FOURTEEN HILL CAPITAL, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
[revised 8/13/97]
THIS AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") is dated and
effective as of August 13, 1997, by and among FOURTEEN HILL MANAGEMENT, LLC, a
Delaware limited liability company (the "General Partner") and the list of
Persons set forth in Schedule A attached hereto (the "Limited Partners"). Terms
set forth herein with initial capital letters are used with the meanings
specified for such terms below in Section 1.1 or as may be defined elsewhere
herein.
Background
----------
FOURTEEN HILL CAPITAL, L.P. (the "Partnership") is being formed as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
(Title 6, Chapter 17, of the Delaware Code (the "Delaware Act")) by the General
Partner.
The parties hereto intend that, if the Partnership obtains a license as
a Small Business Investment Company ("SBIC") from the U. S. Small Business
Administration ("SBA"), during the term of such license, the Partnership will
operate solely for the purpose of operating as an SBIC licensed by the SBA
pursuant to the Small Business Investment Act of 1958, as amended (the "SBIC
Act"), and the rules and regulations promulgated thereunder by the SBA, as in
effect from time to time.
WITNESSETH
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE 1
---------
GENERAL PROVISIONS
-------------------
1.1 DefinitionsDefinitions. For the purposes of this Agreement,
the following terms shall have the following meanings:
"Additional Limited Partners" shall mean any Person who becomes a
Limited Partner after the date hereof in accordance with the terms hereof.
"Advisory Boards" shall mean those boards which may be authorized to
perform the functions set forth in Section 2.6 herein.
"Affiliates" shall mean, with respect to any Person, any Person(s)
controlling, controlled by or under common control with such Person; provided,
however, that Limited Partners (other than a Limited Partner which is also an
Affiliate of a General Partner) and issuers of Investment Securities owned by
the Partnership shall not be deemed to be Affiliates of the Partnership.
"Assets Under Management" shall mean, as of any specified date, the
value of all Securities owned by the Partnership (such value to be determined as
provided in Section 3.6 herein), including cash and cash equivalents.
"Capital Account" shall mean the account of each Partner maintained and
adjusted as provided in this Agreement.
"Capital Contributions" shall mean, with respect to each Partner, that
portion of such Partner's Commitment that has been provided to the Partnership
either by payment in cash or the provision of goods or services from time to
time.
"Certificate of Limited Partnership" shall mean the Certificate of
Limited Partnership filed in connection with the formation of the Partnership,
as amended from time to time.
"Closing Capital Account" shall mean, with respect to any fiscal
period, the Opening Capital Account of each Partner for such fiscal period
adjusted in accordance with Section 3.5(a) herein.
"Code" shall mean the Internal Revenue Code of 1986, and the
regulations and interpretations thereof promulgated by the Internal Revenue
Service, as amended and supplemented from time to time.
"Commitments" shall mean the capital contributions to the Partnership
which the Partners have made or are obligated to make to the Partnership, as
increased or decreased from time to time as provided in this Agreement. The
amounts and terms of the Commitments of the Partners shall be as defined in this
Agreement.
"Debentures" shall have the meaning set forth in the SBIC Act.
"Delaware Act" shall have the meaning ascribed thereto in the
Background section above.
"Distributive Share" shall mean the amount that a Partner would have
received pursuant to Section 3.7(a) herein if the Partnership had been
liquidated and all adjustments pursuant to Section 3.5 herein had been made at
the date in question and all assets of the Partnership had been converted to
cash in an amount equal to the value of all such assets computed in accordance
with Section 3.6 herein.
-2-
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the regulations and interpretations thereof promulgated by the
U. S. Securities and Exchange Commission ("SEC").
"General Partner" shall have the meaning ascribed thereto in the
Preamble to this Agreement.
"Initial Public Offering" shall mean the agreement to sell
substantially all of the Partners' ownership interest in the Partnership; the
offering of securities representing the Partners' ownership interest in the
Partnership or any portion thereof in either a private placement or public
offering; or the conversion of the Partnership into another entity with the
intention to offer to the public securities representing the ownership of that
entity.
"Investment Advisers Act" shall mean the Investment Advisers Act of
1940, as amended, and the regulations and interpretations thereof promulgated by
the SEC.
"Investment Company Act" shall mean the Investment Company Act of 1940,
as amended, and the regulations and interpretations thereof promulgated by the
SEC.
"Investment Adviser/Manager" shall mean any Person selected as such
under Section 2.1(b) herein.
"Investment Securities" shall mean Securities that do not constitute
cash, bank deposits or so-called "money market" instruments.
"Legal Representative" shall mean any executor, administrator,
committee, guardian, conservator or trustee of any Partner.
"Leverage" shall have the meaning set forth in the SBIC Act.
"Limited Partners" shall mean the Limited Partners set forth in
Schedule A attached hereto as of the date hereof and any Additional Limited
Partners for so long as such Persons continue as limited partners of the
Partnership.
"Management Compensation" shall mean the amounts payable by the
Partnership, as provided in Sections 2.5(a), (d) and (e) herein, to the General
Partner.
"Net Losses" shall mean, with respect to any fiscal period, the excess,
if any, of (i) all expenses and losses (including realized and unrealized
capital depreciation and Operating Expenses) incurred during such fiscal period
by the Partnership, over (ii) the aggregate revenue, income and gains (including
realized and unrealized capital appreciation, but not including any Net
Short-Term Investment Income) earned during such fiscal period by the
Partnership from all
-3-
sources; provided, however, that such realized gains or losses shall, as to each
-------- -------
Security owned by the Partnership, be taken into account only to the extent of
any differences between the actual amount of such gains or losses and the
aggregate amount of unrealized appreciation or depreciation as to each such
Security as of the close of the preceding fiscal period. For purposes of
determining Net Losses, realized and unrealized appreciation and depreciation
shall be included without regard to their treatment for Federal, state or local
income tax purposes.
"Net Profits" shall mean, with respect to any fiscal period, the
excess, if any, of (i) the aggregate revenue, income and gains (including
realized and unrealized capital appreciation, but not including any Net
Short-Term Investment Income) earned during such fiscal period by the
Partnership from all sources, over (ii) all expenses and losses (including
realized and unrealized capital depreciation and Operating Expenses) incurred
during such fiscal period by the Partnership; provided, however, that such
-------- -------
realized gains or losses shall, as to each Security owned by the Partnership, be
taken into account only to the extent of any differences between the actual
amount of such gains or losses and the aggregate amount of unrealized
appreciation or depreciation as to each such Security as of the close of the
preceding fiscal period. For purposes of determining Net Profits, realized and
unrealized appreciation and depreciation shall be included without regard to
their treatment for Federal, state or local income tax purposes.
"Net Short-Term Investment Income" shall mean, with respect to any
fiscal period, the income received by the Partnership during such fiscal period
from investments in Securities which are issued by any governmental authority,
or which are bank certificates of deposit, time deposits, commercial paper or
other so-called "money-market instruments."
"Opening Capital Account,"with respect to any fiscal period,shall mean:
(i) with respect to any Partner admitted during such fiscal
period, that Partner's initial Capital Contribution; and
(ii) with respect to any Partner admitted during any prior
fiscal period, that Partner's Closing Capital Account for the preceding
fiscal period.
"Operating Expenses" shall mean, with respect to any fiscal period,
Management Compensation, interest expenses and any other expenses of the
Partnership, including amortization, if any, of Organization Expenses but
excluding realized and unrealized capital depreciation.
"Optioned Partnership Interest" shall have the meaning ascribed thereto
in Section 3.3(d) herein.
"Optionee" shall have the meaning ascribed thereto in Section 3.3(d)
herein.
-4-
"Optionor" shall have the meaning ascribed thereto in Section 3.3(d)
herein.
"Organization Expenses" shall mean all reasonable expenses incurred in
the formation and marketing of the Partnership, the development of specialized
credit approval and review systems for the Partnership, and the offering of
limited partnership interests in the Partnership (including reimbursement of the
General Partner and the officers and employees of the General Partner for such
expenses);
"Outstanding Leverage" shall mean the total amount of outstanding
Debentures and other securities issued by the Partnership which qualify as
Leverage and which have not been repaid for purposes of and as provided in the
SBIC Act.
"Partners" shall mean the General Partner, the Limited Partners and any
Person who after the date hereof becomes a general partner under the terms
hereof.
"Partnership" shall have the meaning ascribed thereto in the Preamble
to this Agreement.
"Partner's Percentage" shall mean the percentage determined, for each
of the Partners, by dividing (i) the aggregate Capital Contributions with
respect to each Partner's Commitment and credited to such Partner's Capital
Account as provided in Section 3.5(a)(i) herein at the time of any relevant
calculation by (ii) the aggregate Capital Contributions of all Partners and so
credited with respect to such Partners' Commitments at such time, and taking
into account any adjustment made pursuant to Section 3.3(d) (viii) herein. The
sum of the respective Partners' Percentages shall at all times equal 100%.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, other business organization,
trust, association or other legal entity.
"Publicly Traded Security" shall mean a Security that is traded (i) on
a recognized national or foreign securities exchange, or (ii) in the
over-the-counter market, and that the General Partner determines to be so
actively traded as to have a readily ascertainable market value.
"Purchase Price" shall have the meaning ascribed thereto in Section
3.3(d) herein.
"Remaining Portion" shall have the meaning ascribed thereto in Section
3.3(d) herein.
"Return of Capital" shall mean the time when the Limited Partners shall
have received distributions, on a cumulative basis, in an aggregate amount equal
to the aggregate Capital Contributions of all such Limited Partners on the date
of distribution.
"SBA" shall mean the United States Small Business Administration.
-5-
"SBIC" shall mean a small business investment company licensed under
the SBIC Act.
"SBIC Regulations" shall mean all laws, rules, regulations and standard
operating procedures or other promulgations of the SBA that may be applicable
from time to time to an SBIC.
"Securities" shall mean and include common and preferred stock
(including warrants, rights and other options relating thereto or any
combination thereof), notes, bonds, debentures, trust receipts and other
obligations, instruments or evidences of indebtedness, and other properties or
interests commonly regarded as securities, and in addition interests in real
property, whether improved or unimproved, and interests in personal property of
all kinds, tangible or intangible, chooses in action and cash, bank deposits and
so-called "money market instruments."
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules, regulations and interpretations thereof promulgated by the SEC.
"SEC" shall mean the U. S. Securities and Exchange Commission.
"Voting Interest," as to any Partner, shall mean the Partner's
Percentage for such Partner.
1.1.1 Superseding Definitions. To the extent that any of the
-------------------------
definitions set forth herein conflict with the definition of those terms as set
forth in the SBIC Act or regulations promulgated pursuant thereto, the
definitions contained in the SBIC Act or regulations promulgated pursuant
thereto shall control.
1.2 Name. The Partnership shall conduct its activities under the
----
name of "Fourteen Hill Capital, L.P." The General Partner shall have the power
at any time to change the name of the Partnership without obtaining the approval
of any Limited Partners. The General Partner shall thereafter give notice of any
such change to each Partner.
1.3 Principal Office, Registered Office and Qualification.
-------------------------------------------------------
(a) The principal executive office of the Partnership shall be
Incline Village, 917 Tahoe Boulevard, Suite 204, Incline Village, Nevada 89452,
or such other place as may from time to time be designated by the General
Partner. The registered office of the Partnership in the State of Delaware shall
be located at 1220 N. Market Street, Suite 606, Wilmington, DE 19801, or such
other place as may from time to time be designated by the General Partner. The
name of the Partnership's registered agent at such address is Registered Agents,
Ltd.
(b) The General Partner shall use its best efforts to qualify
the Partnership to do business in each jurisdiction where the activities of the
Partnership make such qualification necessary. The General Partner shall have
the power at any time to qualify the Partnership under
-6-
any name when the Partnership's name is unavailable for use in a particular
jurisdiction. The General Partner shall also have the power to designate any
registered offices or registered agents, or both, that the General Partner may
deem appropriate in connection with any such qualification to do business.
1.4 Duration. The Partnership shall continue through the close
--------
of business on December 31, 2024 (the "Initial Term"), unless sooner terminated
pursuant to the provisions of Article 4 hereof, provided, however, that the
-------- -------
General Partner may, at any time, extend the life of the Partnership for a
period of up to ten years following the Initial Term, and for up to five
successive ten-year periods thereafter.
1.5 Partners.
---------
(a) Schedule A attached hereto sets forth the name and address
of the General Partner and the Limited Partners as of the date hereof and the
aggregate Commitment of each Partner to the Partnership.
(b) No one shall be admitted as a General Partner or an
Additional Limited Partner without subscribing and delivering to the Partnership
a counterpart of this Agreement and any initial Capital Contribution to be made
by such Partner in accordance with Section 3.1 herein or Section 3.2 herein.
(c) The addition to the Partnership at any time of one or more
Partners shall not be a cause for dissolution of the Partnership, and all the
Partners shall continue to be subject to the provisions of this Agreement in all
respects.
(d) The Limited Partners shall take no part in the control or
management of the business or affairs of the Partnership, nor shall the Limited
Partners have any authority to act for or on behalf of the Partnership, except
as specifically provided in this Agreement. The Limited Partners shall not act
in any way which would conflict with the SBIC Act, the Delaware Act, the Code or
any other statute or provision referenced herein.
(e) The Limited Partners may not delegate their voting rights
to any other Person without the prior approval of the General Partner and the
SBA. This restriction does not apply to (i) a proxy given by a Limited Partner
to vote at a single specified meeting or (ii) the delegation by a Limited
Partner of voting rights to such Limited Partner's investment advisor, provided
that such investment advisor is not an Affiliate.
-7-
1.6 Liability of Partners.Losses, liabilities and expenses incurred by
---------------------
the Partnership during any fiscal period shall be allocated among the Partners
in accordance with the procedures set forth in Section 3.5 herein. The
General Partner shall have unlimited liability for the repayment,satisfaction
and discharge of all losses, liabilities and expenses of the Partnership
to the extent provided under the Delaware Act; provided, however, that the
-------- -------
General Partner shall not be obligated to restore by way of a contribution
to capital or otherwise any deficits in the respective Capital Accounts of
the Limited Partners should such deficits occur. Except as otherwise required
under the Delaware Act (including where required under Sections 17-303, 17-502
and 17-607 of the Delaware Act), no Limited Partner shall in any event be
liable for or subject to any loss, liability or expense whatsoever of the
Partnership beyond that portion of such Limited Partner's Commitment not
actually paid to the Partnership.
1.7 Purpose and Powers. If the Partnership obtains an SBIC license
------------------
from the SBA, during the term of such license, the Partnership's
sole purpose shall be to perform functions and to conduct activities that are
contemplated by the SBIC Act for an SBIC. In furtherance of its purposes, the
Partnership shall have all powers necessary, suitable or convenient for their
accomplishment, alone or with others, as principal or agent, including the
following:
(a) to buy, sell and invest in Securities, regardless of
whether such Securities are readily marketable, and to reinvest the
proceeds of any Securities in other Securities;
(b) to hold, receive, mortgage, pledge, lease, transfer,
exchange, otherwise dispose of, grant options with respect to and
otherwise deal in and exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to all property owned
or held by the Partnership;
(c) to borrow, raise money, issue promissory notes, drafts,
bills of exchange, warrants, bonds, debentures and other negotiable and
non-negotiable instruments and evidences of indebtedness, to guarantee
the obligations of others or incur lease obligations from time to time,
to secure the payment of the principal of any such indebtedness and the
interest thereon or any other such obligation by mortgage, pledge,
conveyance or assignment in trust of the whole or any part of the
property of the Partnership, whether at the time owned or thereafter
acquired, and to buy, sell, pledge or otherwise dispose of any such
instrument or evidence of indebtedness (subject to the limitations set
forth below);
(d) in such reasonable degree and manner as the General
Partner may deem appropriate, to have and maintain one or more offices
within or without the States of Nevada or California, to rent or
acquire office space, to engage personnel and compensate them and to do
such other acts as the General Partner may deem appropriate in
connection with the maintenance of such office or offices;
-8-
(e) to open, maintain and close accounts with brokers;
(f) to open, maintain and close bank accounts and draw checks
and other orders for the payment of moneys;
(g) to engage accountants, custodians, Investment
Advisers/Managers, attorneys, consultants and any and all other agents
and assistants, both professional and nonprofessional, and to
compensate them in such reasonable degree and manner as may be
necessary or advisable;
(h) to form or cause to be formed and to own the stock of one
or more corporations, whether foreign or domestic, and to form or cause
to be formed and to participate, but only as a limited partner or
participant with limited liability, in partnerships and joint ventures,
whether foreign or domestic;
(i) to enter into, make and perform all contracts, agreements
and other undertakings as the General Partner may deem appropriate to
carry out the purposes hereof;
(j) to sue, prosecute, settle or compromise all claims against
third parties, to compromise, settle or accept judgment with respect to
claims against the Partnership and to execute all documents and make
all representations, admissions and waivers in connection therewith;
(k) to take any actions that the General Partner may deem
appropriate in order to obtain the approval of the SBA therefor; and
(l) to engage in any other lawful act or activity for which
limited partnerships may be organized under the Delaware Act and which
conform with SBIC Regulations.
If the Partnership fails to obtain an SBIC license from the SBA, the Partnership
shall have all powers set forth in subparagraphs (a) through (j) above and shall
also have the power to engage in any other lawful act or activity for which
limited partnerships may be organized under the Delaware Act.
1.8 Applicable Law. This Agreement shall be governed by, and
---------------
construed in accordance with, the laws of the State of Delaware.
-9-
l.9 SBIC.
----
(a) If the Partnership becomes an SBIC, the Partnership shall
not be required to take any action or refrain from any action that may be
necessary for the Partnership to maintain its status as an SBIC if the General
Partner, in its sole discretion, determines that it would be desirable for the
Partnership to cease being an SBIC.
(b) In order to permit the Partnership to become an SBIC, the
General Partner shall have the authority, without obtaining the approval of any
Limited Partners, to amend this Agreement to the extent necessary to comply with
any applicable SBIC Regulations or to obtain SBA approval of the Partnership's
Application to become an SBIC, including any of the following matters: the
dissolution and/or reorganization of the Partnership, the removal of the General
Partner, the rights of any transferee of or successor to the General Partner and
the indemnification of the General Partner. However, (i) the General Partner
shall not have the authority to amend any of the Sections included in Article 3
herein or Section 1.6 herein without the written consent of a majority of the
Limited Partners with each Limited Partner having such Partner's Voting
Interest, and (ii) the General Partner shall have the authority to amend Section
2.5(a) herein only to the extent to comply with any applicable SBIC Regulation
or to obtain SBA approval of the Partnership's Application to become an SBIC.
1.10 Incorporation of SBA Annexes.
----------------------------
(a) The provisions of SBA Annex GDP ("Annex GDP") attached to
this Agreement are incorporated in this Agreement with the same force and effect
as if fully set forth herein. The provisions of SBA Annex OP ("Annex OP")
attached to this Agreement are incorporated in this Agreement with the same
force and effect as if fully set forth herein.
(b) The provisions of this Agreement shall be interpreted to
the fullest extent possible in a manner consistent with the provisions of the
SBIC Act, Annex GDP and Annex OP. In the event of any conflict between any
provision of the Agreement, Annex GDP, or Annex OP and the provisions of the
SBIC Act, the provisions of the SBIC Act shall control.
(c) In the event of any conflict between any provision of this
Agreement and any provision of either Annex GDP or Annex OP, the provision of
Annex GDP or Annex OP shall control.
(d) In the event of any conflict between any provision of
Annex GDP and any provision of Annex OP, the provision of Annex GDP shall
control.
-10-
ARTICLE 2
=========
MANAGEMENT
==========
2.1 Authority of General Partner.
----------------------------
(a) The management and operation of the Partnership and the
formulation and execution of investment policy shall be vested exclusively in
the General Partner. The General Partner shall, in its sole discretion, exercise
all powers on behalf and in the name of the Partnership that the General Partner
deems appropriate for carrying out the purposes of the Partnership.
(b) The General Partner may, but is not required to, delegate
any part of its authority under this Agreement to an Investment Adviser/Manager
chosen by the General Partner. The General Partner may enter into agreements
with the Investment Adviser/Manager delegating its authority, limiting the
authority so delegated and specifying that such authority shall be exercised in
conformity with the terms and conditions of such agreements and this Agreement;
provided, however, that (i) no such delegation shall in any way limit the
representations, fiduciary responsibility and obligations of the General Partner
under this Agreement, which shall continue notwithstanding any such delegation,
and (ii) any compensation to be paid to any Investment Adviser/Manager shall be
paid by the General Partner.
(c) Upon the occurrence of any of the events specified in 13
C.F.R. ss.107.1810(d)(1) through (d)(6) or (f)(1) through (f)(3), as determined
by the SBA, the SBA shall have the right, upon written notice, to require the
Partnership to remove the person(s) responsible for such occurrence, and in such
an event, the General Partner shall take all necessary actions to comply with
the directives of the SBA.
(d) The General Partner shall, so long as it remains the
general partner of the Partnership, devote substantially all of its activities
to the conduct of the business of the Partnership and shall not engage actively
in any other business unless such engagement is related to and in furtherance of
the affairs of the Partnership.
(e) Limited Partners shall not be obligated to refer
investments to the Partnership, and no Limited Partner shall be restricted or
precluded hereby in any investment it may make, including any investment
opportunity in which the Partnership is actively considering investing or in
which the Partnership invests. The General Partner may, in its sole discretion,
offer certain or all Limited Partners the opportunity to invest directly in
particular investments in which the Partnership is also investing in situations
where the General Partner decides that making such co-investment opportunities
available to one or more Limited Partners would be in the best interests of the
Partnership. Limited Partners shall not be obligated to invest in any such
-11-
co-investment opportunities that may be presented to them, nor shall they be
entitled to object if certain co-investment opportunities shall be offered only
to other Limited Partners.
(f) This Agreement shall not be construed to preclude any
Affiliate of the General Partner or any officer or director of the General
Partner or of any such Affiliate from engaging in any business or investment
activity (including buying or selling Securities for its own account) and
receiving compensation or profit therefrom. In particular, any of such Persons
shall be entitled to co-invest in transactions in which the Partnership shall
invest, and any such co-investment shall not be deemed a violation of this
Agreement or of any duty that may be owed by any of such Persons to the
Partnership or the Partners.
2.2 Investment Company Act; Investment Advisers Act. The Partnership is
-----------------------------------------------
being formed in such fashion as to be exempt from the Investment Company Act.
The relationship between the Partnership, on the one hand, and the General
Partner, on the other hand, is being structured in such manner as to exempt th
General Partner, Affiliates of the General Partner and the officers and
directors of either the General Partner or Affiliates of the General Partner
from the requirements of the Investment Advisers Act. Existing laws, regulations
and interpretations or changes thereto may make it necessary or advisable to
register the Partnership under the Investment Company Act or to register
the General Partner, any Affiliates thereof or the officers or directors
of either the General Partner or any Affiliates thereof under the Investment
Advisers Act. The General Partner shall have the power to take such action as it
may deem advisable in light of existing or changing regulatory conditions in
order to permit the Partnership to continue in existence. The General Partner
shall also have the power to register the Partnership under the Investment
Company Act, and to take any and all action necessary to secure such
registration and to secure appropriate exemptions under the Investment Advisers
Act for the General Partner, any Affiliates thereof and the officers and
directors of either the General Partner or any Affiliates thereof (including
an exemption from the provisions of Section 205(a) thereof). In addition,
subject to the approval in writing by the Limited Partners (or as may be
otherwise required for an amendment by Section 6.7 herein), the General
Partner shall have the power to modify the present fee structure in Section 2.5
herein if the General Partner, any Affiliates thereof, or the officers or
directors of either the General Partner or any Affiliate thereof is required to
register under the Investment Advisers Act. This Section shall not give the
General Partner any power to amend this Agreement otherwise than as provided
pursuant to Section 6.7 herein.
2.3 Standard of Care.
----------------
(a) Neither the General Partner, any Investment Adviser/Manager,
any partner, shareholder, director, officer or employee nor any Affiliate of any
of them shall be liable to the Partnership or any Partner for any action taken
or omitted to be taken by it or any other Partner or other person in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Partnership, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was
unlawful.
-12-
(b) Neither any Limited Partner, nor any member of any
Partnership committee or board who is not an Affiliate of the General Partner,
shall be liable to the Partnership or any Partner as the result of any decision
made in good faith by such Limited Partner or member, in his capacity as such.
(c) The General Partner and any Investment Adviser/Manager,
the stockholders, directors, officers, employees and partners of any of them,
any Limited Partner and any member of a Partnership committee or board, may
consult with reputable legal counsel selected by them and shall be fully
protected, and shall incur no liability to the Partnership or any Partner, in
acting or refraining to act in good faith in reliance upon the opinion or advice
of such counsel.
(d) This Section 2.3 shall not constitute a modification,
limitation or waiver of Section 314(b) of the SBIC Act, or a waiver by the SBA
of any of its rights pursuant to such Section 314(b).
2.4 [intentionally deleted]
2.5 Management Compensation and Expenses.
-------------------------------------
(a) As basic compensation for services rendered in the management of
the Partnership, the Partnership shall pay the General Partner, the maximum
management fee permitted under the Act and regulations, interpretations, or
policy statements promulgated or issued thereunder. Such management fee, with
respect to each fiscal quarter, shall be paid quarterly in advance, and shall
equal the greater of (i) In the first five fiscal years, .625% of the aggregate
Regulatory Capital and two tiers (two times Regulator Capital) of Leverage as if
committed and/or granted to the Partnership. Thereafter, with respect to each
fiscal quarter, .625% of Combined Capital, as defined in SBA Regulations
(ss 107.50) as of the close of business on the last day of the preceding fiscal
quarter or (ii) such other percentage approved by the SBA. In addition, the
Partnership shall pay the General Partner an additional $31,250 per fiscal
quarter as compensation for management services until such time as the Combined
Capital equals or exceeds Twenty Million Dollars ($20,000,000).
(b) Except as provided in Section 2.5(c) herein, the General Partner
shall pay (i) the compensation of all professional and other employees who
render services to the Partnership and (ii) the cost of providing support and
general services to the Partnership, including expenses of insurance (except as
otherwise specifically provided in Section 2.5(c)(iii) herein), office rental
expenses (provided, however, that responsibility for the payment of such office
rental expenses does not preclude the Partnership from being the lessee of any
rental property dedicated to the Partnership's use now or in the future, such
office rental expenses then being borne by the Partnership after being deducted
from the General Partner's Management Compensation) and secretarial, clerical
and bookkeeping expenses.
-13-
(c) The Partnership shall pay the following Partnership
expenses: (i) expenses of the Advisory Boards for the Partnership; (ii) expenses
incurred in the actual or proposed acquisition or disposition of Securities,
including accounting fees, brokerage fees, legal fees, transfer taxes and costs
related to the registration or qualification for sale of Securities; (iii) other
legal, accounting and auditing expenses and the reasonable expenses of limited
partnership reimbursement insurance for the Partnership (if any); (iv) all
expenses of consultants for specialized or technical services related to the
actual or proposed acquisition or disposition of Investment Securities; (v)
expenses incurred by the General Partner in connection with meetings of and on
behalf of the Partnership, including meetings of the Advisory Boards; (vi) all
Organization Expenses; and (vii) taxes payable by the Partnership to Federal,
state, local and other governmental agencies. The payment of such expenses by
the Partnership shall be due and payable on a regular basis as billed to the
Partnership, against appropriate supporting documentation.
(d) If the effective date of the Partnership's dissolution or
the date that the General Partner ceases to be the general partner of the
Partnership is not the last day of a fiscal quarter, the Management Compensation
for the period between the effective date of such dissolution and the close of
the preceding fiscal quarter, or for the period between the date that the
General Partner ceases to be the general partner and the close of the preceding
fiscal quarter, shall be computed on a pro rata basis for such period pursuant
--- -----
to Section 2.5(a) herein. Any difference between the amount of Management
Compensation paid by the Partnership pursuant to Section 2.5(a) herein with
respect to such fiscal period and the amount due under this Section shall be
repaid to the Partnership within 30 days after either the effective date of the
Partnership's dissolution or the date that the General Partner ceases to be the
general partner of the Partnership, as the case may be.
(e) The Management Compensation payable with respect to the
period commencing on the date of filing of the Certificate of Limited
Partnership and ending on the last day of the first fiscal quarter of the
Partnership after the date hereof shall be computed on a pro rata basis for such
--- ----
period and shall be due and payable in advance on the date hereof. Management
Compensation payable with respect to the Commitment of any Additional Limited
Partner or any increase in the Commitment of any Limited Partner for the period
commencing on the date of admission of such Additional Limited Partner or the
effective date for the increase of any Limited Partner's Commitment to the end
of that fiscal quarter shall be computed with respect to such Commitment or
increase in such Commitment as of the date of admission of such Additional
Limited Partner or the effective date for the increase in such Limited Partner's
Commitment, on a pro rata basis for such quarter. Management Compensation shall
--- ----
be due and payable in advance on the first business day following the date of
admission of any Additional Limited Partner or the effective date for any
increase in any Limited Partner's Commitment; provided, however, that
notwithstanding anything to the contrary contained herein, the initial payment
of Management Compensation with respect to the admission of each Limited Partner
and
-14-
each Additional Limited Partner shall be equal to the sum of the pro rata
--- ----
payment for that fiscal quarter, as provided above.
2.6 Advisory Boards. The members of any Advisory Boards shall consist
---------------
of business persons, scientists and other persons generally recognized for their
standing and reputation, all of whom shall be designated by the General Partner.
Members of the Advisory Boards may receive a fee for their service as
consultants on an Advisory Board, as determined by the General Partner, plus
reasonable out-of-pocket expenses. The Advisory Boards shall hold periodic
meetings, as determined by the General Partner. The Advisory Boards shall serve
as an adviser to the General Partner on behalf of the Partnership and shall
consult with the General Partner concerning the Partnership's activities and
operations as to business, scientific and technical matters; provided, however,
-------- -------
that the Advisory Boards shall take no part in the control or management of the
Partnership nor shall the Advisory Boards or any member thereof have any
authority to act for or on behalf of the Partnership.
ARTICLE 3
---------
CAPITAL ACCOUNTS
----------------
3. 1 Capital Contribution.
--------------------
(a) The General Partner and the Limited Partners hereby commit
to make contributions to the capital of the Partnership in the amounts set forth
opposite their respective names in Schedule A attached hereto. On the date
hereof, any Limited Partner who is an individual and whose net worth (excluding
the value of any equity in such Limited Partner's most valuable residence) is
under $2,000,000 shall contribute to the Partnership the entire amount of such
Limited Partner's Commitment. On the date hereof, the General Partner may permit
any Limited Partner who is an individual and whose net worth (excluding the
value of any equity in such Limited Partner's most valuable residence) is at
least $2,000,000 but is under $10,000,000 to merely contribute to the
Partnership a capital contribution in an amount which will reduce the amount of
such Limited Partner's remaining unfunded Commitment to an amount which is not
greater than ten percent of such Limited Partner's net worth. Upon not less than
30 days prior notice from the General Partner, each Limited Partner (including
each Additional Limited Partner) which has not yet contributed to the
Partnership the entire amount of such Limited Partner's Commitment shall pay
such percentage of its Commitment (in 5% increments) as is demanded by the
General Partner, in cash and at such times as shall be determined by the General
Partner, and each such notice from the General Partner shall specify the date
such payment shall be due and the percentage of the Limited Partners'
Commitments then due. On the date of admission of any Additional Limited
Partner, the General Partner may permit such Additional Limited Partner to
merely pay such percentage of its Commitment as will equal the percentage of the
Commitment which one or more existing Limited Partners have paid. Any Limited
Partner may elect to
-15-
contribute all or any portion of its Commitment prior to the date such portion
would be due pursuant to this Section 3.1(a); any such advance contribution
with respect to a Commitment will be applied to the amount due from such Limited
Partner with respect to the next required contribution (or contributions) and
shall be credited to such Limited Partner's Capital Account when and to the
extent so applied, as provided in Section 3.5(a)(i) herein.
(b) The General Partner shall contribute an amount equal to
not less than one percent of the total Commitments of the Limited Partners.
Except as otherwise provided in Section 3.1(c) herein, the General Partner may
pay its Commitment in the form of a promissory note, bearing interest at the
minimum rate necessary to avoid the imputation of interest or the creation of
original issue discount under the Code, interest and the principal of which
shall be payable to the Partnership in full upon the termination or dissolution
of the Partnership. If necessary, such promissory note shall be amended from
time to time to account for the Commitments of any Additional Limited Partners
and any increase in the Commitments of any Limited Partners, and to account for
any distributions to the General Partner.
(c) If at the time any distribution in cash is to be made to
the General Partner under Section 3.7(a) herein, the aggregate percentage of the
Commitment of the General Partner which has been paid or set off against its
promissory note is lower than the aggregate percentage of the Commitments of the
Limited Partners which have become due or with respect to which a notice
requiring a contribution has been given pursuant to Section 3.1(a) herein as of
such date, then a portion of such distribution (up to the maximum amount
provided below) shall be contributed to the Partnership as a Capital
Contribution with respect to the General Partner's Commitment and such amount
shall be set off against its promissory note. The portion of any such
distribution which shall be so contributed shall be the lesser of (i) the amount
required to cause the aggregate percentage of the Commitment of the General
Partner which has been paid or set off against its promissory note to be equal
to the aggregate percentage of the Commitments of the Limited Partners which
have become due or with respect to which a notice requiring a contribution has
been given pursuant to Section 3.1(a) herein or, (ii) the amount of such
distribution less a percentage of such distribution equal to the combined
highest marginal Federal and applicable state income tax rates for individual
taxpayers. Capital Contributions pursuant to this Section shall be applied to
the promissory note, first against interest and then to principal. The date any
contribution is made pursuant to this Section shall be the date such
contribution is due and received for purposes of Section 3.5(a)(i) herein.
(d) Upon the dissolution or termination of the Partnership, the General
Partner will contribute to the Partnership an amount equal to the deficit
balance in its Capital Account.
3.2 Additional Limited Partners and Increased Commitments. The
--------------------------------------------------------
General Partner may, from time to time after the date hereof, admit one or more
Additional Limited Partners or permit any Limited Partner to increase its
Commitment, under the following terms and conditions:
-16-
(a) Each Additional Limited Partner and Limited Partner increasing its
Commitment shall execute and deliver to the Partnership a counterpart of this
Agreement, thereby evidencing such Limited Partner's agreement to be bound by
and comply with the terms and provisions hereof as if such Limited Partner were
an original signatory to this Agreement. Thereupon, the General Partner shall
amend Schedule A attached to this Agreement to reflect such Limited Partner's
name, address and Commitment (or the increase in such Limited Partner's
Commitment, as the case may be).
(b) Each Additional Limited Partner shall be admitted to the
Partnership as of the date that (i) an executed counterpart of this Agreement
has been delivered to and accepted by the Partnership and (ii) such Additional
Limited Partner has paid, by way of contribution to the Partnership, cash in an
amount equal to 25% of its Commitment (plus any additional proportionate amount
due with respect to such Commitment pursuant to any cash call made by the
General Partner prior thereto pursuant to Section 3.1(a) herein).
(c) In the case of each Limited Partner whose Commitment has been
increased, such increased Commitment shall be effective as of the date that (i)
an executed counterpart of this Agreement reflecting such increased Commitment
has been delivered to and accepted by the Partnership and (ii) such Limited
Partner has paid, by way of contribution to the Partnership, cash in an amount
equal to 25% of the increased amount of its Commitment (plus any additional
proportionate amount due with respect to such increased Commitment pursuant to
any cash call made by the General Partner prior thereto pursuant to Section 3.1
(a) herein).
(d) Upon the admission of an Additional Limited Partner to the
Partnership or an increase in the Commitment of any Limited Partner pursuant to
this Section 3.2 herein, the opening Capital Account of such Additional Limited
Partner or Limited Partner, as the case may be, shall be debited with an amount
equal to (i) such Additional Limited Partner's or Limited Partner's pro rata
share (in proportion to the respective Commitments of the Partners in the case
of an Additional Limited Partner or in the proportion that the amount of such
increase bears to the Commitments of the Partners in the case of an increased
Commitment) of all expenses delineated in Section 2.5(c) herein incurred by the
Partnership in the period from the date of filing of the Certificate of Limited
Partnership to the date of such admission or increase in Commitment, plus (ii)
all expenses incurred by the Partnership in connection with the admission of
such Additional Limited Partner or the increase in the Commitment of such
Limited Partner pursuant to this Section 3.2. Any such amounts debited from the
Capital Account of any such Additional Limited Partner or Limited Partner
increasing its Commitment shall be credited to the Capital Accounts of the other
Partners in the manner provided in Section 3.5(a)(iv) herein.
(e) The General Partner shall determine the price for each Partner's
Percentage to be issued to each Additional Limited Partner or each Limited
Partner whose Commitment is to be increased, which price shall be known as the
"Offering Price."
-17-
(i) In determining the Offering Price, the General Partner
shall not set the price at less than the book value of the percentage of the
Partnership's Assets Under Management reflected in the Partner's Percentage to
be issued; however, the General Partner, in its sole discretion, may set an
Offering Price in excess of the book value of the percentage of the
Partnership's Assets Under Management to be issued to the Additional Limited
Partner or to the Limited Partner increasing its Commitment.
(ii) In the event that, by a majority vote of the Limited
Partners with each Limited Partner having such Partner's Voting Interest, the
Limited Partners decide that the Offering Price does not fairly represent the
fair market value of the Partner's Percentage to be issued, then the Offering
Price of such Partner's Percentage to be issued shall be determined by a
recognized appraisal or investment firm with experience in making determinations
of value of the type required to be made herein. In such an event, the General
Partner and the Limited Partners shall agree on an independent appraiser, and
such independent appraiser shall be directed to determine the fair market value
of such Partner's Percentage to be issued as soon as practicable. The appraised
value shall be calculated by determining the appraised value of the Partnership
as a whole and dividing that value by the Partner's Percentage to be issued. The
determination by the appraiser of the fair market value will be conclusive and
binding on all Partners.
(iii) To the extent that the Offering Price exceeds the book
value of the percentage of the Partnership's Assets Under Management, any such
surplus shall be credited to the Capital Accounts of the other Partners in the
manner provided in Section 3.5(a)(iv) herein.
3.3 Noncontributing Partners.
------------------------
(a) The Partnership shall be entitled to enforce the
obligations of each Partner to make the contributions to capital specified in
Sections 3.1 and 3.2 herein, and the Partnership shall have all remedies
available at law or in equity in the event any such contribution is not so made,
including any or all of the remedies set forth in Sections 3.3(b), (c), (d) or
(e) herein.
(b) If any Limited Partner fails to make a contribution
required under Section 3.1 or 3.2 herein within 10 days after the date such
contribution is due, then interest at an annual rate equal to the lesser of (i)
the highest prime rate reported in The Wall Street Journal, from time to time,
plus two percent or (ii) the highest rate of interest such Limited Partner is
legally permitted to pay in such circumstance, shall be charged on the amount
due from the date such amount became due until the earlier of (x) the date paid
or (y) the date of any notice given to such Limited Partner by the General
Partner pursuant to Section 3.3(c) or (d) herein. Such interest shall be
deducted from such Partner's Capital Account on a periodic basis at the end of
each fiscal quarter; provided, however, that the amount of interest charged as
provided in this Section 3.3(b) shall not exceed the amount of such Limited
Partner's Capital Account. Any interest deducted from such Limited Partner's
Capital Account shall be credited to the Capital Accounts of the other Partners
in the manner provided in Section 3.5(a)(iv) herein.
-18-
(c) In addition, if any Limited Partner fails to make a
contribution required under Section 3.1 or 3.2 herein within 20 days after the
date such contribution is due, unless the General Partner has acted pursuant to
Section 3.3(d) herein, the General Partner may, in its sole discretion, elect to
declare, by notice to such Limited Partner, that such Limited Partner's
Commitment shall be deemed to be reduced to the amount of any contributions of
capital timely made pursuant to Section 3.1 or 3.2 herein. Upon such notice,
such Limited Partner shall have no right to make any contribution thereafter
(including the contribution as to which the nonpayment occurred and any
contribution otherwise required to be made thereafter pursuant to the terms of
Section 3.1 or 3.2 herein). Upon such notice, the General Partner shall amend
Schedule A to this Agreement.
(d) If any Limited Partner fails to make a contribution
required under Section 3.1 or 3.2 herein within 20 days after the date such
contribution is due, unless the General Partner has acted pursuant to Section
3.3(c) herein, the General Partner may, in its sole discretion, elect to
declare, by notice to such Limited Partner, that such Limited Partner is in
default. If the General Partner so elects to declare such Limited Partner in
default (such Limited Partner being hereinafter referred to as the "Optionor"),
then the other Limited Partners that are not in default (the "Optionees") and
the General Partner shall have the right and option to acquire the Partnership
interest, which shall include the Optionor's Capital Account, of the Optionor
(the "Optioned Partnership Interest") on the following terms:
(i) The General Partner shall give the Optionees notice
promptly after declaration of any such default. Such notice
shall advise each Optionee of the portion of the Optioned
Partnership Interest available to it and the price therefor
(as hereinafter determined). The portion available to each
Optionee shall be that portion of the Optioned Partnership
Interest that bears the same ratio to the Optioned
Partnership Interest as each Optionee's Partner's Percentage
bears to the aggregate Partners' Percentages, exclusive of
the Partner's Percentage of the Optionor. The aggregate
price for the Optioned Partnership Interest shall be the
assumption of the unpaid Commitment (both that portion then
due and amounts due in the future) of the Optionor (the
"Purchase Price"). The Purchase Price for each Optionee
shall be prorated according to the portion of the Optioned
Partnership Interest purchased by each such Optionee so that
the percentage of the unpaid Commitment assumed by each
Optionee is the same as the percentage of the Optioned
Partnership Interest purchased by such Optionee. The option
granted hereunder shall be exercisable by each Optionee, in
whole only, at any time within 30 days of the date of the
notice from the General Partner by the delivery to the
-19-
General Partner of (A) a notice of exercise of option, and
(B) the contribution to capital due in accordance with
Section 3.3(d)(v)(A) herein. The General Partner shall
forward the above notices of exercise of option received to
the Optionor.
(ii) Should any Optionee not exercise its option within
the 30 day period provided in Section 3.3(d)(i) herein, the
General Partner, within 10 days of the end of such period,
shall notify the other Optionees who have previously
exercised their options in full, that such Optionees have
the right and option ratably among them to acquire the
portion of the Optioned Partnership Interest not previously
acquired (the "Remaining Portion") within 10 days of the
date of the notice specified in this Section 3.3(d) (ii) on
the same terms as provided in Section 3.3(d)(i) herein.
(iii) The amount of the Remaining Portion not acquired
by the Optionees pursuant to Section 3.3(d) (ii) herein may
be acquired by the General Partner within 10 days of the
expiration of the 10 day period specified in Section 3.3(d)
(ii) herein on the same terms as set forth in Section
3.3(d)(i) herein.
(iv) To the extent that the Remaining Portion is not
fully acquired by the Optionees and the General Partner
pursuant to Section 3.3(d)(ii) and (iii) herein, the
Partnership and/or the General Partner may, in their sole
discretion, elect to exercise one or more of the remedies
provided in Section 3.3(a), (b) or (c) with respect to such
unacquired Remaining Portion. Alternatively, the amount of
the Remaining Portion not acquired by the Optionees and the
General Partner pursuant to Section 3.3(d)(ii) and (iii)
herein may, if the General Partner deems it in the best
interest of the Partnership, be sold to any other Person on
terms not more favorable to such purchaser than the
Optionees' option (and the General Partner may admit any
such third party purchaser as a Limited Partner). Any
consideration received by the Partnership for such amount of
the Optionor's interest in the Partnership in excess of the
Purchase Price therefor shall be retained by the Partnership
and allocated among the Partners' Capital Accounts in the
manner provided by Section 3.5(a) (iv) herein.
(v) Upon exercise of any option hereunder, such
Optionee (or the General Partner, if it has exercised its
right pursuant to Section 3.3(d) (iii) herein) shall be
deemed to have assumed that
-20-
portion of the Optionor's unpaid Commitment representing the
Purchase Price of the purchased portion of the Optioned
Partnership Interest and shall be obligated (A) to
contribute to the Partnership the portion of the Commitment
then due from the Optionor equal to the percentage of the
Optioned Partnership Interest purchased by such Optionee and
(B) to pay to the Partnership the same percentage of any
further contributions which would have otherwise been due
from such Optionor.
(vi) Upon the General Partner's purchase of any portion
of the Optioned Partnership Interest pursuant to Section
3.3(d) (iii) herein, the General Partner shall also become a
Limited Partner to the extent of such interest.
(vii) Upon the purchase of any portion of the Optioned
Partnership Interest by an Optionee, the General Partner or
other Person pursuant to this Section 3.3(d), the Optionor
shall have no further rights or obligations under this
Agreement with respect to such portion.
(viii) Upon the purchase of any portion of the Optioned
Partnership Interest, for purposes of computing such
purchaser's Partner's Percentage, such purchaser shall be
deemed to have a Partner's Percentage (or the Partner's
Percentage of any Optionee, shall be increased by an amount)
equal to the percentage which the purchased portion of the
Optioned Partnership Interest represents of the defaulting
Limited Partner's entire Partnership Interest, and the
Partner's Percentage of such defaulting Limited Partner
shall be reduced by a corresponding amount.
(e) Each Limited Partner hereby grants to the Partnership a security
interest in such Limited Partner's interest to secure the full and prompt
payment to the Partnership of such Limited Partner's Commitment.
-21-
3.4 Capital Accounts. For each fiscal quarter while the Partnership is
----------------
in effect, there shall be established on the books of the Partnership an Opening
Capital Account for each Partner in accordance with the definitions and methods
of adjustment prescribed herein. No adjustment shall be made to any Opening
Capital Account until the close of each fiscal quarter except upon (i) the date
of the admission of an Additional Limited Partner pursuant to Section 3.2
herein, (ii) the date of an increase in the Commitment of a Limited Partner
pursuant to Section 3.2 herein, (iii) the date of the dissolution of the
Partnership, or (iv) the date prior to a distribution pursuant to Sections 3.7
herein or 4.5 herein (or if a distribution of Securities in kind is being made
on the date of an initial public offering of such Securities, then on the date
of such distribution). Additionally, as of the close of business on the last day
of each fiscal quarter of the Partnership, the Opening Capital Account of each
Partner shall be adjusted in accordance with Section 3.5 herein.
3.5 Adjustments.
-----------
(a)As of the close of business on each of the dates provided for in
Section 3.4 herein,the Opening Capital Account of each Partner shall be adjusted
to arrive at such Partner's Closing Capital Account for such quarter or other
period as follows:
(i) The amount of any Capital Contributions paid by
such Partner during such quarter or period shall be credited
to such Opening Capital Account (other than Capital
Contributions referred to in the definition of "Opening
Capital Account" provided in Section 1.1 herein); provided,
however, that:
(A) Any such Capital Contribution shall
be edited to such Partner's Opening Capital
Account on the later of the date such Capital
Contribution was due as provided in Section 3.1 or
3.2 herein or the date on which such Capital
Contribution was actually received by the
Partnership; and
(B) The General Partner may elect to pay
its Capital Contributions in a timely manner by
amending its promissory note accordingly;
(ii) The amount of any distributions made to such
Partner pursuant to Sections 3.7(a), 3.7(c) or 4.4 herein
during such quarter or period shall be debited against such
Opening Capital Account;
(iii) Net Short-Term Investment Income, if any, shall
be credited to such Opening Capital Account, allocated among
the
-22-
Partners (to be apportioned among them in accordance with
their respective Partners' Percentages);
(iv) Net Profits, if any, (reduced by the amount, if
any, allocated pursuant to Section 3.5(a)(iii) herein) shall
be credited to such Opening Capital Account and Net Losses,
if any, (increased by the amount, if any, allocated pursuant
to Section 3.5(a)(iii) herein) shall be debited against such
Opening Capital Account and allocated among the Partners (to
be apportioned among them in accordance with their
respective Partners' Percentages); and
(v) The amount of any reallocation pursuant to Section
3.2 or 3.3 herein shall be debited or credited to the
Partners' Opening Capital Accounts in accordance with such
Sections.
(b) For Federal, state and local income tax purposes, each item of
Partnership income, credit, gain or loss shall be allocated among the Partners
in accordance with the allocation of such income, credit, gain or loss among the
Partners as provided in Section 3.5(a) herein for computing their respective
Capital Accounts, except as otherwise provided in the Code or other applicable
law. The General Partner shall be the "tax matters partner" (as such term is
used in the Code) and shall have the power to make such allocation and to take
any and all action necessary under the Code or other applicable law to effect
such allocation and to maintain the substantial economic effect thereof;
provided, however, that the General Partner shall not make any allocations under
this provision in a manner different from that provided for under this
Agreement. The General Partner shall keep the Partners informed of all
administrative and judicial proceedings with respect to Partnership tax returns
or for the adjustment of Partnership items. Any Partner who enters into a
settlement agreement with respect to Partnership items shall promptly notify the
General Partner of such settlement agreement and its terms as they relate to the
Partnership items. In the event of any admission of any Limited Partner or
transfer by any Limited Partner of its Partnership interest, the General Partner
shall allocate items of income, credit, gain or loss in accordance with the Code
and may make such elections thereunder as the General Partner determines to be
necessary or appropriate.
(c) Notwithstanding any other provision of this Agreement, the
interests of the General Partner in each material item of Partnership income,
credit, gain, loss, or deduction shall be equal to at least 1% of each such item
at all times during the existence of the Partnership.
(d) If the book value of any asset differs from its adjusted tax
basis, the tax allocations of income, credit, gain, loss and deduction shall be
shared among the Partners in a manner that takes into account the variation
between such book value and adjusted tax basis, pursuant to Section 704(c) of
the Code or pursuant to the principles thereof. Allocations made under this
Section 3.5(d) are made solely for Federal, state or local income tax purposes
and shall
-23-
not affect, or any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Agreement.
3.6 Valuation. The value of any Security shall be determined
---------
in accordance with a Valuation Policy to be adopted by the General Partner.
3.7 Distributions.
-------------
(a) Distributions of cash or property (including Investment
Securities), if any, shall be made (subject to the provisions of this Section
3.7) at such times as the General Partner shall determine in conformance with
the following:
(i) cash that the General Partner decides to distribute
that is attributable to Net Short-Term Investment Income will
be distributed to Partners (to be apportioned among them in
accordance with their respective Partners' Percentages as
most recently adjusted (after giving effect to any amount
distributed to the General Partner with respect to tax
liability pursuant to Section 3.7(c) herein and not yet
deducted from the General Partner's Opening Capital
Account)); and
(ii) cash that the General Partner decides to distribute
that is attributable to net operating income, consisting of
operating income (including fee income, interest income and
any other operating income but excluding Net Short-Term
Investment Income) less Operating Expenses, will be
distributed to Partners (to be apportioned among them in
accordance with their respective Partners' Percentages as
most recently adjusted (after giving effect to any amount
distributed to the General Partner with respect to tax
liability pursuant to Section 3.7(c) herein and not yet
deducted from the General Partner's Opening Capital
Account)); and
(iii) subject to Section 3.7(b) herein, Investment
Securities in kind and the proceeds from the sale or exchange
of Investment Securities that the General Partner decides to
distribute will be distributed to the Partners, with respect
to each such Investment Security, amount of proceeds or
amount of other cash, as follows:
(A) a portion of the Investment
Securities being distributed in kind or the
proceeds from the sale or exchange of Investment
Securities, the value of which exceeds the
Partnership's actual cost for
-24-
the total amount of such Investment Securities or
proceeds being distributed, will be distributed to
the Partners (to be apportioned among them
according to their respective Partners'Percentages
as most recently adjusted); and
(B) the remaining portion of such
Investment Securities being distributed in kind or
the proceeds from the sale or exchange of
Investment Securities will be distributed to the
Partners (to be apportioned among them in
accordance with their respective Partners'
Percentages, after giving effect to the
distributions made pursuant to clause (i) and
clause (iii)(A) above and not yet deducted from
such Partners' Opening Capital Accounts).
(b) It is the General Partner's intention, where consistent
with the exercise of due care, prudence and its fiduciary duty to the
Partnership, to prefer to make distributions in cash; however, the General
Partner may, in its sole discretion, at any time distribute Investment
Securities in kind, pro rata with respect to such distribution of each group of
--- ----
each separate Investment Security of each issuer that has a different tax basis,
as part of any distribution pursuant to this Section 3.7 or Section 4.4 herein.
Investment Securities distributed in kind pursuant to this Agreement shall be
subject to such conditions and restrictions as the General Partner determines
are legally or otherwise required, including such conditions and restrictions as
the General Partner determines are required to assure compliance by the Partners
or the Partnership with the aggregation rules and volume limitations under SEC
Rule 144 promulgated pursuant to the Securities Act.
(c) Anything contained herein to the contrary notwithstanding,
the General Partner shall at all times be entitled to receive distributions from
the Partnership (after taking into account any other distributions received by
the General Partner in such fiscal year) in amounts sufficient to enable the
General Partner and the shareholders of the General Partner to discharge any
actual Federal, state and local tax liability (after taking into account all
actual Federal, state and local tax savings of the shareholders of the General
Partner as a result of the allocations of Partnership deductions, credits and
losses to the General Partner in such fiscal year) arising as a result of the
General Partner's interest in the Partnership. Such distributions shall be
debited to such Partner's Capital Account, as provided in Section 3.5(a)(ii)
herein.
(d) The Partnership shall at all times be entitled to make
payments with respect to any Partner in amounts required to discharge any legal
obligation of the Partnership to withhold or make payments to any governmental
authority with respect to any Federal, state and local tax liability of such
arising as a result of such Partner's interest in the Partnership. Each such
payment
-25-
shall be deemed to be a loan by the Partnership to such Partner and shall not be
deemed to be a distribution for purposes of Section 3.7(a) herein. The amount of
such payments made with respect to any Partner, plus interest at an annual rate
equal to the highest prime rate reported in The Wall Street Journal from time to
time, plus 2% on each such amount from the date of each such payment until such
amount is repaid to the Partnership, shall be repaid to the Partnership by (i)
deduction from any distributions made to any such Partner pursuant to this
Agreement or (ii) earlier payment of such amounts and interest by the Partner to
the Partnership.
(e) The General Partner shall use commercially reasonable
efforts to distribute in accordance with Section 3.7(a) herein (i) within 90
days after the receipt thereof, the cash proceeds from any sale of any
Investment Securities, net of any expenses related to such sale, revenues or
amounts required in the good faith judgment of the General Partner to be
retained to meet future expenses or liabilities of the Partnership and any
amounts the General Partner elects to retain for the purchase of Investment
Securities and (ii) within 90 days of the end of each fiscal year, to the extent
not distributed pursuant to clause (i) hereof, a portion of the net realized
gain (including items of ordinary income) for the preceding fiscal year that is
equal to the maximum U.S. Federal rate applicable to individuals.
(f) Anything herein contained to the contrary notwithstanding,
no distribution may be made by the Partnership if and to the extent that such
distribution would violate Section 17--607 of the Delaware Act.
ARTICLE 4
---------
TERMINATION AND DISSOLUTION
---------------------------
4.1 Termination.
------------
(a) The Partnership shall be dissolved on the later to occur
of (i) the date of dissolution set forth in Section 1.4 herein or (ii) two years
after all Outstanding Leverage shall have matured. The date of dissolution
provided for in this Section 4.1(a) shall be known as the "Statutory Ultimate
Date of Dissolution."
(b) The General Partner and the Limited Partners may elect to
dissolve the Partnership at any time after ten (10) years, provided that (i) all
Outstanding Leverage has been repaid and (ii) all amounts due the SBA, its agent
or trustee have been paid. The date after which such a dissolution may occur
shall be known as the "Statutory Permissive Date of Dissolution." The election
provided for in this Section 4.1(b) shall be made by the majority vote of the
Partners with each Partner having such Partner's Voting Interest.
-26-
(c) Following the Statutory Permissive Date of Dissolution,
the General Partner may decide to dissolve the Partnership at any time. In such
an event, the General Partner shall give notice to each Limited Partner of such
dissolution not less than 90 days before the effective date of such dissolution.
(d) The Partnership shall not dissolve upon the dissolution,
bankruptcy, death or adjudication of incompetency or insanity of any Limited
Partner.
(e) Subject to Section 4.3 herein, when the Partnership is
dissolved, the property and business of the Partnership shall be liquidated by
the General Partner or, in the event of (i) the unavailability of the General
Partner or (ii) the withdrawal of the General Partner pursuant hereto, a Person
designated by a majority vote of the Limited Partners with each Limited Partner
having such Partner's Voting Interest.
(f) Within 60 days after the effective date of dissolution of
the Partnership, whether by expiration of its full term or otherwise, the
Partnership's assets (except for amounts reserved pursuant to Section 4.6
herein), subject to applicable provisions of the Delaware Act, shall be
distributed in the following manner and order:
(i) the claims of all creditors of the Partnership
who are not Partners shall be paid and discharged or
reasonable provision shall be made therefor;
(ii) the claims of all creditors of the
Partnership who are Limited Partners shall be paid and
discharged or reasonable provision shall be made therefor;
(iii) the claims of all creditors of the
Partnership who are General Partners (including any claims
for unpaid Management Compensation) shall be paid and
discharged or reasonable provision shall be made therefor;
(iv) any amounts contributed by Limited Partners
prior to the time such Capital Contributions were due and
no credited to such Limited Partners' Capital Accounts
pursuant to Section 3.5(a)(i) herein shall be paid to such
Limited Partners; and
(v) the remainder shall be distributed to the
Partners in accordance with the respective Partners'
Percentages.
(g) During the term of the Partnership set forth in Section
1.4 herein, the General Partner shall not voluntarily withdraw from the
Partnership except by an assignment made
-27-
pursuant to the provisions of Section 6.1(b) herein and shall not voluntarily
dissolve and commence winding up proceedings with respect to itself.
4.2 Death, Disability, Separation or Divorce of a Natural Person
------------------------------------------------------------------
Limited Partner. If a natural person who is a Limited Partner shall die or
- ----------------
become incapacitated, or shall become separated or divorced and thereby
transfers all or any portion of his interest in the Partnership pursuant to a
divorce decree or property settlement agreement to such Limited Partner's spouse
or former spouse, then such Limited Partner's Legal Representative, spouse, or
former spouse (as the case may be) shall have the rights of an assignee of a
limited partnership interest under the Delaware Act and shall not be substituted
as a Limited Partner unless the General Partner consents to such substitution
and the party agrees to be bound by all of the terms and conditions of this
Agreement.
4.3 Withdrawal of the General Partner and Continuation of the
------------------------------------------------------------------
Partnership.
- -----------
(a) If an event of withdrawal (as defined in the Delaware Act)
of the General Partner occurs, the rights of the Limited Partners to continue
the Partnership shall be as set forth in Section 17-801(3) of the Delaware Act.
(b) Upon an event of withdrawal of the General Partner without
continuation of the Partnership as provided above, the affairs of the
Partnership shall be wound up in accordance with the provisions of Section 4.1
herein.
(c) Upon the occurrence of any of the events specified in 13
C.F.R. ss.107.1810(d)(1) through (d)(6) or (f)(1) through (f)(3), as determined
by the SBA, the SBA shall have the right, upon written notice, to require the
Partnership to remove the General Partner, and in such an event, the General
Partner shall withdraw from the Partnership. In such an event, the rights of the
Limited Partners to continue the Partnership shall be as set forth in Section
17-801(3) of the Delaware Act.
(d) Notwithstanding any other provisions of this Agreement,
(i) the General Partner and any successor general partner that may be approved
by the SBA shall not be removed or replaced by the Limited Partners without the
prior written approval of the SBA and (ii) any transferee of, or successor in
interest to, the General Partner or any such successor general partner,
including any assignee approved by the Limited Partners under Section 6.1(b)
herein, shall have only the rights and liabilities of a Limited Partner pending
the SBA's written approval of such transfer or succession.
4.4 Withdrawal from the Partnership. No Limited Partner may withdraw
--------------------------------
from the Partnership before its dissolution or termination pursuant to Section
1.4 or 4.1 herein.
-28-
4.5 Amounts Reserved and Pending Claims.
-----------------------------------
(a) If there are any assets that, in the judgment of the
General Partner, cannot be sold, or be properly distributed in kind in the case
of dissolution without sacrificing a significant portion of the value thereof,
then the value of a Partner's interest in each separate group of such assets may
be excluded from such Partner's Capital Account for purposes of computing a
Partner's Distributive Share. Any Partner's interest, including his pro rata
--- ----
interest in any gains, losses or distributions, in assets so excluded, shall not
be paid or distributed until such time as the General Partner shall determine.
(b) If there is any pending transaction or claim by or against
the Partnership as to which the interest or obligation of any Partner therein
cannot, in the judgment of the General Partner, be then ascertained, then the
value thereof or probable loss therefrom may be excluded from the valuation of
assets for purposes of computing any Partner's Distributive Share. No amount
shall be paid or charged to any such Partner or his Legal Representative on
account of any such transaction or claim until its final settlement or such
earlier time as the General Partner shall determine; the Partnership may
meanwhile retain from other sums due such Partner or his Legal Representative an
amount that the General Partner estimates to be sufficient to cover the share of
such Partner in any probable loss or liability on account of such transaction or
claim.
(c) Upon determination by the General Partner that
circumstances no longer require the exclusion of assets or retention of sums as
provided in Sections 4.5(a) and (b) herein, the General Partner shall, at the
earliest practicable time, pay such sums or distribute such assets or the
proceeds realized from the sale of such assets to each Partner from whom such
sums or assets have been withheld.
(d) Any assets excluded or retained pursuant to this Section
4.5 herein at the time of the dissolution of the Partnership shall be held by
the General Partner after the dissolution of the Partnership in trust for the
benefit of the Partners on the same terms as provided in this Agreement and
distributed to the Partners pursuant to Section 4.5(c) herein.
ARTICLE 5
----------
REPORTS TO PARTNERS
--------------------
5.1 Books of Account. Appropriate records and books of account shall
----------------
be kept, on the accrual basis, at 1700 Montgomery Street, Suite 250, San
Francisco, CA 94111, and each Partner shall have access to all records and books
of account and the right to receive copies thereof; provided, however, that the
Partnership shall not be required to disclose to the Limited Partners any
confidential or proprietary information received by the Partnership in
connection with its investment operations, unless the Limited Partner signs a
confidentiality agreement acceptable to the General Partner.
-29-
5.2 Reports.
-------
(a) The books and records of the Partnership shall be kept
according to generally accepted accounting principles, except as otherwise
provided herein, and shall be audited as of the end of each fiscal year by a
firm of independent certified public accountants selected by the General
Partner. Within 120 days of the end of each fiscal year, the Partnership shall
prepare and mail to each Partner a report, setting forth as of the end of and
for such fiscal year:
(i) a balance sheet of the Partnership;
(ii) a statement of the Net Profits Losses, if
any, for such year and such Partner's share
thereof, and
(iii) such Partner's Closing Capital Account.
Within 90 days of the end of each fiscal year, the Partnership shall prepare and
mail to each Partner information setting forth as of the end of such fiscal year
the amount of such Partner's share in the Partnership's taxable income or loss
for such year, in sufficient detail to enable it to prepare its Federal, state
and other tax returns.
(b) On a regular basis, not less frequently than once each
fiscal year, the Partnership shall prepare and mail to each Partner a report
(subject to any restrictions on the disclosure of confidential or proprietary
information received by the Partnership) providing summary information on all
investments and potential investments considered by the Partnership.
5.3 Fiscal Year. The fiscal year of the Partnership shall be a
------------
twelve-month year (except for the first partial year) ending on December 31.
ARTICLE 6
---------
MISCELLANEOUS
-------------
6.1 Assignability.
-------------
(a) No Limited Partner may assign, pledge or otherwise grant a
security interest in its interest in the Partnership or in this Agreement,
except with the written consent of the General Partner (which consent may be
withheld in the sole discretion of the General Partner). In addition, a Limited
Partner's interest may be assigned by operation of law, but any such assignee
shall receive only the Limited Partner's economic interest in the Partnership
(to the extent assigned) and shall not become a partner of the Partnership,
except as provided in the immediately preceding sentence.
-30-
(b) No assignment, pledge or grant pursuant to this Section
6.1 shall be allowed if the actions to be taken in connection with such
assignment, pledge or grant would (i) cause the termination or dissolution of
the Partnership; (ii) cause it to be classified other than as a partnership for
Federal income tax purposes; (iii) result in a violation of the Securities Act;
(iv) require the Partnership to register as an investment company under the
Investment Company Act; (v) require the Partnership or the General Partner to
register as an investment adviser under the Investment Advisers Act; (vi) result
in a termination of the partnership for Federal or state income tax purposes;
(vii) cause the Partnership to be classified as a "Publicly Traded Partnership"
within the meaning of Section 7704 of the Code; (viii) result in a violation of
any law, rule or regulation by the Limited Partner, the Partnership or the
General Partner effecting the assignment, pledge or grant; or (ix) result in a
violation of any SBIC Regulations. Any assignee of any interest in the
Partnership pursuant to an assignment in compliance with this Section 6.1 shall
become a substituted Partner hereunder upon delivery and execution of a
counterpart hereof, shall have the same rights and responsibilities under this
Agreement as his assignor and shall succeed to the Capital Account and balance
thereof. Any act by a Limited Partner or the General Partner in violation of
this Section 6.1 shall be null and void ab initio and shall not be recognized by
the Partnership for any purpose.
6.2 Authority to Act. Notwithstanding anything to the contrary
------------------
contained herein, the General Partner shall have the sole authority to bind the
Partnership in carrying on the business of the Partnership, subject to the terms
and conditions of this Agreement.
6.3 Binding Agreement. This Agreement shall be binding upon the heirs,
-----------------
successors, assigns and Legal Representatives of the Partners.
6.4 Interpretation. Unless the context of this Agreement clearly
--------------
requires otherwise, (a) references to the plural include the singular, the
singular the plural and the part the whole, (b) the reference to any gender
includes all genders, (c) "or" has the inclusive meaning frequently identified
with the phrase "and/or" and (d) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to." The section and
other headings contained in this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified. Each accounting
term used herein that is not specifically defined herein shall have the meaning
given to it under generally accepted accounting principles.
-31-
6.5 Notice. All notices hereunder shall be in writing and shall be
------
deemed to have been duly given (i) upon receipt, if personally delivered, (ii)
one fifth day after mailing, if mailed by registered or certified mail, return
receipt requested, (iii) upon confirmation by facsimile machine report, if sent
by telecopier or (iv) upon receipt, if sent by overnight courier service. All
notices shall be sent to the Partnership at the address or telecopier number, as
the case may be, of the General Partner set forth in Schedule A attached hereto,
or at such other addresses or telecopier numbers as to which the Partners shall
have been given notice and to other Limited Partners, at such other addresses or
telecopier numbers as to which the Partnership shall have been given notice in
accordance with this Section 6.5.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same agreement.
6.7 Entire Agreement; Amendments. This Agreement sets forth the entire
-----------------------------
understanding of all the parties hereto and except as specified below in this
Section 6.7, this Agreement shall not be amended except by an instrument in
writing executed by 66-2/3 % in Voting Interest of the Limited Partners as of
the effective date of such amendment and the General Partner; provided, however,
--------- -------
that no such amendment shall increase the amount of any Limited Partner's
Commitment without such Limited Partner's consent; and provided further,
-----------------
however, that each Limited Partner hereby consents to any amendment that the
- -------
General Partner may deem desirable in connection with: (i) the admission of
Additional Limited Partners in accordance with Section 3.2 herein and (ii) the
assignment of a Limited Partner's interest in accordance with Section 6.1 herein
and the admission of a substituted Limited Partner pursuant thereto or pursuant
to Section 4.2 herein. Any amendment of this Agreement or the Certificate of
Limited Partnership necessary to effect any such admission or assignment may be
effected by the General Partner without obtaining the approval of any Limited
Partners. In addition, notwithstanding the foregoing provisions of this Section
6.7 or any other provisions of this Agreement, the General Partner shall have
the authority to amend this Agreement without obtaining the approval of any
Limited Partners to the extent that Section l.9(b) herein provides for certain
amendments without approval by any Limited Partners. This Section 6.7 shall only
be amended by an instrument in writing executed by all Limited Partners as of
the effective date of such amendment and the General Partner.
-32-
6.8 Goodwill. The Partnership's name and goodwill shall belong to the
--------
General Partner or any successor thereof, and no Limited Partner shall have any
right or claim individually to the use thereof.
6.9 Merger and Consolidation. Pursuant to an agreement of merger or
-------------------------
consolidation, the Partnership may merge or consolidate with or into another
business entity, with such other business entity being the surviving business
entity. Such merger or consolidation shall not occur, except with the advance
approval in writing of the SBA and the General Partner. The Limited Partners
shall not have the right to approve such merger or consolidation.
ARTICLE 7
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF LIMITED PARTNERS
-------------------
7.1 Representations and Warranties. Each Limited Partner, by signing
-------------------------------
this Agreement or a Counterpart Signature Page hereof, hereby represents and
warrants to the Partnership as follows:
(a) The Limited Partner has received and carefully read the
material documents and agreements relating to the Partnership,
including the Agreement of Limited Partnership (the "Documents"), is
familiar with and understands the Documents, has based its decision to
invest on the information contained in the Documents and has not been
furnished with any offering literature or prospectus other than such
information.
(b) The Limited Partner is acquiring its interest as a limited
partner of the Partnership (the "Interest") for its own account, as
principal, for investment and not with a view toward resale or
distribution.
(c) The Limited Partner (i) is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D, promulgated under
the Securities Act, and (ii) has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of the investment in the Interest.
(d) The Limited Partner is able to bear the economic risk of
losing its entire investment in the Interest.
(e) The Limited Partner's overall commitment to investments
that are not readily marketable is not disproportionate to its net
worth, and its investment in the Interest will not cause such overall
commitment to become excessive.
-33-
(f) The Limited Partner, by reason of its business or
financial experience, has the capacity to protect its own interests in
connection with the purchase of the Interest.
(g) The Limited Partner maintains its domicile and principal
residences (and is not a transient or temporary resident) at the
address shown below and has no present intention of becoming a resident
of any other state or jurisdiction; if a corporation, trust,
partnership, joint venture or other organization, the Limited Partner
has its domicile, principal place of business or principal office at
the address shown below and has no present intention of relocating such
domicile, principal place of business or principal office to any other
state or jurisdiction.
(h) The Limited Partner understands that it is not entitled to
cancel, terminate or revoke this Agreement or any part hereof,
including the power of attorney granted hereby, and that it is
unconditionally obligated to pay its Commitment regardless of any
adverse change in the Partnership or the Partnership's properties,
business, financial condition or prospects.
(i) The Limited Partner understands that (i) the Interest has
not been registered under the Securities Act or any state securities or
"Blue Sky" laws pursuant to exemptions therefrom, and the Partnership
has not registered under the Investment Company Act pursuant to an
exemption therefrom, (ii) the Partnership has no obligation to register
the Interest for resale under any Federal or state securities laws, to
register the Partnership under the Investment Company Act or to take
any action (including the filing of reports or the publication of
information required by Rule 144 under the Securities Act or the
Investment Company Act) that would make available any exemption from
the registration requirements of such laws, and (iii) it is likely that
the Limited Partner, therefore, may be precluded from selling or
otherwise transferring or disposing of the Interest or any portion
thereof and may, therefore, have to bear the economic risk of
investment in the Interest for an indefinite period.
(j) The Limited Partner understands that no Federal or state
agency has approved or disapproved the Interest, passed upon or
endorsed the merits of the offering thereof, or made any finding or
determination as to the fairness of the Interest for investment.
(k) The Limited Partner acknowledges that all material
documents, records and books pertaining to the Partnership have, on
request, been made available to it, and that the Partnership has made
available to it, the opportunity to ask questions of, and receive
answers from, the Partnership concerning the terms and conditions of
the offering and to obtain any additional information, to the extent
that the
-34-
Partnership possesses such information, or can acquire it
without unreasonable effort or expense, necessary to verify the
accuracy of the information given to it or otherwise to make an
informed investment decision.
(l) The Limited Partner understands that by executing this
Agreement or a Counterpart Signature Page hereof, it is irrevocably
appointing the General Partner (with power of substitution) (and any
additional or successor general partners) to be its agent and
attorney-in-fact for certain purposes.
(m) The Limited Partner certifies, under penalties of perjury,
that it has not been notified that it is subject to backup withholding
as a result of a failure to report all interest or dividends, or the
Internal Revenue Service has notified the Limited Partner that it is no
longer subject to backup withholding.
(n) [intentionally deleted]
(o) If the Limited Partner is not a natural person, (i) the
Limited Partner is duly organized and validly existing under the laws
of the jurisdiction of its organization, and has full power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby, (ii) the execution, delivery and performance by
the Limited Partner of this Agreement and the transactions contemplated
hereby have been duly authorized by all requisite action of it, and
(iii) the Limited Partner was not organized or formed for the purpose
of investing in the Interest. This Agreement is a valid and binding
obligation of the Limited Partner, enforceable against the Limited
Partner in accordance with its terms.
(p) The Limited Partner understands that the Interest is being
offered and sold in reliance on specific exemptions from the
registration requirements of Federal and state securities laws and that
the Partnership, the General Partner and controlling persons thereof
are relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings set forth
herein, in order to determine the applicability of such exemptions and
the suitability of the Limited Partner to acquire the Interest, and
represents and warrants that the information set forth herein is true
and correct.
-35-
7.2 Restrictions on Transfer.The Limited Partner will not sell,
--------------------------
transfer, assign or otherwise dispose of the Interest or any rights therein
unless and until the Limited Partner (i) obtains any consent required under this
Agreement, (ii) complies with all applicable requirements of Federal and state
securities laws; and (iii) provides the Partnership with an opinion of counsel
which is satisfactory to the General Partner (both as to the issuer of the
opinion and the form and substance thereof) that the Interest may be sold,
transferred, assigned or disposed of without registration of the Interest under
the Securities Act, and without violation of any applicable state securities
laws (including any investor suitability standards) and the transfer will not
cause the Partnership to be required to register under the Investment Company
Act or to lose the "safe harbor" exemption from registration under the
Investment Company Act that relates to the number of beneficial owners of the
securities issued by the Partnership.
7.3 Power of Attorney.
-----------------
(a) The Limited Partner, by executing this Agreement or a
Counterpart Signature Page hereof, hereby constitutes and appoints the General
Partner (and any additional or successor general partner), each officer of the
General Partner and each of their respective successors, its true and lawful
attorney-in-fact with full power of substitution, with such attorney having full
power and authority for the Limited Partner and in its name, place and stead to
execute, acknowledge, deliver, swear to, certify, verify, publish, file and
record at the appropriate public offices such documents as may be necessary or
appropriate to carry out the provisions of this Agreement, including the
following:
(i)all certificates and other instruments, including
counterparts of this Agreement, the Partnership's Certificate
of Limited Partnership, and amendments to the Partnership's
Certificate of Limited Partnership necessary or appropriate
to reflect the admission of additional or substitute Limited
Partners or any other change in the Partnership or
Partnership Agreement and fictitious name certificates, and
any amendment of any thereof, and all certificates and
instruments that the General Partner deems appropriate to
qualify or continue the Partnership as a limited partnership,
or as a partnership in which the Limited Partners have
limited liability in the jurisdictions in which the
Partnership may conduct business;
(ii) all instruments that the General Partner deems
appropriate to reflect a change or modification of the
Partnership in accordance with the terms of the Delaware Act
or this Agreement;
(iii) all instruments necessary to effect a dissolution,
termination and liquidation of the Partnership and
cancellation of
-36-
the Certificate of Limited Partnership as provided in the Delaware
Act or this Agreement;
(iv) all instruments necessary to perfect the security
interest in the Interest granted hereunder by the Limited
Partner to the Partnership, the General Partner and their
respective assignees, including financing statements pursuant
to the Uniform Commercial Code as adopted by the applicable
jurisdictions; and
(v) any other document or instrument that the General
Partner deems necessary or desirable to carry out the
provisions and purposes of this Agreement, including in
connection with an offer and sale of the Interest of a
Limited Partner that is in default of its obligations
hereunder.
(b) The Limited Partner hereby (i) authorizes such
attorney-in-fact to take any further action that such attorney-in-fact shall
consider necessary or advisable in connection with any of the foregoing, (ii)
gives such attorney-in-fact full power and authority to do and perform each and
every act or thing whatsoever requisite or advisable to be done in and about the
foregoing as fully and to the same extent as such Limited Partner might or could
do if personally present, and (iii) ratifies and confirms all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof;
provided, that in no event may the General Partner utilize this power of
attorney to cast any vote or consent of a Limited Partner as to the matters with
respect to which the Limited Partners are entitled to vote under the terms of
this Agreement.
(c) The Limited Partner shall execute any and all additional
forms, documents or instruments as may be reasonably necessary or required by
the General Partner to evidence the power of attorney granted in this Section
7.3.
(d) The power of attorney granted in this Section 7.3 shall be
deemed to be coupled with an interest, shall be irrevocable and shall survive
the death, disability, dissolution, merger or other termination of the Limited
Partner.
7.4 Indemnification. The Limited Partner shall indemnify and hold
---------------
harmless the Partnership, the General Partner, its officers and directors, other
Partners and all Persons deemed to be Affiliates of any of the foregoing from
and against any and all losses, costs, expenses, damages, liabilities and
interest (including court costs and attorneys' fees) arising out of or due to a
breach by the Limited Partner of any provisions of this Agreement, including the
representations and warranties set forth in this Article 7. All such
representations shall survive the admission of the Limited Partner as a limited
partner of the Partnership.
-37-
7.5 Jurisdiction. In any suit, action or proceeding arising out of or
------------
in connection with the Limited Partner's investment in the Partnership, the
Limited Partner consents to the in personam jurisdiction of any court of
------------
competent jurisdiction and proper venue within the state in which the
Partnership has its principal place of business at the time of any suit, action
or proceeding.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as
of the date first written
GENERAL PARTNER:
---------------
FOURTEEN HILL MANAGEMENT, LLC
By:/s/JOHN WARD ROTTER
----------------------------
LIMITED PARTNERS:
-----------------
DIGNITY PARTNERS, INC.
By:/s/JOHN WARD ROTTER
----------------------------
By:/s/JAMES MCGORRY
----------------------------
-38-
SCHEDULE A
----------
PARTNERS
--------
General Partner
---------------
Fourteen Hill Management, LLC
917 Tahoe Boulevard, Suite 204
Incline Village, Nevada 89452
(415) 362-1977
(415) 394-9471 (fax)
EIN: 94-3272241
TOTAL $5,000,000
CASH INVESTMENT AT CLOSING $5,000,000
AMOUNT OF COMMITMENT $5,000,000
Limited Partners
----------------
Dignity Partners, Inc.
1700 Montgomery Street, Suite 250
San Francisco, California 94111
(415) 394-9467
(415) 394-9471
EIN: 94-3165263
TOTAL $1,000
CASH INVESTMENT AT CLOSING $1,000
AMOUNT OF COMMITMENT $1,000
James McGorry
103 Wood Sorrell Way
Cary, North Carolina
(919) 383-9883
TOTAL $100
CASH INVESTMENT AT CLOSING $100
AMOUNT OF COMMITMENT $100
- -10-
SBA Annex GDP Version 1.1 March 1, 1996
===============================================================================
-------------------------------------------------------------
SBA ANNEX GDP
VERSION 1.1
GENERAL AND DEBENTURE RELATED PROVISIONS
-------------------------------------------------------------
SBA ANNEX OF GENERAL PROVISIONS FOR
AN AGREEMENT OF LIMITED PARTNERSHIP
FOR A SECTION 301(C) LICENSEE
WITHOUT LEVERAGE OR ONLY ISSUING DEBENTURES
================================================================================
This document has been drafted by the law firm of O'Sullivan Gracy & Karabell,
in collaboration with the law firms of Pepper, Hamilton & Scheetz and, Hoag &
Eliot, the National Association of Small Business Investment Companies, and the
Office of the General Counsel of the United States Small Business
Administration.
The Small Business Administration does not endorse or approve law firms. The
above legend is not an endorsement or approval by the Small Business A of any
law firm identified therein, and no representation to the contrary by any party
is authorized.
================================================================================
SBA ANNEX GDP
================================================================================
TABLE OF CONTENTS Page
ARTICLE I General Provisions..............................................1
1.1. Definitions.....................................................1
1.2. Conflict With the SBIC Act......................................2
1.3. Conflict With Other Provisions of the Agreement.................2
1.4. Effective Date of Incorporated SBIC Act Provisions..............2
1.5. Incorporation of this Annex into the Agreement..................3
ARTICLE II Purpose and Powers..............................................3
ARTICLE III Management......................................................3
3.1. Authority of General Partner....................................3
3.2. Valuation of Assets.............................................4
ARTICLE IV Small Business Investment Company Matters.......................4
4.1. Provisions Required by the SBIC Act for Issuers of Debentures...4
4.2. SBA as Third Party Beneficiary..................................4
4.3. Representations of Private Limited Partners.....................5
4.4. Notices With Respect to Representations by Private Limited
Partners........................................................6
ARTICLE V Partner's Commitments...........................................6
5.1 Conditions to the Commitments of the General Partner and the
Private Limited Partners........................................6
5.2. Failure to Make Required Capital Contributions..................7
5.3. Termination of the Obligation to Contribute Capital.............7
5.4. Withdrawal by ERISA Regulated Pension Plans.....................8
5.5. Withdrawal by Government Plans Complying with State and Local
Law.............................................................8
5.6. Withdrawal by Government Plans Complying with ERISA.............8
5.7. Withdrawal by Tax Exempt Private Limited Partners...............9
5.8. Withdrawal by Registered Investment Companies...................9
5.9. Notice and Opinion of Counsel...................................9
5.10. Cure, Termination of Capital Contributions and Withdrawal.......9
5.11. Distributions on Withdrawal.....................................9
ARTICLE VI Dissolution....................................................10
ARTICLE VII Audit and Report...............................................10
ARTICLE VIII Miscellaneous..................................................10
8.1. Assignability..................................................10
8.2. Amendments.....................................................11
===============================================================================
SBA ANNEX GDP
==============================================================================
ARTICLE I
---------
General Provisions
==================
1.1. Definitions. For the purposes of this Annex, the following
===========
terms shall have the following meanings:
"Act" shall mean the state statute under which the Partnership is
organized.
"Agreement" shall mean the agreement of limited partnership of the
Partnership to which this Annex is attached and incorporated as a provision
thereof. References to the Agreement shall be deemed to include all provisions
incorporated in the Agreement by reference.
"Assets" shall mean and include common and preferred stock (including
warrants, rights and other options relating thereto or any combination thereof),
notes, bonds, debentures, trust receipts and other obligations, instruments or
evidences of indebtedness, and other properties or interests commonly regarded
as securities, and in addition, interests in real property, whether improved or
unimproved, and interests in personal property of all kinds, tangible or
intangible, choses in action, and cash, bank deposits and so-called "money
market instruments".
"Code" shall mean the Internal Revenue Code of 1986, and the
regulations and interpretations thereof promulgated by the Internal Revenue
Service, as amended and supplemented from time to time.
"Commitments" shall mean the capital contributions to the Partnership
which the Partners have made or are obligated to make to the Partnership. The
amounts and terms of the Commitments of the General Partner and the Private
Limited Partners shall be as defined in the Agreement.
"Debentures" shall have the meaning set forth in the SBIC Act.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the regulations and interpretations thereof promulgated by the
Department of Labor.
"General Partner" shall mean the general partner or general partners of
the Partnership.
"Institutional Investor" shall have the meaning set forth in the SBIC
Act.
"Investment Company Act" shall mean the Investment Company Act of 1940,
as amended, and the regulations and interpretations thereof promulgated by the
Securities and Exchange Commission.
"Leverage" shall have the meaning set forth in the SBIC Act.
-1-
"Outstanding Leverage" shall mean the total amount of outstanding
Debentures and other securities issued by the Partnership which qualify as
Leverage and have not been repaid for purposes of and as provided in the SBIC
Act.
"Partners" shall mean the General Partner and the Private Limited
Partners.
"Partnership" shall mean the limited partnership established by the
Agreement.
"Private Limited Partners" shall mean any limited partners of the
Partnership.
"Qualified Nonprivate Funds" shall have the meaning set forth in the
SBIC Act.
"Regulatory Capital" shall have the meaning set forth in the SBIC Act.
"SBA" shall mean the United States Small Business Administration.
"SBA Annex PS" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
"SBIC Act" shall mean the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder by the SBA, as in
effect from time to time.
1.2. Conflict With the SBIC Act. The provisions of this Annex and the
--- ==========================
Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the SBIC Act. In the event of any conflict between any provision
of the Agreement and the provisions of the SBIC Act (including, without
limitation, any conflict with respect to the rights of the SBA hereunder), the
provisions of the SBIC Act shall control.
1.3. Conflict With Other Provisions of the Agreement.(a) The provisions
--- ===============================================
of the Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the provisions of this Annex. In the event of any conflict
between any provision of this Annex and any other provision of the Agreement,
the provisions of this Annex shall control.
(b) If this Annex and SBA Annex PS are both incorporated in the
Agreement, in the event of any conflict between the provisions of this Annex and
SBA Annex PS, the provisions of SBA Annex PS shall control.
1.4. Effective Date or Incorporated SBIC Act Provisions. (a) Subject to
--- ==================================================
Section 1.4(b), any section of this Annex relating to Debentures issued by the
Partnership which incorporates or refers to a provision of the SBIC Act
including, without limitation, 13 C.F.R. ss.ss. 107.1830 - 107.1850, shall, with
respect to the rights of the SBA (or any other holder of any such Debenture)
under any such section as to each Debenture, be deemed to refer to such SBIC Act
provision as in effect on the date on which such Debenture was purchased from
the Partnership.
(b) Notwithstanding Section 1.4(a), the provisions of 13 C.F.R. ss.
107.1810(i) incorporated by reference in Section 4.1 shall be deemed to be such
provisions as in effect on the date of the first purchase of a Debenture from
the Partnership after April 25, 1994. If 13 C.F.R. ss. 107.1810(i) is amended
subsequent to the date such section is incorporated in the Agreement pursuant
-2-
to this Section 1.4(b), then unless the SBA shall otherwise give its written
consent, before the Partnership may issue additional Leverage, this Section
1.4(b) must be amended to incorporate the version of 13 C.F.R. ss 107.1810(i)
then in effect.
(c) This Section 1.4 applies to the rights of the SBA in its capacity
as a holder or guarantor of Debentures. This Section 1.4 shall not be construed
to apply to the provisions of the SBIC Act which relate to the regulatory
authority of SBA under the SBIC Act over the Partnership as a licensed small
business investment company. References to the provisions of the SBIC Act
relating to the SBA's regulatory authority shall mean such provisions as in
effect from time to time.
1.5. Incorporation of this Annex into the Agreement. The Agreement
--- ================================================
shall contain the following provision evidencing the incorporation of this
Annex:
"The provisions of SBA Annex GDP attached to this Agreement
are incorporated in this Agreement with the same force and
effect as if fully set forth herein."
ARTICLE II
----------
Purpose and Powers
===================
The Partnership is being organized solely for the purpose of
operating as a small business investment company under the SBIC Act and
conducting the activities described under Title III of the SBIC Act, and shall
have the powers, responsibilities, and be subject to the limitations, provided
in the SBIC Act.
ARTICLE III
-----------
Management
==========
3.1. Authority of General Partner. (a) The management and
--- ==============================
operation of the Partnership and the formulation of investment policy shall be
vested exclusively in the General Partner.
(b) The General Partner shall, so long as it remains the General
Partner of the Partnership, comply with the requirements of the SBIC Act,
including, without limitations 13 C.F.R. ss 107.160(a) and (b),* as in effect
from time to time.
3.2. Valuation of Assets. (a) The Partnership shall adopt written
--- ===================
guidelines for determining the value of its Assets. Assets held by the
Partnership shall be valued by the Genera Partner in a manner consistent
with such guidelines and the SBIC Act.
*These regulations describe the number of individuals required and the
organizational requirements for the General Partner.
-3-
(b) To the extent that the SBIC Act requires any Asset held by the
Partnership to be valued other than as provided in the Agreement, the General
Partner shall value such Asset in such manner as it determines to be consistent
with the SBIC Act.
(c) Assets held by the Partnership shall be valued not less often
than annually (or more often, as the SBA may require), and shall be valued not
less often than semi-annually(or more often, as the SBA may require) at any time
that the Partnership has Outstanding Leverage.*
ARTICLE IV
----------
Small Business Investment Company Matters
==========================================
4.1. Provisions Required by the SBIC Act for Issuers or Debentures.
--- =============================================================
** (a) The provisions of 13 C.F.R. ss 107.1810(i) are hereby incorporated by
reference in this Annex as if fully set forth herein.
(b) The Partnership and the Partners hereby consent to the
exercise by the SBA of all of the rights of the SBA under 13 C.F.R. ss. 107.1810
(i), and agree to take all actions which the SBA may require in accordance
with 13 C.F.R. ss 107.1810(i).
(c) This Section 4.1 shall be in effect at any time that the
Partnership has outstanding Debentures and shall not be in effect at any time
that the Partnership does not have any outstanding Debentures.
(d) Nothing in this Section 4.1 shall be construed to limit the
ability or authority of the SBA to exercise its regulatory authority
over the Partnership as a licensed small business investment company under the
SBIC Act.
4.2. SBA as Third Party Beneficiary. The SBA shall be deemed an
--- ==============================
express third party beneficiary of the provisions of the Agreement (including,
without limitation,this Annex) to the extent of the rights of the SBA thereunder
and under the Act, and the SBA shall be entitled to enforce such provisions
(including, without limitation, those provisions setting forth the obligations
of each Partner to make capital contributions) for the benefit of the holders of
Debentures and for its benefit, as if the SBA were a party thereto.
4.3. Representations or Private Limited Partners. (a) Each Private
--- ============================================
Limited Partner represents to the Partnership and the SBA that it is an
Institutional Investor with respect to the Partnership; provided, however, that
-------- --------
in lieu of making representation, any Private Limited Partners
*See 13 C.F.R. ss 107.503(d),which requires valuation of assets on a semi-annual
basis if there is outstanding Leverage.
**This Section incorporates regulations relating to the special rights of the
SBA when the Partnership has outstanding Debentures.
-4-
may provide the Partnership with a separate written representation describing
its status under the definition of an Institutional Investor.*
(b) Each Private Limited Partner represents to the Partnership and the
SBA that its Commitment qualifies as Private Capital, and none of its Commitment
constitutes Qualified Nonprivate Funds whose source is Federal funds; provided,
--------
however, that in lieu of making this representation any Private Limited Partner
- -------
may provide the Partnership with a separate written representation stating the
amount of its Commitment which qualifies as Private Capital and the amount of
its Commitment which constitutes Qualified Nonprivate Funds whose source is
Federal funds.**
(c) Each Private Limited Partner represents to the Partnership and the
SBA that (i) its net worth or (in the case of any employee benefit plan, pension
plan or government plan as defined under ERISA) net assets available for
benefits equals or exceeds $10 million (exclusive, in the case of any
individual, of the value of any equity in such individual's most valuable
residence), (ii) its Commitment to the Partnership represents less than ten
percent (10%) of such Private Limited Partner's net worth or (in the case of any
employee benefit plan, pension plan or government plan as defined under ERISA)
net assets available for benefits, and (iii) if such Private Limited Partner is
a natural person, such person is a permanent resident of the United States;
provided, however, that in lieu of making this representation any Private
- -------- -------
Limited Partner may provide the Partnership with a separate written
representation stating the amount of its net worth (exclusive, in the case of
any individual, of the value of any equity in such individual's most valuable
residence) or net assets available for benefits (in the case of any such
employee benefit plan, pension plan or government plan), the percentage of such
net worth or net assets available for benefits represented by such Private
Limited Partner's Commitment to the Partnership and the country (if other than
the United States) in which such Private Limited Partner is a permanent
resident.***
(d) Each Private Limited Partner which directly or indirectly owns or
controls a limited partner's interest which constitutes ten percent (10%) or
more of the partnership capital (as such term is used in the SBIC Act),
represents to the Partnership and the SBA that its Commitment to the Partnership
does not (i) constitute thirty-three percent (33%) or more of the partnership
capital or (ii) exceed five percent (5 %) of such Private Limited Partner's net
worth or net assets available for benefits (in the case of any employee benefit
plan, pension plan or government plan); provided, however, that in lieu of
-------- -------
making this representation any Private Limited Partner may provide the
Partnership with a separate written representation stating the percentage of the
partnership capital which the limited partner's interest directly or indirectly
owned or controlled by it constitutes, and the percentage of its net worth
represented by such limited partner's interest.****
*See the definition of "Institutional Investor" at 13 C.F.R. ss107.50.
**See the definitions of "Regulatory Capital", "Qualified Nonprivate Funds" and
"Leverageable Capital" at 13.C.F.R. ss 107.50.
***See the definations of "Private Capital" and "Regulatory Capital" at 13
C.F.R. ss 107.50.
****See the definition of "Associate" at 13 C.F.R. ss 107.50.
-5-
(e) Each Private Limited Partner represents to the Partnership and the
SBA that such Private Limited Partner has full power and authority to execute
and deliver the Agreement and to act as a Private Limited Partner thereunder;
the Agreement has been authorized by all necessary actions by it; the Agreement
has been duly executed and delivered by it; and the Agreement is a legal, valid
and binding obligation of it, enforceable against it according to its terms.
4.4 Notices With Respect to Representations by Private Limited
--- ==================================================================
Partners. (a) In the event that the representation made by a Private Limited
========
Partner in Section 4.3(a), (b), (c) or (d) shall cease to be true (including any
separate written representation previously provided by such Private Limited
Partner to the Partnership as provided in such Sections), then such Private
Limited Partner shall promptly provide the Partnership with a correct separate
written representation as provided in each such Section.
(b) The Partnership shall give the SBA prompt written notice of any
notice received from any Private Limited Partner pursuant to Section 4.4(a) with
respect to the representations of such Private Limited Partner.
ARTICLE V
---------
Partners' Commitments
=====================
5.1. Conditions to the Commitments of the General Partner and the
--- =================================================================
Private Limited Partners. (a) Notwithstanding any provision in the Agreement to
========================
the contrary, the General Partner and the Private Limited Partners shall be
obligated to contribute any amount of their respective Commitments, not
previously contributed to the Partnership, upon the earlier of (i) completion of
the liquidation of the Partnership or (ii) one year from the commencement of
such liquidation if and to the extent that the other Assets of the Partnership
have not been sufficient to permit at such time the redemption of all
Outstanding Leverage, the payment of all amounts due with respect to the
Outstanding Leverage as provided in the SBIC Act and the payment of all amount
owed by the Partnership to the SBA.
(b) Notwithstanding any provision in the Agreement to the contrary
(except as expressly provided in this Section 5.1(b)), in the event that the
Partnership is subject to restricted operations(as such term is used in the SBIC
Act) and prior to the liquidation of the Partnership the SBA requires the
General Partner and the Private Limited Partners to contribute any amount of
their respective Commitments not previously contributed to the Partnership, the
obligation to make such contributions shall not be subject to any conditions set
forth in the Agreement other than limitations on the amount of capital which a
Partner is obligated to contribute (i) within any specified time period or (ii
prior to any specified date.
(c) The provisions of this Section 5.1 shall not apply to the
Commitment of any Private Limited Partner whose obligation to make capital
contributions has been terminated or who has withdrawn from the Partnership
pursuant to a provision of this Article V or any agreement, release, settlement
or action under any provision of the Agreement which has been taken with the
consent of the SBA as provided in Section 5.2. No Private Limited Partner or
General Partner shall have any right to delay, reduce or offset any capital
contribution obligation to the Partnership called under this Section 5.1 by
reason of any counterclaim or right to offset by such Partner or the
Partnership against SBA.
-6-
5.2. Failure to Make Required Capital Contributions. (a) The
--- ====================================================
Partnership shall be entitled to enforce the obligations of each Partner to make
the contributions to Capital specified in the Agreement, and the Partnership
shall have all rights and remedies available at law or equity in the event any
such contribution is not so made.*
(b) The Partnership shall give the SBA prompt written notice of any
default by a Private Limited Partner in making any capital contribution to the
Partnership required under the Agreement which continues beyond any applicable
grace period specified in the Agreement.
(c) The Partnership shall not enter into any agreement (whether oral or
written), release or settlement with any Partner or take any action under any
provision of the Agreement, which defers, reduces, or terminates the obligations
of any such Partner to make contributions to the capital of the Partnership, or
commence any legal proceeding or arbitration, which seeks any such deferral,
reduction or termination of such obligation, and no such agreement, release,
settlement or action taken under any provision of the Agreement shall be
effective with respect to the Partnership or any such Partner, without the prior
written (except as provided in Section 5.2(d)) consent of the SBA.
(d) If the Partnership has given the SBA thirty (30) days prior written
notice of any proposed legal proceeding, arbitration or other action under the
provisions of the Agreement with respect to any default by a Private Limited
Partner in making any capital contribution to the Partnership required under the
Agreement and for which SBA consent is required as provided in Section 5.2(c),
and the Partnership shall not have received written notice from the SBA that it
objects to such proposed action within such thirty (30) day period, then SBA
shall be deemed to have consented to such proposed Partnership action.
(e) Section 5.2(c) shall be in effect at any time that the Partnership
has Outstanding Leverage and shall not be in effect at any time the Partnership
has no Outstanding Leverage.
5.3. Termination or the Obligation to Contribute Capital.
--- ================================================================
Notwithstanding any other provision of the Agreement (including, without
limitation, the provisions of this Annex), any Private Limited Partner may elect
to terminate its obligation in whole or in part to make a capital contribution
required pursuant to the Agreement or upon demand by the General Partner shall
no longer be entitled to make such capital contribution, in the event that such
Private Limited Partner or the General Partner shall obtain an opinion of
counsel to the effect that making such contribution would require such Private
Limited Partner to withdraw from the Partnership pursuant to Sections 5.4
through 5.8. Upon receipt by the General Partner of an opinion and notice as
required under Section 5.9, unless cured within the period provided under
Section 5.10, the Commitment of the Private Limited Partner delivering such
opinion shall be deemed to be reduced by the amount of such capital contribution
and the Agreement shall be deemed amended to reflect a corresponding reduction
of aggregate Commitments to the Partnership.
5.4. Withdrawal by ERISA Regulated Pension Plans. Notwithstanding any
--- ===========================================
other provision of the Agreement (including, without limitation, the provisions
of this Annex), any Private Limited Partner that is an "employee benefit plan"
within the meaning of, and subject to the provisions of, ERISA, may elect to
withdraw from the Partnership in whole or in part, or upon demand by the General
Partner shall withdraw from the Partnership in whole or in part, if either such
Private Limited
*See also the rights of the SBA as a third party beneficiary under Section 4.2.
-7-
Partner or the General Partner shall obtain an opinion of counsel to the effect
that, as a result of ERISA, (i) the withdrawal of such Private Limited Partner
from the Partnership to such extent is required to enable such Private Limited
Partner to avoid a violation of, or breach of the fiduciary duties of any person
under (other than a breach of the fiduciary duties of any such person based upon
the investment strategy or performance of the Partnership), ERISA or any
provision of the Code related to ERISA or (ii) all or any portion of the assets
of the Partnership (as opposed to such Private Limited Partner's partnership
interest) constitute assets of such Private Limited Partner for purposes of
ERISA and are subject to the provisions of ERISA to substantially the same
extent as if owned directly by such Private Limited Partner.
5.5. Withdrawal by Government Plans Complying with State and Local Law.
--- =================================================================
Notwithstanding any other provision of the Agreement (including, without
limitation, the provisions of this Annex), any Private Limited Partner that is a
"government plan" within the meaning of ERISA may elect to withdraw from the
Partnership in whole or in part, or upon demand by the General Partner shall
withdraw from the Partnership in whole or in part, if either such Private
Limited Partner or the General Partner shall obtain an opinion of counsel to the
effect that as a result of state statutes, regulations, case law, administrative
interpretations or similar authority applicable to such "government plan", the
withdrawal of such Private Limited Partner from the Partnership to such extent
is required to enable such Private Limited Partner or the Partnership to avoid a
violation (other than a violation based upon investment performance of the
Partnership) of such applicable state law.
5.6. Withdrawal by Government Plans Complying with ERISA.
--- ================================================================
Notwithstanding any other provision of the Agreement (including, without
limitation, the provision of this Annex), any Private Limited Partner that is a
"government plan" within the meaning of ERISA may elect to withdraw from the
Partnership in whole or in part, if such "government plan" shall obtain an
opinion of counsel to the effect that, as a result of ERISA, (i) the withdrawal
of such "government plan" from the Partnership to such extent would be required
if it were an "employee benefit plan" within the meaning of, and subject to the
provisions of, ERISA, to enable such "government plan" to avoid a violation of,
or breach of the fiduciary duties of any person under (other than a breach of
the fiduciary duties of any such person based upon the investment strategy or
performance of the Partnership), ERISA or any provision of the Code related to
ERISA in the manner which would be required were it an "employee benefit plan"
within the meaning of, and subject to the provisions of, ERISA, or (ii) all or
any portion of the assets of the Partnership would constitute assets of such
"government plan" for the purposes of ERISA, if such "government plan" were an
"employee benefit plan" within the meaning of, and subject to the provisions of,
ERISA and would be subject to the provisions of ERISA to substantially the same
extent as if owned directly by such "government plan."
5.7. Withdrawal by Tax Exempt Private Limited Partners. Notwithstanding
--- =================================================
any other provision of the Agreement (including, without limitation, the
provision of this Annex), any Private Limited Partner that is exempt from
taxation under Section 501(a) or 501(c)(3) of the Code may elect to withdraw
from the Partnership in whole or in part, if such Private Limited Partner shall
obtain an opinion of counsel to the effect that as a result of applicable
statutes, regulations, case law, administrative interpretations or similar
authority, the withdrawal of such Private Limited Partner from the Partnership
to such extent is required to enable such tax exempt Private Limited Partner to
avoid loss of its tax exempt status under Section 501(a) or 501(c)(3) of the
Code.
5.8. Withdrawal by Registered Investment Companies. Notwithstanding any
--- =============================================
other provision of the Agreement (including, without limitation, the provision
of this Annex), any Private
-8-
Limited Partner that is an "investment company" subject to registration under
the Investment Company Act, may elect to withdraw from the Partnership in Whole
or in part, or upon demand by the General Partner shall withdraw from the
Partnership in whole or in part, if either such Private Limited Partner or the
General Partner shall obtain an opinion of counsel to the effect that, as a
result of the Investment Company Act, the withdrawal of such Private Limited
Partner from the Partnership to such extent is required to enable such Private
Limited Partner or the Partnership to avoid a violation of applicable provisions
of the Investment Company Act or the requirement that the Partnership register
as an investment company under the Investment Company Act.
5.9. Notice and Opinion of Counsel. In the event of the issuance of an
--- =============================
opinion of counsel described in Sections 5.3 through 5.8, a copy of such opinion
shall be sent by the General Partner to the SBA, together with the written
notice of the election of the Private Limited Partner to which such opinion
relates to terminate its obligation to make further capital contributions with
respect to its Commitment or withdraw from the Partnership in whole or in part,
or the written demand of the General Partner for such termination or withdrawal,
as the case may be. Any counsel rendering an opinion pursuant to Sections 5.3
through 5.8 shall be subject to the approval of the General Partner and the SBA,
and any such opinion shall be satisfactory in form and substance to the General
Partner and the SBA.
5.10. Cure, Termination of Capital Contributions and Withdrawal. Unless
---- =========================================================
within ninety (90) days after the giving of written notice and satisfactory
opinion of counsel, as provided in Section 5.9, the Private Limited Partner or
the Partnership eliminates the necessity for termination of the obligation of
such Private Limited Partner to make further capital contributions or for the
withdrawal of such Private Limited Partner from the Partnership in whole or in
part to the reasonable satisfaction of such Private Limited Partner and the
General Partner, such Private Limited Partner shall withdraw from the
Partnership in whole or in part to the extent required, effective as of the end
of such ninety (90) day period. Subject to the provisions of Section 5.2, in its
discretion the General Partner may waive all or any part of the ninety (90) day
cure period and cause such termination of capital contributions or withdrawal to
be effective at an earlier date as set forth in such waiver.
5.11. Distributions on Withdrawal. Upon withdrawal pursuant to any
---- ============================
provision of the Agreement, a Private Limited Partner shall have the rights to
distributions set forth in the Act with respect to distributions to be made to
limited partners upon withdrawal from a limited partnership; provided, however,
-------- -------
that any distribution by the Partnership to a Private Limited Partner pursuant
to its withdrawal pursuant to any provision of the Agreement shall be subject to
the provisions of the SBIC Act and the prior written consent of the SBA.
-9-
ARTICLE VI
----------
Dissolution
===========
The Partnership shall be dissolved on the later to occur of (i) the
date of dissolution set forth in the Agreement or (ii) two years after all
Outstanding Leverage shall have matured. The Agreement may provide that the
General Partner and the Private Limited Partners may elect to dissolve the
Partnership at any time after ten (10) years; provided, that (i) all Outstanding
--------
Leverage has been repaid and (ii) all amounts due SBA, its agent or trustee have
been paid.*
ARTICLE VII
-----------
Audit and Report
================
The Partnership shall maintain books and records in accordance with
Treasury Regulation ss 1.704 - 1(b), the provisions of the SBIC Act regarding
financial accounts and reporting and generally accepted accounting principles
(except as otherwise provided herein), and the financial statements of the
Partnership shall be audited and certified as of the end of each fiscal year by
a firm of independent certified public accountants selected by the Partnership.
ARTICLE VIII
------------
Miscellaneous
=============
8.1. Assignability. (a) The General Partner may not assign, pledge or
---- =============
otherwise grant a security interest in its interest in the Partnership or in
this Agreement, except with the prior written consent of the SBA.
(b) No transfer of any interest in the Partnership shall be allowed if
the actions to be taken in connection with such transfer would (i) result in any
violation of the SBIC Act;** or (ii) result in a violation of any law, rule or
regulation by the Partnership.
8.2. Amendments. Any amendment of the Agreement which would affect
--- ==========
this Annex or the rights, obligations or liabilities of the SBA shall require
the prior written consent of the SBA.
*See 13 C.F.R. ss107.160(c)(1) which specifies the minimum duration for an SBIC
in limited partnership form.
**See 13 C.F.R. ss 107.400 which requires SBA approval for any transfer which
would result in any person owning more than specified percentage of any class
of partnership capital.
-10-
SBA Annex OP, Version 1.1 March 1, 1996
================================================================================
-------------------------------------------------------------
SBA ANNEX OP
VERSION 1.1
ANNEX OF OPTIONAL PROVISIONS
-------------------------------------------------------------
SBA ANNEX OF OPTIONAL PROVISIONS FOR
AN AGREEMENT OF LIMITED PARTNERSHIP
FOR A SECTION 301(C) LICENSEE
================================================================================
This document has been drafted by the law firm of O'Sullivan Gracy & Karabell,
in collaboration with the law firms of Pepper, Hamilton & Scheetz and Foley,
Hoag & Eliot, the National Association of Small Business Investment Companies,
and the Office of the General Counsel of the United States Small Business
Administration.
The Small Business Administration does not endorse or approve law firms. The
above legend is not an endorsement or approval by the Small Business A of any
law firm identified therein, and no representation to the contrary by any party
is authorized.
================================================================================
-i-
================================================================================
SBA ANNEX OP
TABLE OF CONTENTS
Page
ARTICLE I General Provisions..............................................1
1.1. Definitions.....................................................1
1.2. Conflict with SBIC Act..........................................3
1.3. Conflict With Other Provisions of the Agreement.................3
1.4. Deletion of Certain Provisions..................................3
1.5. Incorporation of this Annex into the Agreement..................3
ARTICLE II Remedies for Failure of a Private Limited Partner to Make a
Contribution to Capital.........................................4
2.1. Interest on Overdue Contributions...............................4
2.2. Termination of Right to Make Further Capital Contributions......4
2.3. Forfeiture of Interest in the Partnership.......................4
2.4. Withholding and Application of Distributions....................5
2.5. Required Sale of Interest in the Partnership....................5
ARTICLE III Small Business Investment Company Matters.......................7
ARTICLE IV Indemnification.................................................7
4.1. Standard of Care................................................7
4.2. Indemnification.................................................8
ARTICLE V Amendments......................................................9
SBA ANNEX OP
------------
ARTICLE I
---------
General Provisions
===================
1.1 Definitions. For the purposes of this Annex, the following terms
--- ============
shall have the following meanings:
"Affiliate" shall have the meaning set forth in the SBIC Act.
"Agreement" shall mean the agreement of limited partnership of the
Partnership to which this Annex is attached and incorporated as a provision
thereof. References to the Agreement shall be deemed to include all provisions
incorporated in the Agreement by reference.
"Assets" shall mean and include common and preferred stock (including
warrants, rights and other options relating thereto or any combination thereof,
notes, bonds, debentures, trust receipts and other obligations, instruments or
evidences of indebtedness, and other properties or interests commonly regarded
as securities, and in addition, interests in real property, whether improved or
unimproved, and interests in personal property of all kinds, tangible or
intangible, choses in action, and cash, bank deposits and so-called "money
market instruments".
"Assets Under Management" shall mean, as of any specified date, the
value of all Assets owned by the Partnership (such value to be determined as
provided in the Agreement), including contributions requested and due from
Partners and uncalled amounts of Commitments less the amount of any liabilities
----
of the Partnership determined in accordance with generally accepted accounting
principles.
"Associate" shall have the meaning set forth in the SBIC Act.
"Capital Account" shall mean the account of each Partner that reflects
its interest in the Partnership determined in accordance with Article V of SBA
Annex PS (if such Annex is incorporated as part of the Agreement) or as
otherwise set forth in the Agreement.
"Commitments" shall mean the capital contributions to the Partnership
which the Preferred Limited Partners have made and the other Partners have made
or are obligated to make to the Partnership. The terms of the Commitments of the
Preferred Limited Partners shall be as set forth in SBA Annex PS (if SBA Annex
PS is incorporated in the Agreement, or if not then as otherwise set forth in
the Agreement); provided, that any Commitment by a Preferred Limited Partner
---------------
shall include only the amount such Preferred Limited Partner has actually
contributed to the Partnership, and shall not include any amount under any
agreement by any such Partner or SBA to provide Leverage to the Partnership
which has not been contributed to the Partnership. The amounts and terms of the
Commitments of the General Partner and the Private Limited Partners shall be as
defined in the Agreement.
"Control Person" shall have the meaning set forth in the SBIC Act.
-1-
"General Partner" shall mean the general partner or general partners
of the Partnership.
"Investment Advisor/Manager" shall have the meaning set forth in the
SBIC Act.
"Leverage" shall have the meaning set forth in the SBIC Act.
"Optionor" shall have the meaning set forth in Section 2.5.
"Optionees" shall have the meaning set forth in Section 2.5.
"Optioned Partnership Interest" shall have the meaning set forth in
Section 2.5.
"Option Price" shall have the meaning set forth in Section 2.5.
"Participating Security" shall have the meaning set forth in the SBIC
Act.
"Partnership" shall mean the limited partnership established by the
Agreement.
"Partners" shall mean the General Partner,the Private Limited Partners
and the Preferred Limited Partners, if any, of the Partnership.
"Preferred Limited Partner" shall mean the SBA, in its capacity as a
Preferred Limited Partner, or any other person holding one or more Preferred
Limited Partnership Interests in the Partnership.
"Preferred Limited Partnership Interest" shall mean a preferred limited
partnership interest in the Partnership which qualifies as a Participating
Security.
"Private Limited Partners" shall mean any limited partners of the
Partnership, other than any Preferred Limited Partner.
"Remaining Portion" shall have the meaning set forth in Section 2.5.
"SBA" shall mean the United States Small Business Administration.
"SBA Annex GDP" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
"SBA Annex PS" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
"SBA Annex OP" shall mean the version of this Annex which is attached
to and incorporated as a part of the Agreement.
"SBIC Act" shall mean the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder by the SBA, as in
effect from time to time
-2-
1.2. Conflict with SBIC Act. The provisions of this Annex and the
--- =======================
Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the SBIC Act. In the event of any conflict between any provision
of the Agreement or this Annex and the provisions of the SBIC Act (including,
without limitation, any conflict with respect to the rights of the SBA or the
respective Partners hereunder), the provisions of the SBIC Act shall control.
1.3. Conflict With Other Provisions or the Agreement. The provisions of
--- ===============================================
the Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the provisions of this Annex. In the event of any conflict
between any provision of this Annex and any other provision of the Agreement
(other than the provisions of SBA Annex PS and SBA Annex GDP, if either of such
Annexes is incorporated as part of the Agreement), the provisions of this Annex
shall control. In the event of any conflict between any provision of this Annex
and any provision of SBA Annex PS or SBA Annex GDP, the provisions of SBA Annex
PS or SBA Annex GDP (if such Annex is incorporated as part of the Agreement)
shall control.
1.4. Deletion of Certain Provisions. (a) The specific sections of this
--- ==============================
Annex identified in clauses (c) and (d) of this Section may be deleted at the
option of the Partnership from the form of the Annex that is attached to and
incorporated in the Agreement. Blank spaces for periods, interest rates or
percentages appearing in any section of this Annex may be filled in by the
Partnership or left blank. In the case of any such blank space in a section
which is not filled in by the Partnership, the space must be lined through and
the period, interest rate or percentage which appears in bold face type
immediately before such blank space will apply. References in this Annex to the
provisions or sections of this Annex shall refer only to those provisions which
have not been so deleted, giving effect to any periods, interest rates or
percentages filled in by the Partnership in such sections. The footnote numbers
which appear in certain sections and the notes which appear in certain sections
and the notes which appear at the end of this Annex are for convenience only and
shall neither be considered part of this Annex nor be given any legal effect.
(b) The deletion of any section of this Annex shall be indicated by
striking through that Section (note that subsections of an included section may
not be deleted).
(c) In Article II, the Partnership may elect to delete any of the
Sections.
(d) In Article IV, the Partnership may elect to delete either all
sections or Section 4.2; if Section 4.2 is included, Section 4.1 may not be
deleted.
1.5. Incorporation of this Annex Into the Agreement. The Agreement
--- ================================================
shall contain the following provision evidencing the incorporation of this
Annex:
"The provisions of SBA Annex OP attached to this Agreement are
incorporated in this Agreement with the same force and effect
as if fully set forth herein."
-3-
ARTICLE II
----------
Remedies for Failure of a Private Limited Partner
-------------------------------------------------
to make a Contribution to Capital
=================================
2.1. Interest on Overdue Contribution. In the event that any Private
--- =================================
Limited Partner fails to make a contribution required under the Agreement within
thirty (30) days (unless another period is specified here: ( )
--------------
days) [1] after the date such contribution is due, then the General Partner may,
---
in its sole discretion, elect to charge such Private Limited Partner interest at
an annual rate equal to ten percent (10%) (unless another rate is specified
here: ) [2] on the amount due from the date such amount became due
------------- ---
until the earlier of (i) the date on which such payment is received by the
Partnership or (ii) the date of any notice given to such Private Limited Partner
by the General Partner pursuant to Sections 2.3, 2.4 or 2.5. Any distributions
to which such Private Limited Partner is entitled shall be reduced by the amount
of such interest, and such interest shall be deemed to be income to the
Partnership. The amount of interest charged as provided in this Section 2.1
shall not exceed the amount of such Private Limited Partner's Capital Account.
[3]
- ---
2.2. Termination of Right to Make Further Capital Contributions. In the
--- ===========================================================
event that any Private Limited Partner fails to make contribution required under
the Agreement within thirty (30) (unless another period is specified here:
( )) days after the date such contribution is due, the General Partner
- ----------
may, in its sole discretion (and with the consent of SBA given as provided in
Section 7.2 of SBA Annex PS or Section 5.2 of SBA Annex GDP, if SBA Annex PS or
SBA GDP is incorporated in the Agreement), elect to declare, by notice to such
Private Limited Partner, that:
(a) Such Private Limited Partner's Commitment shall be deemed
to be reduced to the amount of any contributions of capital timely made
pursuant to the Agreement; and
(b) Upon such notice (i) such Private Limited Partner shall
have no right to make any capital contribution thereafter (including the
contribution as to which the default occurred and any contribution
otherwise required to be made thereafter pursuant to the terms of the
Agreement) and (ii) to this Agreement shall be deemed amended to reflect
such reduced Commitment.
2.3. Forfeiture of Interest in the Partnership. In the event that any
--- =========================================
Private Limited Partner fails to make a contribution required under the
Agreement, within thirty (30) (unless another period is specified here:
( )) days after notice by the General Partner to such Private Limited
- ----------
Partner that it has failed to make its contribution on the date such
contribution was due, the General Partner may in its sole discretion (and with
the consent of SBA given as provided in Section 7.2 of SBA Annex PS or Section
5.2 of SBA Annex GDP, if SBA Annex PS or SBA Annex GDP is incorporated in the
Agreement) declare, by notice of forfeiture to such Private Limited Partner,
that one hundred percent (100%) (unless another percentage is specified here:
percent (_ %)) of the interest of such Private Limited Partner in
- -------------
the Partnership (including amounts in its Capital Account as well as any
interest in future profits, losses or distributions of the Partnership) is
forfeited, effective as of the date of such Private Limited Partner's failure to
make such required contribution, in which event, as of the date of such notice
of forfeiture (i) the Private Limited Partner shall cease to be a Partner with
respect to such forfeited interest; provided, however, that such forfeited
-------- -------
Private Limited Partner shall cease to have any liability for the payment of the
forfeited percentage of any capital contributions due at such time or in the
future and (ii) the forfeited percentage of such Private Limited Partner's
Capital Account shall be held by the Partnership and reallocated among the
Capital Accounts of the Partners one
-4-
percent (1%) (unless another percentage is specified here:
---------------
percent ( %)) to the General Partner and ninety-nine percent (99%) (unless
another percentage is specified here: percent (_ %)) to the
--------------
Private Limited Partners (other than such forfeited Private Limited Partner) to
be apportioned among such Private Limited Partners in accordance with their
respective aggregate capital contributions. [4]
---
2.4. Withholding and Application of Distributions. No part of any
--- ================================================
distribution shall be paid to any Private Limited Partner from which there is
then due and owing to the Partnership, at the time of such distribution, any
amount required to be paid to the Partnership. At the election of the General
Partner, which it may make in its sole discretion, the Partnership may either
(i) apply all or part of any such withheld distribution in satisfaction of the
amount then due to the Partnership from such Private Limited Partner or (ii)
withhold such distribution until all amounts then due are paid to the
Partnership by such Private Limited Partner. Upon payment of all amounts due to
the Partnership (by application of withheld distributions or otherwise), the
General Partner shall distribute any unapplied balance of any such withheld
distribution to such Private Limited Partner. No interest shall be payable on
the amount of any distribution withheld by the Partnership pursuant to this
Section.
2.5. Required Sale of Interest in the Partnership. In the event that
--- ============================================
any Private Limited Partner fails to make a contribution required under the
Agreement within thirty (30) (unless another period is specified
------ ----
here: ( )) days after notice by the General Partner to such Private
-------------
Limited Partner that it has failed to make its contribution on the date such
contribution is due, unless the General Partner has acted pursuant to Sections
2.2 or 2.3 (if either of such Sections are included in the version of this Annex
incorporated in the Agreement) the General Partner may, in its sole discretion,
(and with the consent of SBA given as provided in Section 7.2 of SBA Annex PS or
Section 5.2 of SBA Annex GDP, if SBA Annex PS or SBA Annex GDP is incorporated
in the Agreement) elect to declare such Private Limited Partner in default. If
the General Partner so elects to declare such Private Limited Partner in default
(such Private Limited Partner being hereinafter referred to as the "Optionor"),
then the other Private Limited Partners of the Partnership which are not in
default (the "Optionees") and the General Partner shall have the right and
option to acquire one hundred percent (100%) (unless another percentage is
specified here: percent ( _%)) of the Partnership interest, which
--------------
shall include one hundred percent (100%) (unless another percentage is specified
--------------------------
here: percent ( %)) of the Capital Account (the "Optioned
--------------
Partnership Interest") [5] of the Optionor on the following terms:
---
(i) The General Partner shall give the Partners
notice promptly after declaration of any such default. Such notice shall
advise each Optionee of the portion of the Optioned Partnership Interest
available to it and the price therefor. The portion available to each
Optionee shall be that portion of the Optioned Partnership Interest that
bears the same ratio to the Optioned Partnership Interest as each
Optionee's capital contributions to the Partnership bears to the
aggregate capital contributions to the Partnership, exclusive of the
capital contributions to the Partnership of the Optionor. The aggregate
price for the Optioned Partnership Interest shall be the assumption of
the unpaid Commitment obligation (both that portion then due and amounts
due in the future) of the Optionor (the "Option Price"). [5] The Option
---
Price for each Optionee shall be prorated according to the portion of the
Optioned Partnership Interest purchased by each such Optionee so that the
percentage of the unpaid Commitment assumed by each Optionee is the same
as the percentage of the Optioned Partnership Interest purchased by such
Optionee. The option granted hereunder shall be exercisable by each
Optionee in whole only at any time within thirty (30) days of the date of
the notice from the General Partner by the delivery to the General
-5-
Partner of (A) a notice of exercise of option, and (B) the capital
contribution due in accordance with clause 2.5(v)(A). The General Partner
shall forward the above notices of exercise of option received to the
Optionor.
(ii) Should any Optionee not exercise its option
within the period provided in clause (i), the General Partner, within ten
(10) (unless another period is specified here: ( )) days of
----------
the end of such period, shall notify the other Optionees who have
previously exercised their options in full, which Optionees shall have
the right and option ratably among them to acquire the portion of the
Optioned Partnership Interest not so acquired (the "Remaining Portion")
within ten (10) (unless another period is specified here:
---------------
( )) days of the date of the notice specified in this Section 2.5(ii) on
the same terms as provided in clause (i).
(iii) The amount of the Remaining Portion not
acquired by the Optionees pursuant to clause (ii) may be acquired by the
General Partner within ten (10) (unless another period is specified here:
( )) days of the expiration of the period specified in clause
------------
(ii) on the same terms as set forth in clause (i).
(iv) The amount of the Remaining Portion not acquired
by the Optionees and the General Partner pursuant to clause (iii) may, if
the General Partner deems it in the best interest of the Partnership, be
sold to any other corporations, partnerships, individuals or other
entities on terms not more favorable to such purchaser than the
Optionees option (and the General Partner may admit any such third party
purchaser as a Private Limited Partner, subject to the approval of SBA,
if required under the SBIC Act). Any consideration received by the
Partnership for such amount of the Optionor's interest in the Partnership
in excess of the Option Price therefor shall be retained by the
Partnership and allocated among the Partners Capital Accounts in
proportion to the respective Partners capital contributions.
(v) Upon exercise of any option hereunder, such
Optionee (or the General Partner, if it has exercised its rights pursuant
to clause (iii)) shall be deemed to have assumed that portion of the
Optionor's unpaid Commitment representing the Option Price of the
purchased portion of the Optioned Partnership Interest and shall be
obligated (A) to contribute to the Partnership the portion of the capital
contribution then due from the Optionor equal to the percentage of the
Optioned Partnership Interest purchased by such Optionee and (B) to pay
the same percentage of any further contributions which would have
otherwise been due from such Optionor.
(vi) Upon the purchase by the General Partner of any
portion of the Optioned Partnership Interest in the Partnership pursuant
to clause (iii), the General Partners shall also become a Private Limited
Partner to the extent of such interest.
(vii) Upon the purchase of any portion of any
Optioned Partnership Interest by an Optionee, the General Partner or
other person pursuant to this Section 2.5, the Optionor shall have no
further rights or obligations under this Agreement with respect to such
portion.
(viii) Upon the purchase of any portion of the
Optioned Partnership Interest, for purposes of computing such purchaser's
aggregate capital contributions, such purchaser shall be deemed to have
aggregate capital contributions (or the aggregate capital contributions
of any
-6-
Optionee, shall be increased by an amount) equal to the percentage of the
defaulting Private Limited Partner's aggregate capital contribution which
the purchased portion of the Optioned Partnership Interest represents of
the defaulting Private Limited Partner's entire Partnership interest, and
the aggregate capital contributions of such defaulting Private Limited
Partner shall be reduced by a corresponding amount.
ARTICLE III
-----------
Small Business Investment Company Matters
=========================================
The SBA shall be deemed an express third party beneficiary of the
provisions of the Agreement (including, without limitation, this Annex) to the
extent of the rights of the SBA thereunder and under the Act, and the SBA shall
be entitled to enforce such provisions for its benefit, as if the SBA were a
party thereto.
ARTICLE IV
----------
Indemnification
================
4.1. Standard of Care. (a) Neither the General Partner, any Investment
--- ================
Advisor/Manager nor any partner, shareholder, director, officer or employee nor
any Affiliate of any thereof shall be liable to the Partnership or any Partner
for any action taken or omitted to be taken by it or any other Partner or other
person in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the Partnership, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful.
(b) Neither any Private Limited Partner, nor any member of any
Partnership committee or board who is not an Affiliate of the General Partner,
shall be liable to the Partnership or any Partner as the result of any decision
made in good faith by such Private Limited Partner or member, in his capacity as
such.
(c) The General Partner and any Investment Advisor/ Manager, the
stockholders, directors, officers, employees and partners of either thereof, any
Private Limited Partner and any member of a Partnership committee or board, may
consult with reputable legal counsel selected by them and shall be fully
protected, and shall incur no liability to the Partnership or any Partner, in
acting or refraining to act in good faith in reliance upon the opinion of advice
of such counsel.
(d) This Section 4.1 shall not constitute a modification, limitation or
waiver of Section 314(b) of the SBIC Act, or a waiver by the SBA of any of its
rights pursuant to such Section 314(b).*
(e) In addition to the standards of care set forth in this Section 4.1,
the Agreement may also provide for additional standards of care which must also
be met.
*This provision relates to the fiduciary duty of SBIC managers.
-7-
4.2. Indemnification. (b) The Partnership shall indemnify and hold
--- ===============
harmless, but only to the extent of Assets Under Management, the General
Partner, the general and limited partners of the General Partner, any Investment
Advisor/Manager and any partner, shareholder, director, officer, employee or any
Affiliate of any thereof from any and all costs, expenses, damages, claims,
liabilities, fines and judgments (including the reasonable cost of the defense
of any claim or action and any sums which may be paid with the consent of the
Partnership in settlement thereof) which may be incurred by or asserted against
such person or entity, by reason of any action taken or omitted to be taken on
behalf of the Partnership and in furtherance of its interests.
(b) The Partnership shall indemnify and hold harmless, but only to the
extent of Assets Under Management, the Private Limited Partners, and members of
any Partnership committee or board who are not Affiliates of the General Partner
or any Investment Advisor/Manager from any and all costs, expenses, damages,
claims, liabilities, fines and judgements (including the reasonable cost of the
defense of any claim or action and any sums which may be paid with the consent
of the Partnership in settlement thereof) which may be incurred by or asserted
against such person or entity, by any third party on account of any matter or
transaction of the Partnership, which matter or transaction occurred during the
time that such person has been a Private Limited Partner or such member.
(c) The Partnership shall have power, in the discretion of the General
Partner, to agree to indemnify on the same terms as set forth in Section 4.2(b)
any person who is or was serving, pursuant to a prior written request from the
Partnership, as a consultant to, agent for or representative of the Partnership
as a director, officer, employee, agent of or consultant to another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such.
(d) No person shall be entitled to claim any indemnity or reimbursement
under Section 4.2(a), (b) or (c) in respect of any cost, expense, damage,
liability, claim, fine, judgment (including any cost of the defense of any
claim, action, suit, proceeding or investigation, by or before any court or
administrative or legislative body or authority) that may be incurred by such
person which results from the failure of such person to act in accordance with
the provisions of this Agreement and the applicable standard of care set forth
in Section 4. 1. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, preclude a determination that such person
acted in accordance with the applicable standard of care set forth in Section 4.
1.
(e) To the extent that a person claiming indemnification under Section
4.2(a), (b) or (c) has been successful on the merits in defense of any action,
suit or proceeding referred to in Section 4.2(a), (b) or (c) or in defense of
any claim, issue or matter therein such person shall be indemnified with
respect, to such matter as provided in such Section. Except as provided in the
foregoing sentence and as provided in Section 4.2(h) with respect to advance
payments, any indemnification under this Section 4.2 shall be paid only upon
determination on that the person to be indemnified has met the applicable
standard of conduct set forth in Section 4. 1 (a) or (b).
(f) A determination that a person to be indemnified under this Section
4.2 has met the applicable standard set forth in Section 4.1(a) or (b) shall be
made by (i) the General Partner, with respect to the indemnification of any
person other than a person claiming indemnification under Section 4.2(a), (ii) a
committee of the Partnership whose members are not affiliated with the General
Partner or any Investment Advisor/Manager with respect to indemnification of any
person indemnified under Section
-8-
4.2(a) or (iii) at the election of the General Partner, independent legal
counsel selected by the General Partner, with respect to the indemnification of
any person indemnified under Section 4.2, in a written opinion.
(g) In making any such determination with respect to indemnification
under Section 4.2(f), the General Partner, a committee of the Partnership whose
members are not affiliated with the General Partner or any Investment
Advisor/Manager or independent legal counsel, as the case may be, shall be
authorized to make such determination on the basis of its evaluation of the
records of the General Partner, the Partnership or any Investment
Advisor/Manager to the Partnership and of the statements of the party seeking
indemnification with respect to the matter in question and shall not be required
to perform any independent investigation in connection with any such
determination. Any party making any such determination is authorized, however,
in its sole discretion, to take such other actions (including engaging counsel)
as it deems advisable in making such determination.
(h) Expenses incurred by any person in respect of any such costs,
expenses, damages, claims, liabilities, fines, and judgments (including any cost
of the defense of any claim, action, suit, proceeding or investigation, by or
before any court or administrative or legislative body or authority) may be paid
by the Partnership in advance of the final disposition of any such claim or
action upon receipt of an undertaking by or on behalf of such person to repay
such amount unless it shall ultimately be determined as provided in Section
4.2(e) or (f) that such person is entitled to be indemnified by the Partnership
as authorized in this Section.
(i) The rights provided by this Section 4.2 shall inure to the benefit
of the heirs, executors, administrators, successors, and assigns of each person
eligible for indemnification hereunder.
(j) The rights to indemnification provided in this Section 4.2 shall be
the exclusive rights of all Partners to indemnification by the Partnership. No
Partner shall enter into, or make any claim under, any other agreement with the
Partnership (whether direct or indirect) providing for indemnification. The
General Partner shall not enter into any agreement with any person which is an
employee, officer, director, partner or shareholder, or an Affiliate, Associate
or Control Person of any of the foregoing, providing for indemnification of any
such person unless such agreement provides for a determination with respect to
such indemnification as provided under Section 4.2(f)(ii) or (iii). The
provisions of this Section 4.2 shall not apply to indemnification of any person
which is not at the expense (whether in whole or in part) of the Partnership.
(k) The Partnership may purchase and maintain insurance on its own
behalf, or on behalf of any person or entity, with respect to liabilities of the
types described in this Section 4.2. The Partnership may purchase such insurance
regardless of whether such person is acting in a capacity described in this
Section 4.2 or whether the Partnership would have the power to indemnify such
person against such liability under the provisions of this Section 4.2.
ARTICLE V
---------
Amendments
==========
Any amendment of the Agreement which would affect (i) this Annex, (ii)
or the rights, obligations or liabilities of the SBA shall require the prior
written consent of the SBA.
-9-
NOTES
=====
1. All notice periods are variable.
2. Any interest rate may be selected.
3. The rotation on the amount of interest is optional.
4. Forfeitures may be in whole or in part. The sum of the reallocation
percentages to the General Partner and the Private Limited Partner must
equal 100%. The elimination of liability after forfeiture is optional; a
forfeited limited partner may remain liable for capital contributions.
Reallocation of a forfeited interest can be freely determined.
5. Any percentage of a defaulted limited partner's interest can be sold. A
variety of pricing mechanisms can be used: fixed, formula or appraisal.
-10-