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Deal Flow Reports
Market & Geopolitics
: Example Fund Details
information dated 2004
Securities Law Matters
Investors should take their own counsel regarding legal matters.
The Fund interests (the Securities) have not been, and it is not intended that they will be, registered under the United States Securities Act of 1933, as amended (the 1933 Act), and have not been registered or qualified under any State securities or "Blue Sky" law of the United States and may not be offered, sold, transferred or assigned within the United States in the absence of registration except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and similar requirements of such State laws. Offers and sales of the Securities in the United States may only be made to institutional "accredited investors" (as defined in Regulation D under the 1933 Act) in reliance on the exemption provided by Section 4(2) of the 1933 Act and exemptions of similar import under State securities laws.
The Fund will not be registered under the United States Investment Company Act of 1940, as amended (the Investment Company Act). Based on interpretations of the Investment Company Act by the United States Securities and Exchange Commission relating to foreign investment companies, if The Fund has more than 100 beneficial owners of the Securities who are US persons, it may become subject to the registration requirements of the Investment Company Act. (The term US person shall have the meaning given to it by Regulation S under the 1933 Act and the United States Internal Revenue Code of 1986, as amended ("the Code")). The Fund will attempt to ensure that the Securities are beneficially owned by no more than 100 US persons. Transfers of the Securities will be subject to the prior written consent of the Manager. The Manager will reject any transfer of the Securities which in its judgement is likely to cause the number of US persons holding securities of The Fund to exceed 100.
Subscribers or purchasers of the Securities who are sold or offered the Securities outside of the United States will, in addition to being required to certify whether they are "benefit plan investors" (as defined in Schedule 7 to the Agreement) for ERISA purposes, as defined below, be required to certify, among other things, as to their non-US person status and to notify The Fund if they become at any time a US person. If such persons are unable to give such certification as to non-US person status, they will only be allowed to purchase or subscribe if such purchase or subscription is approved by the Board.
Subscribers and purchasers of the Securities in the United States must, in addition to certifying whether they are "benefit plan investors", certify that they are Qualified Institutional Buyers or other institutional accredited investors, that they are not holding the Securities for the account or benefit of any other person and that they will not resell in the United States or to a US person except to a Qualified Institutional Buyer under Rule 144A. In addition, each investor that is a US person will be required to certify to the placement agent prior to becoming a Limited Shareholder that they are a single person for purposes of the Investment Company Act. The Manager reserves the right to request such additional representations and undertakings, from time to time, as it may deem prudent in order to comply with legal requirements.
Any transfer or other disposition of the Securities which would, in the sole determination of the Board, cause The Fund to violate the provisions of the Investment Company Act or would cause The Funds assets to be treated as "plan assets" for the purposes of ERISA, as defined below, will be void and such transfer or other disposition will not be honoured by The Fund. Accordingly, any transferee or other holder in such a transaction shall not be a Limited Shareholder of The Fund and shall have no rights as a Limited Shareholder of The Fund. If at any time as a result of events of which The Fund has notice the Securities will be owned beneficially by more than 100 US persons (the "Permitted Number"), The Fund may require any person to transfer the Securities, or arrange the sale of the same, in accordance with the Agreement so as to reduce the number of persons who are beneficial owners of the Securities to or below the Permitted Number. If and to the extent the excess would result from a person becoming a US person, or from a holder of the Securities which itself has multiple beneficial owners (e.g. a trust, Fund or corporation) owning or acquiring an interest in the Securities under circumstances where The Fund would be required to consider each beneficial owner of that holder as a separate beneficial owner of the Securities (i.e. where such holder held 10% or more of the Securities, and where the value of the Securities held by such holder, together with the Securities held by that holder in investment companies which would be required to be registered pursuant to the Investment Company Act except for the fact that they have fewer than the Permitted Number of beneficial owners of their securities (or would have fewer than such number of beneficial owners if the attribution rules of Section 3(c)(1)(A) of the Investment Company Act were applicable), would constitute 10% or more of the value of such holder’s total assets), the Securities owned or held by such person shall be selected first for required transfer or compulsory sale. Similarly, if (or, if in the discretion of the Board, the holder is otherwise structured such that the beneficial owners of that holder’s securities would be counted as beneficial owners of the securities of The Fund) then the Securities owned or held by such holder will be selected first for required transfer or compulsory sale.
The Board has the right to require sale or transfer of the Securities acquired or held by any person in violation of applicable law or which may result in adverse tax or regulatory consequences, including, but not limited to, causing The Fund’s assets to be deemed "plan assets" for purposes of ERISA, as defined below, to The Fund, as determined by the Manager in its sole discretion.
The determination of which Securities will be transferred or sold in any particular case is at the discretion of the Board. In exercising its discretion and making determinations as to whether to require sale or transfer of the Securities, and in determining which holders shall be subject to mandatory sale or transfer, the Board may act upon the basis of such information as may be known to it, without any obligation to make special enquiries, and may rely upon the advice of United States securities law counsel. In no event shall the The Fund be liable to any holder for any consequence of exercising or making in good faith any discretion or determination with respect to such transfer or sale.
In the case of a transfer or sale of the Securities held by a person, it is possible that the timing of the transfer or sale may result in realisation by the holder of a short-term capital gain or loss rather than long-term capital gain or loss, or that such gain or loss may be realised in a taxable year of the holder other than the year in which the holder anticipated realisation of such gain or loss.
Upon making any determination to require transfer or require sale of the Securities, the Board shall give notice to the relevant holders in accordance with the provisions of the Agreement.
The offer and issuance of the Securities in certain jurisdictions may be restricted by law. Prior to purchasing the Securities, prospective investors should inform themselves as to the relevant securities laws, foreign exchange regulations and other legal requirements within the countries of their citizenship, residence, domicile or place of business.
Before purchasing any of the Securities, a fiduciary of a prospective investor that is an employee benefit plan (an "ERISA Plan") subject to the United States Employee Retirement Income Security Act of 1974, as amended ("ERISA"), should determine whether an investment in the Securities is consistent with the fiduciary requirements of Section 404 of ERISA, in particular whether the investment is prudent and whether the investment would result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.
In determining whether an investment in the Securities would satisfy the fiduciary requirements of ERISA or result in a prohibited transaction, the fiduciary should consider whether the assets of The Fund will be considered "plan assets" within the meaning of United States Department of Labour Regulation 29 CFR. § 2510.3-101 (the "Plan Asset Regulations"). Under the Plan Asset Regulations, the assets of an entity in which an ERISA Plan acquires an equity interest that is neither a "publicly offered" security nor a security issued by an investment company registered under the Investment Company Act, are considered to be assets of the ERISA Plan for purposes of the fiduciary requirements (including the general prohibition set forth in Section 404(b) of ERISA against maintaining the indicia of ownership of ERISA Plan assets outside of the jurisdiction of the district courts of the United States) and prohibited transaction rules unless the entity is an "operating company", or investments in the entity by ERISA Plans and other "benefit plan investors" are not "significant". For this purpose, investments by benefit plan investors in the Securities will generally not be deemed "significant" if less than 25% of the Securities are held by such investors (the "25% Test").
It is intended that The Fund qualify as a "venture capital operating company" (a "VCOC") under the Plan Asset Regulations, that is, a form of operating company that (i) invests primarily in entities engaged in the production or sale of a product or service other than the investment of capital and (ii) obtains management rights with respect to the entities in which it invests. It is possible, however, that The Fund will not have taken all the steps necessary for it to qualify as a VCOC by the First Closing Date, in which case The Fund will initially limit purchases of Securities by benefit plan investors so that the 25% Test is satisfied until the date on which The Fund obtains VCOC status. In addition, it is possible that The Fund will instead choose prior to Closing to rely on the 25% Test, in which case The Fund will at all times limit purchases of Securities by or transfers of the Securities to benefit plan investors so that the 25% Test is satisfied. Assuming that The Fund at all times either qualifies as a VCOC or limits investments by benefit plan investors in compliance with the 25% Test, the assets of The Fund will not be considered to be assets of any investor which is an ERISA Plan for the purposes of the fiduciary responsibility or prohibited transaction provisions of ERISA or the Code.
Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA) are not subject to the fiduciary responsibility or prohibited transaction provisions of ERISA or the Code but may be subject to restrictions under state or local law
The above discussion is a summary of some of the material ERISA considerations applicable to prospective investors that are ERISA Plans. It is not intended to be a complete discussion nor to be construed as legal advice or a legal opinion. Prospective investors should consult their own counsel on these matters.