnership continues to be in an 8%
Payback Period, 80% to all Partners in proportion to their
respective Contributions Accounts and 20% to the General
Partner.
SECTION 11.04. Operational Rules.
(a) If a proposed distribution of cash or of Partnership property in
kind made in accordance with the percentages specified in Section 11.03(a) would
cause the Partnership to enter an 8% Payback Period, such cash or property shall
be deemed to be divided into two parts, a "PRE-8% PAYBACK DISTRIBUTION"
consisting of that amount of such distribution which would
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cause the Partnership to enter an 8% Payback Period if distributed in accordance
with Section 11.03(a) and a "POST-8% PAYBACK DISTRIBUTION" consisting of the
balance of such distribution; the Partnership's actual distribution of such
property shall be apportioned among the Partners accordingly.
(b) Proposed distributions pursuant to Section 11.03(b) that would
cause aggregate distributions to the General Partner to exceed the amounts
described in Section 11.03(b)(1) shall be divided in a manner similar to that
provided for under Section 11.04(a).
(c) Liquidating Distributions that cause the Partnership to enter into
an 8% Payback Period shall be deemed to be divided in a manner similar to that
provided for under Section 11.04(a) for purposes of Section 10.09 and any other
pertinent provision of this Agreement.
(d) All distributions other than Liquidating Distributions shall be
made in cash or in Freely Tradeable Securities unless otherwise approved by the
Advisory Committee. The valuation of securities distributed in kind shall be
made in the manner provided in Article XII. Each class of securities to be
distributed in kind shall be distributed to the Partners in proportion to their
respective shares of the proposed distribution as provided in Section 11.03,
except to the extent that a disproportionate distribution of such securities is
necessary in order to avoid distributing fractional shares. For purposes of the
preceding sentence, each lot of stock or other securities having a separately
identifiable tax basis or holding period shall be treated as a separate class of
securities.
SECTION 11.05. Tax Withholding. If the Partnership incurs a tax
withholding obligation with respect to any Partner, any amount required to be
withheld by the Partnership with respect to such Partner shall be treated for
all purposes of this Agreement as if it had been transferred to such Partner by
the Partnership as an interest-free advance. Amounts treated as advanced to any
Partner pursuant to this Section 11.05 shall be repaid by such Partner to the
Partnership within 30 days after the Partnership delivers a written request to
such Partner for such repayment; provided, however, that if any such repayment
is not made, the Partnership, at the discretion of the General Partner, shall
(a) collect such unpaid amounts from any Partnership distributions that
otherwise would be made to such Partner and/or (b) subtract from the Capital
Account of such Partner, no later than the day prior to the Partnership's first
liquidating distribution, the amount of any such tax withholding not so
collected, in each case treating the amount so collected or subtracted as having
been distributed to such Partner at the time of such collection or subtraction.
For purposes of this Section 11.05, any tax withholding obligation incurred by
the General Partner with respect to any Partner shall constitute a Partnership
obligation.
SECTION 11.06. Distributions on Admission of Additional Partners.
Upon the admission of a new Partner or an increase in the Subscription of any
existing Partner pursuant to
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Section 7.01, the General Partner may, but shall not be obligated to, cause the
Partnership to distribute prior to such admission or increase in aggregate
Subscriptions, to the Persons who were Partners prior to such admission or
increase in aggregate Subscriptions and in proportion to such Partners'
respective Contributions Accounts as of the time immediately prior to such
admission or increase in Subscriptions, part or all of any amounts earned by the
Partnership on such Partners' paid-in capital contributions before such
contributions were invested in Portfolio Securities.
SECTION 11.07. Certain Distributions Prohibited. Anything in this
Article XI to the contrary notwithstanding, all Partnership distributions shall
be subject to the following limitations.
(a) No distribution shall be made to any Partner if, and to the extent
that, such distribution would not be permitted under Section 17-607(a) of the
Delaware Act.
(b) No distribution other than a Tax Distribution shall be made to any
Partner to the extent that such distribution, if made, would cause the deficit
balance, if any, in the Capital Account of such Partner (determined without
regard to any allocations made pursuant to Section 10.06(b) and 10.06(c)) to
exceed such Partner's Restoration Amount.
SECTION 11.08. Consent to Distributions. Each Partner, by becoming a
Partner, consents to any such distribution hereafter made or omitted to be made
to the Partners or any of them in accordance with this Article XI.
ARTICLE XII
VALUATION OF PARTNERSHIP ASSETS
SECTION 12.01. Valuation by General Partner. Whenever valuation of
Partnership assets or net assets is required by this Agreement, the General
Partner shall determine the fair market value thereof in good faith in
accordance with this Article XII. In the event of a distribution of securities
which are not Freely Tradeable Securities, the General Partner shall also
consult with the Advisory Committee with respect to the determination of the
fair market value of such securities.
SECTION 12.02. Fair Market Value. The fair market value of any security
owned by the Partnership which is a Freely Tradeable Security (as defined in
Section 12.03) shall be determined as of the close of trading on the date as of
which the value is being determined by taking the last reported trade price of
such security on such trading date on the exchange where it is primarily traded
or, if such security is not traded on an exchange, such security shall be valued
at the last reported sale price on such date on the Nasdaq National Market
maintained by the
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United States National Association of Securities Dealers, Inc. or, if such
security is not reported on the Nasdaq National Market, such security shall be
valued at the reported closing bid price (or average of bid prices) last quoted
on such date as reported by an established quotation service for
over-the-counter securities. The determination of the fair market value of all
other assets of the Partnership shall be based upon all relevant factors,
including, without limitation, such of the following factors as may be deemed
relevant by the General Partner: current financial position and current and
historic operating results of the issuer; sales prices of recent public or
private transactions in the same or similar securities, including transactions
on any securities exchange on which such securities are listed or in the
over-the-counter market; general level of interest rates; recent trading volume
of the security and other considerations affecting market liquidity;
restrictions on transfer, including the Partnership's right, if any, to require
registration of its securities by the issuer under the securities laws;
significant recent events affecting the issuer, including any pending private
placement, public offering, merger or acquisition; the price paid by the
Partnership to acquire the asset; the percentage of the issuer's outstanding
securities that is owned by the Partnership; and all other factors affecting
value.
In making any such determination of the fair market value of the assets
of the Partnership, no allowance of any kind shall be made for goodwill or the
name of the Partnership or of the General Partner, the Partnership's office
records, files and statistical data or any intangible assets of the Partnership.
SECTION 12.03. Freely Tradeable Securities. For purposes of this
Agreement a security shall be deemed to be a "FREELY TRADEABLE SECURITY" if (a)
the Partnership's entire holding of such securities can be sold by the
Partnership to the general public (including a sale by any Partner of the entire
distributed amount of its holdings following a distribution of such security
from the Partnership even though a sale by the Partnership of such securities,
if not so distributed to the Partners but sold by the Partnership to the general
public, might otherwise be restricted by volume limitations) and such sale can
be effected pursuant to Rule 144 of the Securities Act or otherwise without the
necessity of any United States federal, state or local government registration
or consent (other than any ministerial notice filings of the type required
pursuant to Rule 144(h)), and (b) such securities are traded in a Public
Securities Market and market quotations are available for such securities,
including quotations available from market makers or specialists. If only a
portion of the Partnership's holdings of a class of securities satisfies the
requirements of the preceding sentence, that portion of such class shall
constitute Freely Tradeable Securities (so that, for example, any Partner can
sell the entire distributed amount of its holdings in such security following a
distribution of such security from the Partnership).
SECTION 12.04. Goodwill. The Partnership's name and goodwill shall,
as among the Partners, be deemed to have no value and shall belong to the
Partnership, and no Partner shall have any right or claim individually to the
use thereof. Upon termination of the Partnership, the
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right to the name of the Partnership and any goodwill associated with the
Partnership's name shall be assigned to the General Partner.
ARTICLE XIII
DURATION OF THE PARTNERSHIP
SECTION 13.01. Term of Partnership. The Partnership shall continue
until the date that is eight years after the Initial Closing unless its term is
extended as provided in Section 13.04, or unless it is sooner dissolved as
provided in Sections 13.02 or 13.03 or by operation of law.
SECTION 13.02. Dissolution Upon Withdrawal of General Partner. The
Partnership shall be dissolved 90 days after the occurrence with respect to the
General Partner of any of the events of withdrawal described in Sections
17-402(a)(2) through 17-402(a)(10) of the Delaware Act unless all of the Limited
Partners agree within such 90-day period to continue the Partnership and
appoint, effective as of the date of withdrawal, a new General Partner. If the
General Partner suffers an event that, with the passage of the period specified
in the Delaware Act, becomes an event of withdrawal under Section 17-402(a)(4)
or (5) of the Delaware Act, the General Partner shall notify each Limited
Partner of the occurrence of such event within 30 days after the occurrence of
such event. The Partnership shall not be dissolved in the event of the
dissolution, death, bankruptcy, incompetence, disability, substitution or
admission of any Limited Partner.
SECTION 13.03. Dissolution by Partners. (a) The General Partner, with
the consent of at least 50% in interest of the Limited Partners, may dissolve
the Partnership at any time on not less than 60 days' prior written notice of
such dissolution to the other Partners; provided that the general partners of
the Offshore Partnership, with the consent of the limited partner of the
Offshore Partnership, simultaneously dissolve the Offshore Partnership.
(b) The Limited Partners, by vote of two-thirds in interest of the
Limited Partners taken within 45 days after the occurrence of any event giving
rise to such right, may dissolve the Partnership (provided that the Offshore
Partnership is simultaneously dissolved) if: (i) the General Partner commits a
material breach of any of its material obligations under this Agreement and such
breach continues to exist for 60 days after delivery of notice to the General
Partner of the occurrence of such breach or after the General Partner becomes
aware of such breach; or (ii) the General Partner, any partner of the General
Partner or a member of the General Partner's general partner is charged or
convicted of a felony in connection with the business of the Partnership.
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SECTION 13.04. Extension of Term. It is contemplated by the Partners
that the term of the Partnership shall terminate on the date that is eight years
after the Initial Closing and that the Partnership shall be considered to be
dissolved on such date without any further action being required by any of the
Partners, unless sooner terminated pursuant to Sections 13.02 or 13.03 or by
operation of law. Notwithstanding the foregoing, the term of the Partnership may
be extended for two additional one-year periods by the General Partner with the
prior approval of the Advisory Committee. The General Partner shall notify the
Limited Partners promptly of any such extension.
ARTICLE XIV
LIQUIDATION OF PARTNERSHIP INTERESTS
SECTION 14.01. General Provisions. At dissolution, the Partnership's
assets shall be liquidated in an orderly manner. The General Partner shall be
the liquidator to wind up the affairs of the Partnership pursuant to this
Agreement; provided that, if there shall be no remaining General Partner at that
time, a majority in interest of the Limited Partners may designate one or more
other Persons to act as the liquidator(s) instead of the General Partner. Any
such liquidator(s), other than the General Partner, shall be a "liquidating
trustee" within the meaning of Section 17-101(8) of the Delaware Act.
SECTION 14.02. Liquidating Distributions. The liquidator(s) shall pay
or provide for the satisfaction of the Partnership's liabilities and obligations
to creditors. Any Net Gain or Loss realized in connection with the liquidation
of the Partnership shall be allocated among the Partners pursuant to Article X,
and the remaining assets of the Partnership shall then be distributed to the
Partners in cash (to the extent feasible) in proportion to the positive balances
in the respective Capital Accounts of the Partners (and, if a distribution in
kind is necessary, after allocating any Net Gain or Loss attributable to such
distribution). In performing their duties, the liquidator(s) are authorized to
sell, exchange or otherwise dispose of the assets of the Partnership in such
reasonable manner as the liquidator(s) shall determine to be in the best
interest of the Partners. During the liquidation of the Partnership, the
liquidator(s) shall furnish to the Partners the financial statements and other
information specified in Article XIX.
SECTION 14.03. Expenses of Liquidator(s). The reasonable expenses
incurred by the liquidator(s) in connection with winding up the Partnership, all
other losses or liabilities of the Partnership incurred in accordance with the
terms of this Agreement, and reasonable compensation for the services of the
liquidator(s) (which, with respect to any liquidator who is a General Partner,
shall be paid only if the Management Agreement is no longer in effect, and in
that event shall be in an amount determined in accordance with Section 3.06)
shall be borne by the Partnership. Subject to the terms of the Management
Agreement, and provided such agreement shall not have been terminated, and
provided further, that a majority in interest of the
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Limited Partners have not designated another liquidator pursuant to Section
14.01, the Management Fee shall be continued for a period of one year from the
date of dissolution or until the liquidation is completed, whichever is sooner,
to permit the Management Company to assist in the liquidation.
SECTION 14.04. Duration of Liquidation. A reasonable time shall be
allowed for the winding up of the affairs of the Partnership in order to
minimize any losses otherwise attendant upon such a winding up. The
liquidator(s) shall use its best efforts to dispose of or distribute all
Partnership assets within one year of dissolution, but shall not be bound to do
so or liable in any way to any Partner for failure to do so. The liquidator(s)
shall then make final liquidating distributions from the Partnership before the
later of (i) the end of the taxable year in which the date of liquidation of the
Partnership occurs, or (ii) 90 days after the date of the liquidation of the
Partnership. For this purpose, (x) the date of the liquidation of the
Partnership shall be the date on which the Partnership has ceased to be a going
concern, and (y) the Partnership shall not be deemed to have ceased to be a
going concern until it has sold, distributed or otherwise disposed of its
Portfolio Securities.
SECTION 14.05. Duty of Care. The liquidator(s) shall not be liable to
the Partnership or any Partner for any loss attributable to any act or omission
of the liquidator(s) taken in good faith in connection with the liquidation of
the Partnership and distribution of its assets in belief that such course of
conduct was in the best interest of the Partnership. The liquidator(s) may
consult with counsel, accountants, investment bankers and appraisers with
respect to liquidating the Partnership and distributing its assets and shall be
justified in acting or omitting to act in accordance with the advice or opinion
of such counsel, accountants, investment bankers and appraisers, provided they
shall have been selected and retained with reasonable care.
SECTION 14.06. No Liability for Return of Capital. The liquidator(s),
the General Partner and their respective officers, directors, agents, partners
(including the officers, directors, members, managers, employees and agents of
the partners of the General Partner) and their Affiliates shall not be
personally liable for the return of the capital contributions of any Partner to
the Partnership. No Partner shall be obligated to restore to the Partnership any
amount with respect to a negative Capital Account; PROVIDED, HOWEVER, that this
provision shall not affect the obligations of Partners to make their agreed upon
capital contributions to the Partnership.
SECTION 14.07 The General Partner's Obligation to Restore Deficit.
Upon completion of the liquidation of the Partnership, the General Partner shall
repay to the Partnership an amount equal to the deficit (if any) in the Capital
Account of the General Partner; provided, however, that the total amount which
the General Partner shall be obligated to return to the Partnership pursuant to
this Section 14.07 shall not exceed the aggregate amount of distributions
received by the General Partner from the Partnership reduced by the sum of (i)
the aggregate amount of distributions that the General Partner would have
received if each Partnership distribution had been made to all Partners in
proportion to the balances in their
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respective Contributions Accounts, and (ii) the aggregate amount of Tax
Distributions made to the General Partner as of the date of determination (to
the extent not taken into account under the proceeding clause (i)). The General
Partner shall satisfy its repayment obligation by delivering to the Partnership
either cash or securities previously distributed to the General Partner by the
Partnership, valued in accordance with Article XII as of the date such repayment
is made. Any such repayment shall be made before the later of (1) the end of the
taxable year in which the date of liquidation of the Partnership occurs, or (2)
90 days after the date of the liquidation of the Partnership. For this purpose,
(A) the date of the liquidation of the Partnership shall be the date on which
the Partnership has ceased to be a going concern, and (B) the Partnership shall
not be deemed to have ceased to be a going concern until it has sold,
distributed or otherwise disposed of its Portfolio Securities. The intent of
this Section 14.07, in conjunction with the definition of "Restoration Amount,"
is to require the General Partner to return to the Partnership any distributions
(other than Tax Distributions) made to the General Partner with respect to its
20% "carried interest" to the extent that such distributions exceed in the
aggregate 20% of the excess of the Net Gain of the Partnership from its
inception through and including the date of the Partnership's final liquidating
distribution over the Net Loss of the Partnership over that period, and these
provisions shall be interpreted and applied accordingly. Amounts returned by the
General Partner to the Partnership shall be paid to creditors of the Partnership
(provided that no creditor of the Partnership shall have the right to enforce
any obligation of the General Partner to make the repayments contemplated by
this Section 14.07) or distributed to the Limited Partners in accordance with
the positive balances in their respective Capital Accounts.
ARTICLE XV
LIMITATION ON TRANSFERS OF INTERESTS OF LIMITED PARTNERS
SECTION 15.01. Consent of General Partner to Transfers.
(a) The prior written consent of the General Partner (which consent
shall not be unreasonably withheld or delayed) shall be required for any
Transfer of part or all of any Limited Partner's economic interest in the
Partnership. Any transferee of an economic interest in the Partnership shall
become a substituted Limited Partner only upon satisfaction of the requirements
set forth in Section 15.04.
(b) The following provisions are included in this Agreement to prevent
the Partnership from being classified as a "PUBLICLY TRADED PARTNERSHIP," as
defined in Section 7704 of the Code, that is taxable at the entity level:
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(i)
The General Partner shall not cause or permit (x) any
offering of Partnership interests to be registered under
the Securities Act, or (y) interests in the Partnership to
become "traded on an established securities market," and
shall withhold its consent to any Transfer that, to the
General Partner's knowledge after reasonable inquiry, would
otherwise be accomplished by a trade on a "secondary market
or the substantial equivalent thereof," in each case within
the meaning of Sections 7704 or 469(i) of the Code and any
regulations promulgated thereunder that are in effect at
the time of the proposed Transfer;
(ii)
No Transfer of any Partnership interest or portion thereof
shall be permitted or recognized (within the meaning of
Treasury Regulation Section 1.7704-1(d)) by the Partnership
or the General Partner if and to the extent that such
Transfer, if made, would (x) fail to qualify as a "transfer
not involving trading" pursuant to Treasury Regulation
Section 1.7704-1(e), AND (y) cause the Partnership to fail
to qualify for the safe harbor for "private placements" set
forth in Section 1.7704-1(h), AND (z) cause the Partnership
to fail to qualify for the "lack of actual trading" safe
harbor set forth in Section 1.7704-1(h), unless the General
Partner determines that such Transfer would not otherwise
cause the Partnership to be treated as a publicly traded
partnership under Section 7704(b) of the Code; and
(iii)
The transferor and transferee shall provide the General
Partner, in connection with any proposed Transfer, written
representations to the effect that (A) the proposed
Transfer will not be effected on or through (1) a United
States national, regional or local securities exchange, (2)
a foreign securities exchange or (3) an interdealer
quotation system that regularly disseminates firm buy or
sell quotations by identified brokers or dealers
(including, without limitation, the Nasdaq Automated
Quotation System), (B) such Person is not, and its proposed
Transfer or acquisition (as the case may be) will not be
made by, through or on behalf of, (1) a Person, such as a
broker or a dealer, making a market in interests in the
Partnership, or (2) a Person who makes available to the
public bid or offer quotes with respect to interests in the
Partnership; and shall provide such additional written
representations as the General Partner reasonably may
request to enable it to comply with the preceding clause
(iii) (PROVIDED, HOWEVER, that the General Partner may
waive its right to obtain such representations), and the
General Partner and counsel to the Partnership shall be
permitted to rely upon such representations and on written
representations from other Partners made prior to or
contemporaneously with such proposed Transfer.
SECTION 15.02. Opinion of Counsel. Any Transfer shall be made only
upon receipt by the Partnership of a written opinion of counsel for the
Partnership or of other counsel
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reasonably satisfactory to the Partnership (which opinion shall be obtained at
the expense of the transferor or through a charge to the transferor's Capital
Account) that such Transfer will not result in (A) the Partnership or the
General Partner being subjected to any additional regulatory requirements
(including those imposed by ERISA, the United States Investment Company Act of
1940, or the United States Investment Advisers Act of 1940, as amended), (B) a
violation of applicable law or this Agreement, (C) the Partnership being
classified as an association taxable as a corporation, (D) the Partnership being
treated as a corporation pursuant to Section 7704 of the Code, or (E) the
Partnership being deemed terminated pursuant to Section 708 of the Code. In
accordance with Section 21.10, such opinion shall also state that the interest
being transferred has been registered under the Securities Act or that an
exemption from such registration is available.
SECTION 15.03. Expenses. The transferor of any interest in the
Partnership hereby agrees to reimburse the Partnership, at the request of the
General Partner, for any expenses reasonably incurred by the Partnership in the
course of consummating such Transfer, including any legal, accounting and other
expenses.
SECTION 15.04. Substituted Limited Partners. Any transferee of a
Partnership interest transferred in accordance with the provisions of this
Article XV shall be admitted as a substituted Limited Partner upon the receipt
of the General Partner's written consent thereto (which may be withheld for any
reason or for no reason). Without the aforesaid consent of the General Partner
and the aforesaid written opinion of counsel, no transferee of a Partnership
interest shall be admitted as a substituted Limited Partner. The transferee of
an interest in the Partnership transferred pursuant to this Article XV that is
admitted to the Partnership as a substituted Limited Partner shall succeed to
the rights and liabilities of the transferor Limited Partner, and to the
Subscription, Contributions Account and Capital Account of the transferor, and
such Subscription, Contributions Account and Capital Account shall become the
Subscription, Contributions Account and Capital Account, respectively, of the
transferee, to the extent of the interest transferred.
SECTION 15.05. Covenants of Limited Partners.
(a) Each Limited Partner agrees with all other Partners that it will
not make any Transfer of all or any part of its interest in the Partnership
except in accordance with the provisions of this Article XV.
(b) Each Limited Partner, by its execution of this Agreement, agrees
and consents to the admission of any substituted Limited Partner pursuant to the
terms of this Article XV. Any transferee of a Partnership interest shall execute
a power-of-attorney as provided in Section 21.02 and such other documents as the
General Partner may request to effect such disposition, including an assumption
of all obligations of the transferor Limited Partner under this Agreement. Any
attempted Transfer of a Limited Partner's interest without compliance with this
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Agreement shall be void. In the event of any transfer which shall result in
multiple ownership of any Limited Partner's interest in the Partnership, the
General Partner may require one or more trustees or nominees to be designated as
representing a portion of or the entire interest transferred for the purpose of
receiving all notices which may be given, and all payments which may be made,
under this Agreement and for the purpose of exercising all rights which the
transferor as a Limited Partner has pursuant to the provisions of this
Agreement. Every Transfer shall be subject to all of the terms, conditions,
restrictions and obligations of this Agreement.
ARTICLE XVI
WITHDRAWAL OF PARTNERSHIP INTERESTS
SECTION 16.01. Withdrawal of Partnership Interests. No Partner shall
have the right to withdraw its capital and profits from the Partnership, except
as provided below with respect to ERISA and PERISA withdrawal.
SECTION 16.02. ERISA Partner Withdrawal. Notwithstanding any provision
in this Agreement to the contrary, any Limited Partner which is an ERISA Partner
may elect, upon written notice of such election to the General Partner, to
withdraw from the Partnership, or upon written demand by the General Partner
shall withdraw from the Partnership, at the time and in the manner hereinafter
provided, if either such ERISA Partner or the General Partner shall obtain and
deliver to the other an opinion of counsel (which opinion and counsel shall be
reasonably acceptable to both such ERISA Partner and the General Partner) to the
effect that (a) such ERISA Limited Partner (or any employee benefit plan or plan
any assets of which are held by such ERISA Limited Partner) may be in violation
of ERISA, the Code or rules or regulations promulgated thereunder by reason of
such ERISA Limited Partner's continuing as a Limited Partner, or (b) the
fiduciaries of such ERISA Limited Partner (or fiduciaries of an employee benefit
plan or plan the assets of which are held by such ERISA Limited Partner, as
applicable), would have liability for the acts or omissions of the General
Partner, notwithstanding the provisions of section 405(d) of ERISA, or (c) the
Partnership or the General Partner may or would be in violation of ERISA or the
Code by continuing to have such ERISA Limited Partner as a member. In the event
of the issuance and delivery of such opinion of counsel, the General Partner
shall promptly provide to each Partner a copy thereof, together with a copy of
the written notice of the election of such ERISA Partner to withdraw or the
written demand of the General Partner for withdrawal, as the case may be.
SECTION 16.03. Cure Period; Time of Withdrawal. The General Partner
shall have, in its sole discretion, a period of 90 days following receipt of
such counsel's opinion to attempt to eliminate the necessity for such withdrawal
to the reasonable satisfaction of such ERISA Partner and the General Partner,
whether by correction of the condition giving rise to the necessity of such
ERISA Partner's withdrawal, by amendment of this Agreement, by effectuation of a
transfer
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of such ERISA Partner's interest in the Partnership to a substituted Limited
Partner at a fair and reasonable price (provided such ERISA Partner consents to
such transfer) or otherwise. If such cause for withdrawal is not cured within
such 90-day period, then such ERISA Partner shall withdraw from the Partnership
as of the date following the expiration of such 90-day period (or, if the
General Partner elects in writing not to attempt so to cure, as of the date
following such election) which is the earlier of (a) the last day of the fiscal
year of the Partnership during which such 90-day period expires or during which
the General Partner so elects not to attempt a cure, as the case may be, and (b)
the last day of the fiscal quarter of the Partnership during which such 90-day
period expires or during which the General Partner so elects not to attempt a
cure, as the case may be, provided that the last day of such fiscal quarter is
recommended for withdrawal by counsel in such opinion (the earlier of (a) and
(b) being herein referred to as the "ERISA WITHDRAWAL DATE"). The reasonable
costs of obtaining or seeking an opinion of counsel for purposes of this Section
16.03, whether or not such opinion is to the effect specified above or results
in the withdrawal of the ERISA Partner, shall be borne by the ERISA Partner.
SECTION 16.04. Effects of ERISA Partner Withdrawal. Effective upon the
ERISA Withdrawal Date, such ERISA Partner shall cease to be a Partner of the
Partnership for all purposes and, except for its right to receive payment for
its Partnership interest as hereinafter provided, shall no longer be entitled to
the rights of a Partner under this Agreement, including without limitation the
right to receive allocations pursuant to Article X hereof, the right to receive
distributions during the term of the Partnership pursuant to Article XI and upon
liquidation of the Partnership pursuant to Article XIV and the right to vote on
Partnership matters as provided in this Agreement. As promptly as practicable
following the ERISA Withdrawal Date, the General Partner shall, where necessary,
file and record any required amendment to the Certificate reflecting such
withdrawal.
SECTION 16.05. Distribution to ERISA Partner. As promptly as
practicable following the ERISA Withdrawal Date, there shall be distributed to
such ERISA Partner, in full payment and satisfaction of its interest in the
Partnership, an amount equal to the amount which such ERISA Partner would have
been entitled to receive pursuant to Article XIV if the Partnership had been
liquidated on and as of the ERISA Withdrawal Date and all of the Partnership's
assets had been sold on such date for their fair market value. No approval of
the Partners shall be required prior to the making of such distribution. For
purposes of determining the amount of the distribution to be made to such ERISA
Partner, and the value of each of the Partnership's assets, the Partnership's
annual or quarterly financial statements, as the case may be, prepared in
accordance with Article XIX hereof for the period ending on the ERISA Withdrawal
Date shall be deemed to be conclusive. Such distribution to the withdrawing
ERISA Partner shall be payable in cash, cash equivalents and/or securities of
Portfolio Companies, with each separate group of cash, cash equivalents,
securities of Portfolio Companies and/or other assets (determined in a manner
consistent with the last sentence of Section 11.04(d)) being distributed to the
withdrawing ERISA Partner in proportion to such ERISA Partner's interest in the
Partnership to the extent practicable, unless otherwise required by law or
contract.
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SECTION 16.06. Conforming Amendment. Upon the withdrawal of any ERISA
Partner from the Partnership pursuant to this Article XVI, the Partners
(including the withdrawing ERISA Partner) shall enter into an amendment to this
Agreement reflecting such withdrawal and amending such provisions of this
Agreement, including without limitation the provisions regarding allocations and
distributions during the term of the Partnership and upon its liquidation, as
may be appropriate, so that the intent, spirit, operation and effect of such
allocation, distribution and other provisions shall, to the maximum extent
possible, be preserved after taking into account the withdrawal of such ERISA
Partner.
SECTION 16.07. PERISA Partner Withdrawal. For purposes of Sections
16.02, 16.03, 16.04, 16.05 and 16.06, (a) each Limited Partner that is an
employee benefit plan subject to regulation under applicable state laws that are
similar in purpose and intent to ERISA (a "PUBLIC EMPLOYEE RETIREMENT SECURITY
ACT PARTNER" or "PERISA PARTNER") shall be treated as an ERISA Partner, and (b)
all references in such provisions to ERISA shall be deemed to refer to such
applicable state laws and regulations.
ARTICLE XVII
LIMITATION ON TRANSFER OF INTEREST OF THE GENERAL PARTNER
SECTION 17.01. Limitation on Transfer of Interest of the General
Partner. The General Partner shall not assign, pledge, mortgage, hypothecate,
sell or otherwise dispose of or encumber all or any part of its general
partnership interest. Any attempted transfer of the General Partner's interest
shall be void.
ARTICLE XVIII
INDEMNIFICATION
SECTION 18.01. General Provisions. The General Partner, its partners,
officers, directors, members, managers, employees, consultants and agents
(including the officers, directors, employees, members, managers, consultants
and agents of each partner of the General Partner), each director, officer,
employee, consultant and agent of the Management Company and each member of the
Advisory Committee (herein referred to as an "INDEMNITEE") shall be indemnified
by the Partnership (only out of Partnership assets, including the proceeds of
liability insurance) against any claim, demand, controversy, dispute, cost,
loss, damage, expense (including attorneys' fees), judgment and/or liability
incurred by or imposed upon the Indemnitee in connection with any action, suit
or proceeding (including any proceeding before any administrative or legislative
body or agency) to which the Indemnitee may be a party or
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otherwise involved, or with which the Indemnitee may be threatened, by reason of
the Indemnitee's (or the Indemnitee's employee) being at the time the cause of
action arose or thereafter, the General Partner (including the General Partner
acting as Tax Matters Partner), a partner thereof (including the officers,
directors, employees, members, managers, consultants and agents of each partner
of the General Partner), an officer, director, employee, member, manager,
consultant or other agent of the General Partner, or of the Management Company
or a member of the Advisory Committee, or a director, officer, partner,
employee, member, manager, consultant or other agent of any other organization
in which the Partnership owns an interest or of which the Partnership is a
creditor, which other organization the Indemnitee (or its employee) serves or
has served as a director, officer, partner, employee, member, manager,
consultant or other agent at the request of the Partnership (whether or not the
Indemnitee or its employee continues to serve in such capacity at the time such
action, suit or proceeding is brought or threatened), except with respect to
matters as to which the Indemnitee (or its employee) shall have been finally
adjudicated in any such action, suit or proceeding (i) not to have acted in good
faith and in the belief that the Indemnitee's (or employee's) action was in
accordance with such Person's obligations to the Partnership, (ii) to have acted
with gross negligence or a willful disregard of his duties or (iii) with respect
to any criminal action or proceeding, to have had cause to believe beyond any
reasonable doubt the Indemnitee's (or employee's) conduct was criminal. In the
event of settlement of any action, suit or proceeding brought or threatened,
such indemnification shall apply to all matters covered by the settlement. The
foregoing right of indemnification shall be in addition to any rights to which
any Indemnitee may otherwise be entitled and shall inure to the benefit of the
executors, administrators, personal representatives, successors or assigns of
each such Indemnitee.
SECTION 18.02. Advance Payment of Expenses. The Partnership shall pay
the expenses incurred by an Indemnitee in defending a civil or criminal action,
suit or proceeding, or in opposing any claim arising in connection with any
potential or threatened civil or criminal action, suit or proceeding, in advance
of the final disposition of such action, suit or proceeding, upon receipt of an
undertaking by such Indemnitee to repay such payment if he shall be determined
to be not entitled to indemnification therefor as provided herein; PROVIDED,
HOWEVER, that in such instance the Indemnitee is not commencing an action, suit,
or proceeding against the Partnership, or defending an action, suit or
proceeding commenced against him by the Partnership or opposing a claim by the
Partnership arising in connection with any such potential or threatened action,
suit or proceeding.
SECTION 18.03. Insurance. The General Partner, on behalf of the
Partnership, may cause the Partnership to purchase and maintain insurance with
such limits or coverages as the General Partner reasonably deems appropriate, at
the expense of the Partnership and to the extent available, for the protection
of any Indemnitee against any liability incurred by such Indemnitee in any such
capacity or arising out of his status as such, whether or not the Partnership
has the power to indemnify such Indemnitee against such liability. The General
Partner may purchase and maintain insurance on behalf of the Partnership for the
protection of any officer, director,
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employee, consultant or other agent of any other organization in which the
Partnership owns an interest or of which the Partnership is a creditor against
similar liabilities, whether or not the Partnership has the power to indemnify
him or it against such liabilities.
SECTION 18.04. Sharing of Indemnification Expenses with Related Funds.
It is understood and agreed that, with regard to any claim for indemnification
pursuant to this Article XVIII which relates to a common activity of the
Partnership and the Offshore Partnership or any Successor Entity, the
Partnership shall be obligated to provide indemnity hereunder up to, but only to
the extent of, its pro rata share of the total of any such amounts so paid by
any or all of the Partnership, the Offshore Partnership, or any Successor Entity
(i) if such claim arises from a Portfolio Company investment, in proportion to
the respective amounts invested by the Partnership and such other funds in such
Portfolio Company, and (ii) otherwise in proportion to the respective amounts of
capital contributed (in cash and commitments) to the respective partnerships or
related funds.
SECTION 18.05. Limitation by Law. If the General Partner or the
Partnership is subject to any federal or state law, rule or regulation which
restricts the extent to which any person may be exonerated or indemnified by the
Partnership in any particular instance, then the indemnification provisions set
forth in this Article XVIII and the exoneration provisions set forth in Sections
3.10 and 14.05 shall be deemed to be amended, automatically and without further
action by the General Partner or the Limited Partners, to conform to such
restrictions on exoneration or indemnification as set forth in such applicable
federal or state law, rule or regulation. If any such law, statute, rule or
regulation of any jurisdiction by which the Partnership may be governed, is
thereafter amended to enlarge the scope of indemnification or eliminate or
reduce the liability of any Indemnitee, then this Agreement shall be deemed to
be amended, automatically and without any further action by the General Partner
or the Limited Partners to broaden correspondingly the exoneration or
indemnification provided hereunder; PROVIDED, HOWEVER, that the scope of the
exoneration or indemnification provided hereunder shall not be enlarged beyond
that which is set forth in this Article XVIII as of the date hereof. The rights
to indemnification and advancement of expenses conferred in this Article XVIII
shall not be exclusive of any other right which any Indemnitee may have or
hereafter acquire under any law, statute, rule, regulation, charter document,
by-law, contract or agreement.
ARTICLE XIX
ACCOUNTING; RECORDS AND REPORTS; ANNUAL MEETINGS
SECTION 19.01. Fiscal Year. The fiscal year of the Partnership shall
be the calendar year, or such other year as is required by the Code.
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SECTION 19.02. Keeping of Accounts and Records. At all times the
General Partner shall cause to be kept proper and complete books of account, in
which shall be entered fully and accurately the transactions of the Partnership.
Such books of account (which shall be kept on the accrual method of accounting),
together with (a) an executed copy of this Agreement (and any amendments
hereto), including SCHEDULE A hereto; (b) the Certificate (and any amendments
thereto); (c) executed copies of any powers of attorney pursuant to which any
certificate has been executed by the Partnership; (d) a current list of the full
name, taxpayer identification number and last known address of each Partner set
forth in alphabetical order; (e) copies of all tax returns, if any, filed by the
Partnership for each of the prior three years; and (f) all financial statements
of the Partnership for each of the prior three years, shall at all times be
maintained at the principal office of the Partnership.
SECTION 19.03. Inspection Rights. At any time while the Partnership
continues and until its complete liquidation, each Partner (or the designee
thereof) during normal business hours may fully examine and audit the
Partnership's books, records, accounts and assets, including bank balances, and
may make, or cause to be made, any examination or audit at such Partner's
expense. Each Limited Partner (or the designee thereof) during normal business
hours may examine, or request that the General Partner furnish, such additional
information as is reasonably necessary to enable the requesting Partner (or the
designee thereof) to review the state of the investment activities of the
Partnership. Notwithstanding the foregoing, (1) any such examination or audit
shall be made (A) only upon reasonable notice to the General Partner, (B) during
normal business hours and (C) without undue disruption; and (2) the management
of the affairs of the Partnership shall be in complete control of the General
Partner.
SECTION 19.04. Annual Financial Statements. The General Partner shall
transmit to each Partner, within 90 days after the close of each fiscal year,
the financial statements of the Partnership for such fiscal year. Such financial
statements shall include balance sheets of the Partnership as of the end of such
fiscal year and of the preceding fiscal year, statements of income and loss of
the Partnership for such fiscal year and for the preceding fiscal year, and
statements of changes in Partners' Capital Accounts for such fiscal year and for
the preceding fiscal year, all prepared in accordance with generally accepted
accounting principles consistently applied in accordance with the terms of this
Agreement, audited by a recognized firm of independent public accountants. The
General Partner shall also transmit to each Partner, within 90 days after the
close of each fiscal year, a report indicating such Partner's share of all items
of income or gain, expense, loss or other deduction and tax credit of the
Partnership for such year, as well as the status of its Capital Account as of
the end of such year, and such additional information as it reasonably may
request to enable it to complete its tax returns or to fulfill any other
reporting requirements. For information purposes, the General Partner shall also
furnish to each Partner, as promptly as practicable after the close of each
fiscal year, a list of the Partnership's investments, valued at fair market
value as determined in accordance with Article XII as of the end of such fiscal
year, with a brief narrative report as to the status and operations of each such
investment.
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SECTION 19.05. Quarterly Financial Statements; Investment Memoranda.
Each Partner shall be furnished as promptly as possible, but no later than 60
days after the end of each of the first three fiscal quarters of each fiscal
year of the Partnership, unaudited financial statements of the Partnership for
the quarter then ended prepared in accordance with generally accepted accounting
principles consistently applied in accordance with the terms of this Agreement
(except that such unaudited financial statements need not contain all of the
required footnotes), which statements shall contain data sufficient to inform
each Partner as to the current financial status of the Partnership and its
investments, with a brief narrative report as to the status and operations of
each such investment.
SECTION 19.06. Annual Meetings. The Partnership may hold annual
meetings offering Limited Partners the opportunity to review and discuss the
Partnership's investment activity and portfolio. If the General Partner
determines that the Partnership shall hold an annual meeting, the General
Partner shall notify each Limited Partner at least 45 days in advance of the
time and place of the year's annual meeting, and request each Limited Partner
that wishes to send one or more representatives to that meeting so to notify the
General Partner. Any Limited Partner which does not notify the General Partner,
within 30 days after the General Partner's delivery of notice to such Partner
regarding an annual meeting for any year, of such Limited Partner's intention to
send a representative to that meeting shall be deemed to have consented to a
waiver of such Partner's right to attend that meeting. At the General Partner's
discretion, the annual meeting for a particular year may be held in several
locations at different times to make attendance more convenient for Limited
Partners from different geographic locations. At the General Partner's
discretion, individual meetings with interested Limited Partners may be held in
lieu of, or in addition to, an annual meeting.
SECTION 19.07. Accounting Method. The Partnership shall use the
accrual method of accounting for United States federal income tax purposes.
SECTION 19.08. Independent Accountants. The Partnership's independent
public accountants initially shall be the firm of Ernst & Young LLP, but the
General Partner may change accounting firms to another recognized independent
public accounting firm.
SECTION 19.09. Amortization of Organizational Expenses. The
organizational expenses of the Partnership shall be amortized over a sixty-month
period to the extent permitted by Section 709 of the Code.
SECTION 19.10. Change of Principal Office. The principal office of the
Partnership initially shall be as set forth in SCHEDULE A. The General Partner
may change the location of the principal office or the mailing address of the
Partnership at any time, upon written notice to all Partners indicating the new
location of such principal office or new mailing address, as the case may be.
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ARTICLE XX
WAIVER AND AMENDMENT
SECTION 20.01. Waiver and Amendment.
(a) Except as otherwise provided in this Agreement, the terms and
provisions of this Agreement may be waived, modified, terminated or amended with
the written consent of the General Partner and of Limited Partners constituting
in the aggregate at least a majority in interest of the Limited Partners. No
such amendment shall, however, (1) dilute the relative interest of any Partner
in the profits or capital of the Partnership or in allocations or distributions
attributable to the ownership of such interest without the written consent of
such Partner (except such dilution as may result from additional Subscriptions
from the Limited Partners or the admission of additional Limited Partners); or
(2) increase the Subscriptions of any Partner without the written consent of
such Partner; or (3) alter or waive the terms of: (A) Section 2.03 without the
written consent of each Limited Partner; and (B) Sections 3.11(c), 3.12, 3.13,
and 4.02 or Articles XVI and XX without the written consent of any Partner which
would be adversely affected thereby. The General Partner shall promptly furnish
copies of any amendments to this Agreement to all Partners. The admission or
substitution of Partners and increases in Subscriptions shall not require the
consent of, or notice to, any Limited Partner.
(b) In addition to any amendments otherwise authorized hereby, this
Agreement may be amended from time to time by the General Partner without the
consent of the Limited Partners to cure any ambiguity or correct or supplement
any provisions hereof which may be inconsistent with any other provision hereof,
or correct any printing, stenographic or clerical errors or omissions.
(c) Except as otherwise specifically set forth in this Agreement, any
amendment, consent, waiver, modification or termination of the terms and
provisions of this Agreement which results in the same economic and legal
consequences to the Partners and the limited partner of the Offshore Partnership
shall require the written consent of the General Partner and the general
partners of the Offshore Partnership, and the written consent of Limited
Partners and the limited partner of the Offshore Partnership constituting, in
the aggregate, a majority in interest of all such Limited Partners and the
limited partner of the Offshore Partnership, voting together as a single class.
ARTICLE XXI
GENERAL PROVISIONS
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SECTION 21.01. Notices. Except where otherwise specifically provided in
this Agreement, all notices, requests, consents, approvals and statements shall
be in writing and shall be deemed to have been properly given by personal
delivery or if mailed from within the country of the sender by air mail or first
class mail, postage prepaid, or if sent by prepaid telegram, electronic
facsimile transmission or telex, or if sent by courier service, addressed in
each case, at its address set forth in SCHEDULE A, or, in each case, to such
other address or addresses as the addressee may have specified by written notice
as aforesaid to the other parties. Notices delivered by air mail shall be deemed
to be received five days after the date of the mailing.
SECTION 21.02. Power of Attorney.
(a) Each of the undersigned by execution of this Agreement constitutes
and appoints the General Partner as its true and lawful representative and
attorney-in-fact, in its name, place and stead, to make, execute, sign,
acknowledge and deliver or file (1) all instruments, documents and certificates
which may from time to time be required by any law to effectuate, implement and
continue the valid and subsisting existence of the Partnership, (2) all
instruments, documents and certificates that may be required to effectuate the
dissolution and termination of the Partnership in accordance with the provisions
hereof and Delaware law, (3) all other amendments of this Agreement or the
Certificate contemplated by this Agreement including, without limitation,
amendments reflecting the return, in whole or in part, of the contribution of
any Partner, or the addition, substitution or increased contribution of any
Partner, or any action of the Partners duly taken pursuant to this Agreement
whether or not such Partner voted in favor of or otherwise approved such action,
and (4) any other instrument, certificate or document required from time to time
to admit a Partner, to effect its substitution as a Partner, to effect the
substitution of the Partner's assignee as a Partner, or to reflect any action of
the Partners provided for in this Agreement.
(b) Each of the Partners is aware that the terms of this Agreement
permit certain amendments to this Agreement and the Certificate to be effected
and certain other actions to be taken by or with respect to the Partnership, in
each case with the approval or by the vote of less than all the Partners. If, as
and when (1) an amendment of this Agreement and the Certificate is proposed or
an action is proposed to be taken by or with respect to the Partnership which
does not require, under the terms of this Agreement, the approval of all of the
Partners, (2) Partners holding the interest in the Partnership specified in this
Agreement as being required for such amendment or action have approved such
amendment or action in the manner contemplated by this Agreement (disregarding
the consent of any Partner whose approval has been granted by the General
Partner's use of such Partner's power of attorney), and (3) a Partner has failed
or refused to approve such amendment or action (hereinafter referred to as a
non-consenting Partner), each non-consenting Partner agrees that the special
attorney specified above, with full power of substitution, is hereby authorized
and empowered to execute, acknowledge, make, swear to, verify, deliver, record,
file and/or publish, for and on behalf of such non-consenting Partner, and in
its name, place and stead, any and all instruments and documents which may be
necessary or
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appropriate to permit such amendment to be lawfully made or action lawfully
taken. Each Partner is fully aware that it and each other Partner has executed
this special power of attorney, and that each Partner will rely on the
effectiveness of such powers with a view to the orderly administration of the
Partnership's affairs.
(c) The powers of attorney granted herein (1) shall be deemed to be
coupled with an interest, shall be irrevocable and shall survive the death,
insanity, incompetency or incapacity (or, in the case of a Partner that is a
corporation, association, limited liability company, partnership or trust, shall
survive the merger, dissolution or other termination of existence) of the
Partner and (2) shall survive the assignment by the Partner of the whole or any
portion of his interest, except that where the assignee of the whole or any
portion thereof has furnished a power of attorney, this power of attorney shall
survive such assignment for the sole purpose of enabling the General Partner to
execute, acknowledge and file any instrument necessary to effect any permitted
substitution of the assignee for the assignor as a Partner and shall thereafter
terminate. In the event that the appointment conferred in this Section 21.02
would not constitute a legal and valid appointment by any Partner under the laws
of the jurisdiction in which such Partner is incorporated, established or
resident, upon the request of the General Partner, such Partner shall deliver to
the General Partner a properly authenticated and duly executed document
constituting a legal and valid power of attorney under the laws of the
appropriate jurisdiction covering the matters set forth in this Section 21.02.
(d) The General Partner shall require a power of attorney to be
executed by a transferee of a Partner as a condition of its admission as a
substitute Partner.
SECTION 21.03. Waiver of Partition. Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Partnership's property.
SECTION 21.04. Additional Documents. Each Partner hereby agrees to
execute all certificates, counterparts, amendments, instruments or documents
that may be required by the laws of the various jurisdictions in which the
Partnership conducts its activities, to conform with the laws of such
jurisdictions governing limited partnerships.
SECTION 21.05. Binding on Successors. This Agreement shall be binding
upon and it shall inure to the benefit of the respective heirs, successors,
assigns and legal representatives of the parties hereto.
SECTION 21.06. Counterparts. This Agreement or any amendment hereto may
be signed in any number of counterparts, each of which shall be an original, but
all of which taken together shall constitute one agreement (or amendment, as the
case may be).
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SECTION 21.07. Action by Limited Partners. Whenever action is required
by this Agreement to be taken by a specified percentage in interest of the
Limited Partners, such action shall be deemed to be valid if taken upon written
vote or written consent by those Limited Partners whose Contributions Account
balances represent the specified percentage of the aggregate Contributions
Account balances of all Limited Partners at the time.
SECTION 21.08. Voting. Any vote or other action required or permitted
to be taken by this Agreement may be taken by written consent signed by not less
than the requisite percentage in interest of parties required or permitted to
take such vote or other action.
SECTION 21.09. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware; PROVIDED,
HOWEVER, that the nature and extent of the obligation of any member of the
Advisory Committee to Persons other than the Partnership and any one or more
Partners in their capacities as such shall be determined under the laws of the
jurisdiction or jurisdictions imposing such obligations.
SECTION 21.10. Securities Act Matters. Each Partner understands that in
addition to the restrictions on transfer contained in this Agreement, it must
bear the economic risks of its investment for an indefinite period because the
Partnership interests have not been registered under the Securities Act and,
therefore, may not be sold or otherwise transferred unless they are registered
under the Securities Act or an exemption from such registration is available.
Each Partner agrees with all other Partners that it will not sell or otherwise
transfer its interest in the Partnership unless such interest has been so
registered or in the opinion of counsel for the Partnership, or of other counsel
reasonably satisfactory to the Partnership, such an exemption is available.
SECTION 21.11. Right to Rely on Authority of General Partner. No Person
that is not a Partner, in dealing with the General Partner, shall be required to
determine such General Partner's authority to make any commitment or engage in
any undertaking on behalf of the Partnership, or to determine any fact or
circumstance bearing upon the existence of the authority of the General Partner.
SECTION 21.12. Tax Matters Partner. The "TAX MATTERS PARTNER", as
defined in Section 6231 of the Code, of the Partnership shall be the General
Partner (the "TAX MATTERS PARTNER"). The Tax Matters Partner shall not resign as
tax matters partner of the Partnership unless, on the effective date of such
resignation, the Partnership has designated another general partner as Tax
Matters Partner and that general partner has given its consent in writing to its
appointment as Tax Matters Partner. The Tax Matters Partner shall receive no
additional compensation from the Partnership for its services in that capacity,
but all expenses incurred by the Tax Matters Partner shall be borne by the
Partnership. The Tax Matters Partner is authorized to employ such accountants,
attorneys and agents as it, in its sole discretion, determines are necessary to
or useful in the performance of its duties. Any Person who serves as Tax Matters
- 51 -
<PAGE>
Partner shall not be liable to the Partnership or to any Partner for any action
it takes or fails to take as Tax Matters Partner with respect to any
administrative or judicial proceeding involving "PARTNERSHIP ITEMS" (as defined
in Section 6231 of the Code) of the Partnership, unless such action or failure
to act constitutes a violation of the General Partner's duty of care set forth
in Section 3.10.
SECTION 21.13. Contract Construction. Whenever the content of this
Agreement permits, the masculine gender shall include the feminine and neuter
genders, and reference to singular or plural shall be interchangeable with the
other. The invalidity or unenforceability of any one or more provisions of this
Agreement shall not affect the other provisions, and this Agreement shall be
construed in all respects as if any such invalid or unenforceable provision(s)
were omitted. References in this Agreement to particular sections of the Code or
to provisions of Delaware law shall be deemed to refer to such sections or
provisions as they may be amended after the date of this Agreement.
SECTION 21.14. Section Headings. Captions in this Agreement are for
convenience only and do not define or limit any term of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Limited
Partnership Agreement of Fleming US Discovery Fund III, L.P. as of the day,
month and year first above written.
GENERAL PARTNER:
FLEMING US DISCOVERY PARTNERS, L.P.
(its sole General Partner)
By: Fleming US Discovery, LLC
the General Partner
By: _______________________________
Title: ____________________________
- 53 -
<PAGE>
APPENDIX A
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below (such meanings to be equally applicable to both
singular and plural forms of the terms so defined). Additional defined terms are
set forth in the Sections of this Agreement to which they relate.
"8% DISTRIBUTION PREFERENCE" shall mean, with respect to any Partner
and at any point in time, an amount which if distributed to such Partner at such
time would cause the aggregate amount of distributions made to such Partner and
such Partner's predecessors in interest by the Partnership (determined with
respect to distributions in kind, pursuant to Section 9.03(c)) to equal but not
exceed the sum of (a) the balance in such Partner's Contributions Account as of
such point in time and (b) an amount equal to the sum of such Partner's (and any
such predecessor's) Aggregate 8% Preferential Return as of such point in time.
"8% PAYBACK PERIOD" shall mean any fiscal period during which each
Limited Partner (together with such Limited Partner's predecessors in interest,
if any) has received Partnership distributions (determined, with respect to
distributions in kind, pursuant to Section 9.03(c)) in aggregate amounts equal
to or in excess of the sum of (a) the balance in such Limited Partner's
Contributions Account and (b) an amount equal to the sum of such Limited
Partner's (and any such predecessor's) Aggregate 8% Preferential Return as of
the end of such fiscal period.
"8% PREFERENTIAL RETURN" shall mean, with respect to any Partner and
any calendar month, an amount (not less than zero) equal to such Partner's
Unreturned Capital Contribution as of the last day of the preceding calendar
month multiplied by .66666% (8% divided by 12 months). A Partner's 8%
Preferential Return for: (a) any fiscal period consisting of less than a full
calendar month shall be determined by proration on a daily basis, and (b) any
fiscal period that is an 8% Payback Period shall be zero.
"8% PREFERENTIAL RETURN ALLOCATION" shall mean, with respect to any
Partner and as of the end of any fiscal period: (a) such Partner's Aggregate 8%
Preferential Return determined as of the end of such fiscal period; reduced, but
not below zero, by (b) the excess (if any) of (1) the aggregate amount of Net
Gain previously allocated to such Partner and such Partner's predecessors in
interest (if any) over (2) the aggregate amount of Net Loss and Loss Items
previously allocated to such Partner and such predecessors, in each case since
the inception of the Partnership.
"20% SUBORDINATE GAIN ALLOCATION" shall mean, as of the date for which
the 20% Subordinate Gain Allocation is being calculated, an amount (not less
than zero) equal to
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(a) 20% of the excess of (1) the aggregate amount of Net Gain previously
allocated to all Partners over (2) the aggregate amount of Net Loss and Loss
Items previously allocated to all Partners, in each case (A) since the inception
of the Partnership and (B) excluding (i) all Net Gain previously allocated to
the General Partner pursuant to Sections 10.02(c)(2) and 10.02(d) and (ii) all
Net Loss and Loss Items previously allocated to the General Partner pursuant to
Sections 10.03(a) or 10.03(b)(1) to offset such allocations of Net Gain, plus
(b) the amount determined pursuant to the preceding clause (a) multiplied by 25%
(20/80). If two fiscal periods end on the same date (for example, when the
Partnership enters an 8% Payback Period), any determination of the 20%
Subordinate Gain Allocation shall take into account all allocations of Net Gain,
Net Loss and Loss Items occurring with respect to the first such fiscal period.
"ADDITIONAL CAPITAL CONTRIBUTIONS" shall have the meaning set forth in
Section 8.01.
"ADVISORY COMMITTEE" shall have the meaning set forth in Section 6.01.
"AFFILIATE" means, with respect to the Person to which it refers, a
Person that directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, such subject Person.
"AGGREGATE 8% PREFERENTIAL RETURN" shall mean, with respect to any
Partner and fiscal period, the sum of such Partner's 8% Preferential Returns for
each calendar month (and partial month) from the Initial Closing through the end
of such fiscal period.
"CAPITAL ACCOUNT" shall have the meaning set forth in Section 9.02.
"CERTIFICATE" shall have the meaning set forth in Section 3.04.
"CODE" means the United States Internal Revenue Code of 1986 and
(unless the context requires otherwise) the rules and regulations promulgated
thereunder, as amended from time to time.
"COMMITMENT PERIOD" shall have the meaning set forth in
Section 8.01(b).
"CONTRIBUTIONS ACCOUNT" shall have the meaning set forth in
Section 9.01.
"COST" shall mean, with respect to Partnership assets and unless the
context otherwise requires, the Partnership's adjusted tax basis in such assets
for federal income tax purposes, provided that, if the Partnership has made an
election under Section 754 of the Code, such tax basis shall be determined after
giving effect to adjustments made under Section 734 of the Code but (except as
provided in Treasury Regulation Section 1.734-2(b)(1)) without regard to
adjustments made under Section 743 of the Code.
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<PAGE>
"DEFAULT CHARGE" shall have the meaning set forth in Section 8.02.
"DEFAULTING PARTNER" shall have the meaning set forth in Section 8.02.
"DELAWARE ACT" shall mean the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA PARTNER" shall mean any Limited Partner which is (a) an
"employee benefit plan" within the meaning of, and subject to the provisions of,
ERISA, (b) the nominee holder of a Limited Partner's interest in the
Partnership, the beneficial owner of which interest is such an employee benefit
plan, or (c) a partnership consisting in whole or in part of such employee
benefit plans which have in the aggregate made capital contributions at least
equal to 25% of the total capital contributions made to such partnership.
"ERISA WITHDRAWAL DATE" shall have the meaning set forth in
Section 16.03.
"FINAL CLOSING" shall have the meaning set forth in Section 7.01.
"Freely Tradeable Security" shall have the meaning set forth in
Section 12.03.
"GENERAL PARTNER" means Fleming US Discovery Partners, L.P., a limited
partnership organized under the laws of the State of Delaware in the United
States.
"INDEMNITEE" shall have the meaning set forth in Section 18.01.
"INITIAL CLOSING" means the date on which investors are first admitted
to the Partnership as Limited Partners.
"LIMITED PARTNERS" means those Persons listed on SCHEDULE A as limited
partners, together with any additional or substituted limited partners admitted
to the Partnership after the date hereof.
"LIQUIDATING DISTRIBUTION" means any distribution made pursuant to
Section 14.02.
"LOSS ITEMS" means, with respect to any fiscal period, items of gross
Partnership loss, deduction or expense for such period.
"MANAGEMENT AGREEMENT" shall have the meaning set forth in
Section 3.05.
"MANAGEMENT COMPANY" shall have the meaning set forth in Section 3.05.
A-3
<PAGE>
"MANAGEMENT FEE" shall have the meaning set forth in Section 3.05.
"NET GAIN OR LOSS" means, with respect to any fiscal year, the sum of
the Partnership's (a) net gain or loss from the sale or exchange of the
Partnership's capital assets during such fiscal year, (b) gain or loss deemed to
have been realized by the Partnership, pursuant to Section 10.04, on a
distribution in kind of its assets during such fiscal year, and (c) other items
of income, gain, loss, deduction and expense for such fiscal year that are not
included in (a) or (b), including any income which is exempt from United States
federal income tax, all Partnership losses and all expenses properly chargeable
to the Partnership, whether deductible or non-deductible and whether described
in Section 705(a)(2)(B) of the Code, treated as so described pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), or otherwise. Net Gain or
Loss shall be determined in accordance with tax accounting principles rather
than generally accepted accounting principles.
"OFFSHORE PARTNERSHIP" means Fleming US Discovery Offshore Fund III,
L.P., a limited partnership organized under the laws of Bermuda.
"ORGANIZATIONAL EXPENSES" shall mean any fees, costs or expenses
incurred by the Partnership to the extent attributable to the organization of
the Partnership or the offer or sale of interests to the Limited Partners.
"PARTNERS" means the General Partner and the Limited Partners.
"PARTNERSHIP" means Fleming US Discovery Fund III, L.P., a limited
partnership organized under the laws of the State of Delaware.
"PERISA PARTNERS" shall have the meaning set forth in Section 16.07.
"PERSON" means any individual, general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, cooperative or association and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so admits.
"PLAN ASSETS REGULATIONS" shall mean the regulations concerning the
definition of "Plan Assets" under ERISA adopted by the United States Department
of Labor and codified in 29 C.F.R. ss.2510.3-101.
"PORTFOLIO COMPANY" means any entity in which the Partnership has made
an investment in furtherance of its primary objectives as set forth in Section
2.03 (other than a temporary investment of the Partnership's idle funds pending
the use of those funds in furtherance of those primary objectives) or a
successor in interest to such entity.
A-4
<PAGE>
"PORTFOLIO SECURITY" means any security of a Portfolio Company.
"PUBLIC SECURITIES MARKET" means any United States national or regional
securities exchange, including but not limited to the New York Stock Exchange,
the American Stock Exchange, and regional United States exchanges, and any
recognized United States national or regional automated quotation system,
listing service or other form of securities exchange or trading forum, including
but not limited to the automated quotation system and listing services
maintained by the United States National Association of Securities Dealers,
Inc.; and the phrase "traded in a Public Securities Market" means publicly
traded on or through any such exchange, system, listing service or forum.
"REGULATORY ALLOCATIONS" shall have the meaning set forth in
Section 10.06(e).
"RESTORATION AMOUNT" means (a) with respect to any Partner and at any
time, any amount of such Partner's Subscription that such Partner has not
contributed in cash to the Partnership as of such time and (b) solely with
respect to the General Partner and at any time, the aggregate amount of
distributions received by the General Partner, but only to the extent that such
aggregate amount exceeds the sum of (x) the aggregate amount of distributions
the General Partner would have received if all distributions occurring on or
prior to the date of determination had been made to all Partners in proportion
to the balances in their respective Contributions Accounts and (y) the aggregate
amount of Tax Distributions made to the General Partner as of the date of
determination (to the extent not taken into account under the preceding clause
(x)).
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended from time to time.
"SUBSCRIPTION" means, with respect to any Partner, the total amount
that such Partner has agreed to contribute to the Partnership as reflected in
SCHEDULE A opposite such Partner's name under the column headed "Total
Subscription."
"SUCCESSOR ENTITY" shall have the meaning set forth in Section 3.08(b).
"TAX DISTRIBUTION" means any distribution made by the Partnership
pursuant to Section 11.01; PROVIDED, HOWEVER, that for purposes of determining
the aggregate amount of Tax Distributions made to any Partner with respect to
any fiscal period during the term of the Partnership, each Partnership
distribution made with respect to such fiscal period shall be treated as a Tax
Distribution to the extent such distribution, when added to all prior
distributions made to such Partner during such fiscal period, does not exceed
the amount determined pursuant to Section 11.01(a) for such fiscal period
(determined without regard to Section 11.01(b)).
"TAX MATTERS PARTNER" shall have the meaning set forth in
Section 21.12.
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<PAGE>
"TRANSFER" means any transfer, sale, assignment, gift, pledge,
hypothecation or other disposition or encumbrance of an interest in the
Partnership.
"TREASURY REGULATIONS" mean the Procedure and Administration
Regulations promulgated by the United States Department of the Treasury under
the Code, as amended.
"UNRETURNED CAPITAL CONTRIBUTION" shall mean, with respect to any
Partner and as of any date: (a) the sum of (1) such Partner's aggregate paid-in
capital contributions as of such date plus (2) any part of a Default Charge
added to such Partner's Contributions Account as of such date; reduced (but not
below zero) by (b) the sum of (1) the aggregate amount of all distributions made
by the Partnership to such Partner as of such date (determined, with respect to
distributions in kind, pursuant to Section 9.03(c)) and (2) any Default Charge
subtracted from such Partner's Contributions Account as of such date.
For purposes of this definition: (w) any capital contribution
actually received by the Partnership from such Partner during any calendar month
or within five days thereafter shall be deemed to have been received on the last
day of such calendar month; (x) any distribution actually made to such Partner
during any calendar month shall be deemed to have been made or paid, as the case
may be, on the last day of such month; (y) any adjustment to such Partner's
Unreturned Capital Contribution attributable to a Default Charge shall be deemed
to have occurred as of the last day of the calendar month that includes the day
which is 45 days after the General Partner delivered the notice described in
Section 8.02(b) with respect to the Default Charge involved; and (z) all
contributions made to the Partnership by such Partner's predecessors in interest
(if any), all distributions made by the Partnership to any such predecessors,
and all adjustments to the Contributions Accounts of any such predecessors shall
be taken into account as if such contributions had been made by, such
distributions had been made to, and such adjustments had been made to the
Contributions Account of, such Partner.
A-6
<PAGE>
Appendix 1
ADDRESS, ORGANIZATION AND PRINCIPAL BUSINESS OF
EACH REPORTING PERSON REQUIRED BY ITEM 2
<TABLE>
<S> <C> <C> <C>
REPORTING PERSON PRINCIPAL BUSINESS
AND OFFICE ADDRESS PLACE OF ORGANIZATION PRINCIPAL BUSINESS
Fleming US Discovery Fund III, L.P. 320 Park Avenue, 11th Floor Delaware limited partnership to invest in securities with a
("US Fund") New York, NY 10022 view to long-term capital
appreciation
Fleming US Discovery Offshore c/o Bank of Bermuda, Ltd,. Bermuda limited partnership to invest in securities with a
Fund III, L.P. 6 Front St view to long-term capital
("Offshore Fund," with US Fund, Hamilton HM 11 Bermuda appreciation
the "Funds")
Fleming US Discovery Partners, L.P. 320 Park Avenue, 11th Floor Delaware limited partnership to act as the general partner
("Fleming Partners") New York, NY 10022 of the Funds
Fleming US Discovery, LLC 320 Park Avenue, 11th Floor Delaware limited liability to act as the sole general
New York, NY 10022 company partner of Fleming Partners
Robert Fleming, Inc. 320 Park Avenue, 11th Floor Delaware corporation a registered investment
New York, NY 10022 adviser and broker-dealer
Robert Fleming Holdings, Ltd. 25 Copthall Avenue United Kingdom company to provide international
London EC2B 7PQ, England investment banking, asset
management and securities
brokerage services to its
clients
</TABLE>
<PAGE>
Appendix 2
INFORMATION ABOUT REPORTING PERSONS
REQUIRED BY ITEM 2
MANAGERS AND COMMITTEES OF FLEMING US DISCOVERY, LLC
MANAGERS
Robert Fleming, Inc.
Robert L. Burr
Christopher M.V. Jones
Eytan M. Shapiro*
Timothy R.V. Parton*
EXECUTIVE COMMITTEE
Arthur A. Levy
Iain O.S. Saunders
Jonathan K.L. Simon
Robert L. Burr
Christopher M.V. Jones
INVESTMENT COMMITTEE
Robert L. Burr
Christopher M.V. Jones
Eytan M. Shapiro
Timothy R.V. Parton
* Eytan M. Shapiro and Timothy R.V. Parton are United Kingdom citizens. Robert
L. Burr is a United States citizen. Their business address is 320 Park Avenue,
11th Floor, New York, New York 10022. The citizenship and business address, for
each of the remaining persons listed above is contained in "Executive Officers
and Directors of Robert Fleming, Inc."
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF ROBERT FLEMING, INC.
Name: W. Lawrence Banks
Citizenship: United Kingdom
Business Address: Robert Fleming & Co.
25 Copthall Avenue
London EC2R-7DR, England
Title: Chairman of the Board
Name: Arthur A. Levy
Citizenship: United States
Business Address: Robert Fleming, Inc.
320 Park Avenue
New York, NY 10022
Title: Vice Chairman and Director
Name: Christopher M.V. Jones
Citizenship: United Kingdom
Business Address: Robert Fleming, Inc.
320 Park Avenue
New York, NY 10022
Title: Director
Name: Larry A. Kimmel
Citizenship: United States
Business Address: Robert Fleming,Inc.
320 Park Avenue
New York, NY 10022
Title: Vice President and Director of Compliance
Name: Iain O.S. Saunders
Citizenship: United Kingdom
Business Address: Robert Fleming & Co.
25 Copthall Avenue
London EC2R-7DR, England
Title: Director
<PAGE>
Name: Jonathan K.L. Simon
Citizenship: United Kingdom
Business Address: Robert Fleming, Inc.
320 Park Avenue
New York, NY 10022
Title: Director
Name: Andrea M. Whitmore
Citizenship: United Kingdom
Business Address: Robert Fleming, Inc.
320 Park Avenue
New York, NY 10022
Title: Chief Financial Officer and Vice President
Name: Stewart R. Massey
Nationality: United States
Business Address: Robert Fleming, Inc.
320 Park Avenue
New York, NY 10022
Title: Director and President
<PAGE>
OFFICERS AND DIRECTORS OF ROBERT FLEMING HOLDINGS, LTD.
BOARD OF DIRECTORS* CITIZENSHIP
- ------------------- -----------
John Manser CBE United Kingdom
Chairman
Peter Jamieson United Kingdom
Deputy Chairman
W. Lawrence Banks United Kingdom
Deputy Chairman
William Garrett United Kingdom
Group Chief Executive
Phillip Wichelow United Kingdom
Patrick Gifford United Kingdom
Iain O.S. Saunders United Kingdom
John Emly United Kingdom
Paul Bateman United Kingdom
Tony Chambers United Kingdom
Tom Hughes-Hallett United Kingdom
Michael Baines United Kingdom
David Boardman United Kingdom
Robin Fleming United Kingdom
Ken Inglis United Kingdom
Arthur A. Levy United States
Bernard Taylor United Kingdom
Sir Robin Renwick KCMG United Kingdom
John Archibald United Kingdom
Peter Barton United Kingdom
Ian Hannam United Kingdom
*With the exception of Arthur A. Levy, the business address for each of the
above persons is 25 Copthall Avenue, London EC2R- 7DR, England. The titles below
the first four names refer to officer titles.
<PAGE>
Appendix 3
<TABLE>
<CAPTION>
INFORMATION ABOUT THE DISPOSITION OF THE ISSUER'S COMMON STOCK
REQUIRED BY ITEM 5
DATE NUMBER OF SHARES AVERAGE PRICE PER SHARE METHOD OF SALE
- ---- ---------------- ----------------------- --------------
<S> <C> <C> <C>
July 10, 1997 5,000 $12.1250 All sell orders transacted
on Nasdaq National Market through
July 11, 1997 32,500 $11.8519 a broker on an agency basis
July 14, 1997 18,200 $12.0000
July 15, 1997 105,700 $12.1664
July 16, 1997 56,900 $12.8514
July 17, 1997 10,900 $13.2500
July 21, 1997 25,200 $13.2951
July 24, 1997 2,500 $12.8750
</TABLE>
