File No. 811-21935
As filed with the Securities and Exchange Commission on October 31, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___.
[ ] Post-Effective Amendment No.___.
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
[ ] Amendment No.___.
SPECIAL VALUE CONTINUATION PARTNERS, LP
(Exact Name of Registrant as Specified in Charter)
2951 28TH STREET, SUITE 1000
SANTA MONICA, CALIFORNIA 90405
(Address of Principal Executive Offices)
(310) 566-1000
(Registrant's Telephone Number, including Area Code)
HOWARD M. LEVKOWITZ, PRESIDENT
SPECIAL VALUE CONTINUATION PARTNERS, LP
2951 28TH STREET, SUITE 1000
SANTA MONICA, CALIFORNIA 90405
(Name and Address of Agent for Service)
Copies to:
RICHARD T. PRINS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
FORM N-2
CROSS REFERENCE SHEET
as required by Rule 495(a)
Part A Caption Prospectus Caption
Item No. ------- ------------------
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1. Outside Front Cover.......................................... Not Applicable
2. Cover Pages; Other Offering Information...................... Not Applicable
3. Fee Table and Synopsis....................................... Not Applicable
4. Financial Highlights......................................... Not Applicable
5. Plan of Distribution......................................... Not Applicable
6. Selling Shareholders......................................... Not Applicable
7. Use of Proceeds.............................................. Not Applicable
8. General Description
of the Registrant............................................ General Description of
the Registrant
9. Management................................................... Management
10. Capital Stock, Long-Term
Debt, and Other Securities................................... Capital Stock, Long
Term Debt, and Other
Securities
11. Defaults and Arrears on
Senior Securities............................................ Not Applicable
12. Legal Proceedings............................................ Not Applicable
13. Table of Contents of
Statement of Additional
Information.................................................. Table of Contents of
Statement of Additional
Information
Part B Statement of
Item No. Additional Information
--------
14. Cover Page................................................... Not Applicable
15. Table of Contents............................................ Not Applicable
16. General Information and
History...................................................... General Description of
the Registrant
17. Investment Objective and
Policies..................................................... Investment Objective
and Policies
18. Management................................................... Management of the Fund
19. Control Persons and Principal
Holders of Securities........................................ Control Persons and
Principal Holders of
Securities
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20. Investment Advisory and Other
Services..................................................... Management
21. Portfolio Managers........................................... Portfolio Managers
22. Brokerage Allocation and Other
Practices.................................................... Management
23. Tax Status................................................... Capital Stock, Long-term
Debt, and Other Securities
24. Financial Statements......................................... Not Applicable
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Information required to be included in Part C is set forth, under the appropriate item so numbered, in Part C of this registration statement.
PART A
ITEM 1. OUTSIDE FRONT COVER
Not Applicable.
ITEM 2. COVER PAGES; OTHER OFFERING INFORMATION
Not Applicable.
ITEM 3. FEE TABLE AND SYNOPSIS
3.1 Not Applicable.
3.2 Not Applicable.
3.3 Not Applicable.
ITEM 4. FINANCIAL HIGHLIGHTS
Not Applicable.
ITEM 5. PLAN OF DISTRIBUTION
Not Applicable.
ITEM 6. SELLING SHAREHOLDERS
Not Applicable.
ITEM 7. USE OF PROCEEDS
Not Applicable.
ITEM 8. GENERAL DESCRIPTION OF THE REGISTRANT
8.1 General. Special Value Continuation Partners, LP (the "Fund") was formed by its sole initial member on July 17, 2006 as a limited partnership under the laws of the State of Delaware. On July 31, 2006, the Fund filed a registration statement on Form N-8A with the Securities and Exchange Commission (the "SEC") registering as a nondiversified closed-end management investment company under the Investment Company Act of 1940 (the "1940 Act"). The Fund will terminate its existence on July 31, 2016, subject to up to two one-year extensions with shareholder approval. Notwithstanding the foregoing, in the event that the Feeder Fund (as defined below) issues one share of its Series S Preferred Share to SVOF/MM (as defined below) the Fund would be liquidated and all of its assets would be transferred to the Feeder Fund and investment management compensation would be paid pursuant to the Series S Preferred Share and the investment management agreement of the Feeder Fund rather than that of the Fund.
The Fund is owned entirely by Special Value Continuation Fund, LLC (the "Feeder Fund") except for (i) the Carried Interest (as defined in Item 9.1) rights of SVOF/MM, LLC (the "General Partner" or "SVOF/MM"), an affiliate of the Investment Manager (as defined below) and the general partner of the Fund and (ii) the Series A Cumulative Preferred Limited Partner Interests (the "Series A Preferred Interests") issued by the Fund. The Feeder Fund also filed a registration statement on Form N-8A with the SEC registering as a nondiversified closed-end management investment company under the 1940 Act. When referring to the investment operations of the Fund, the term "the Fund" may include the Feeder Fund.
The Fund will be treated as a partnership for U.S. federal income tax purposes. The Feeder Fund elected to be treated as a regulated investment company ("RIC") for U.S. federal income tax purposes. As a RIC, the Feeder Fund is not taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements. Further, the portion of the Feeder Fund's income attributable to investments financed through borrowings is not taxable to U.S. tax-exempt investors as unrelated business taxable income. Moreover, the assets of the Feeder Fund are not treated as assets of investors subject to ERISA. Additionally, as shareholders of a corporation for U.S. federal income tax purposes, non-U.S. investors are generally not treated for U.S. federal income tax purposes as being engaged in a trade or business in the U.S. solely as a result of investing in the Feeder Fund, regardless of whether the Fund conducts any loan origination activities.
The Fund is authorized to issue an unlimited number of common limited partner interests (the "Common Interests"). The Fund is also authorized to issue an unlimited number of preferred interests (the "Preferred Interests," together with the Common Interests, the "Interests"), with each Preferred Interest having such liquidation preference and other terms authorized by the Board of Directors of the Fund (the "Board of Directors") at the time of issuance in conformity with the 1940 Act. Notwithstanding the immediately preceding sentence, the aggregate number of owners of the Fund will at no time exceed 95 "partners" as determined for purposes of Section 1.7704-1(h) of the United States Treasury Regulations, promulgated under the Internal Revenue Code of 1986, as amended (the "Code").
The Feeder Fund made a private offering of common shares in connection with the combination of two unregistered private investment funds (the "Combination"), Special Value Bond Fund II ("SVBF II") and Special Value Absolute Return Fund ("SVARF" and collectively with SVBF II the "Predecessor Funds"), each managed by Tennenbaum Capital Partners, LLC (the "Investment Manager" or "TCP") and co-managed by Babson Capital Management LLC (the "Co-Manager" or "Babson"). The Feeder Fund's offering of common shares on a private placement basis resulted in irrevocable subscriptions for common shares by 75 investors in an amount equal to approximately $419 million. The Fund was capitalized by the General Partner in the amount of $10 million. Shortly thereafter, the Fund entered into a $266 million senior secured revolving credit facility (the "Senior Facility") and issued $134 million of Series A Preferred Interests. After receiving assets in respect of such subscriptions, the Feeder Fund issued 8% perpetual preferred shares at $500 per share (the "Series Z Preferred Shares") to 49 investors, thereby obligating the Feeder Fund to register as an
investment company. Accordingly, at the closing of such offerings on July 31, 2006, the Feeder Fund and the Fund had approximately $829 million in total available capital ("Total Available Capital").
The offering of the Interests was not registered under the
Securities Act of 1933 (the "Securities Act") in reliance upon the exemption
from registration thereunder. Each purchaser of Interests was required to
represent that it is (i) an "accredited investor" under Rule 501(a)(1), (2),
(3) or (7) of Regulation D and that it is acquiring Interests for its own
account for investment and not for resale or distribution and (ii) in the case
of the holders of Common Interests only, a "qualified client" within the
meaning of Rule 205-3 under the Investment Advisers Act of 1940 (the "Advisers
Act"). In addition, holders of Interests must (i) be a "United States Person"
(as defined in Section 7701(a)(30) of the Code), or (ii) represent to the Fund
that it holds its interest in the Fund in connection with its conduct of a
trade or business within the United States, as determined for U.S. federal
income tax purposes, and provide the Fund with a properly executed IRS Form W-8
ECI with respect to its acquisition of its interest in the Fund upon becoming a
partner and at such subsequent times as required by law or as the Fund may
reasonably request. Investors meeting the foregoing requirements are referred
to herein as "Qualified Investors". The Interests may be transferred only
to other Qualified Investors and only with the prior written consent of the
Fund, which will not be withheld unreasonably.
Arrangement and commitment fees on the Senior Facility, together with placement fees on the Series A Preferred Interests and the organizational and other offering expenses of the Fund, approximate 0.5% of Total Available Capital. These fees and expenses reduce the amount available for investment. Organizational costs and offering expenses, including the placement agency, arrangement and commitment fees, will be accorded the appropriate treatment under GAAP.
The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their nonpublic personal information. The following information is provided to help you understand what personal information the Fund collects, how it protects that information and why, in certain cases, the Fund may share information with select other parties.
The Fund does not disclose, except with consent, any nonpublic personal information about its shareholders or former shareholders to anyone, except as permitted or required by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third-party administrator).
The Fund restricts access to nonpublic personal information about the shareholders to the Fund's affiliates and agents with a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the nonpublic personal information of its shareholders.
8.2 Investment Objectives and Policies. The Fund seeks to achieve high total returns while minimizing losses. The Fund's initial portfolio consisted of securities contributed to it by the Feeder Fund. The Fund will invest in equity securities,
distressed debt, mezzanine investments and high yielding debt of all kinds. The Fund may also structure, negotiate, originate and syndicate loans and other investment transactions and may engage in various transactions in futures, forward contracts, swaps and other instruments to manage or hedge interest rate, currency exchange, industry, equity and other risks.
This strategy is built upon an investment process based on fundamental analysis of industries and businesses. The investments of the Fund (the "Fund Investments"), are managed utilizing a comprehensive, risk-based investment valuation analysis and an intensive due diligence process. The strategy will seek to minimize losses through vigorous in-depth, bottom-up research on all investments. In addition, the Fund may obtain the contractual right to participate in, advise or influence the management of its portfolio investments.
The Fund's investment objective (that is, seeking to achieve high total returns while minimizing losses) and the following investment restrictions are fundamental and cannot be changed without the approval of the holders of (i) the lesser of a majority of the Fund's outstanding Common Interests and Preferred Interests voting together as a single class or two-thirds of shares present if a quorum of at least 50% is present and (ii) a majority of the outstanding Preferred Interests, voting as a separate class. All other investment policies or practices are considered by the Fund not to be fundamental and, accordingly, may be changed without approval of the holders of a majority of the Fund's outstanding voting securities. If a percentage restriction on investment or use of assets set forth below is adhered to at the time a transaction is effected, later changes in percentage resulting from changing market values will not be considered a deviation from policy. Subject to the foregoing, the Fund may not:
(1) borrow money or issue senior securities, except insofar as the foregoing would not violate the 1940 Act;
(2) make loans of money or property to any person, except insofar as the foregoing would not violate the 1940 Act;
(3) underwrite the securities of other issuers, except to the extent that in connection with the disposition of portfolio securities or the sale of its own shares or securities of its subsidiaries the Fund may be deemed to be an underwriter;
(4) purchase real estate or interests therein, except to the extent that as a result of such investments the Feeder Fund would not cease to be a regulated investment company under the Code;
(5) purchase or sell commodities or commodity contracts for any purposes except to the extent permitted by applicable law without the Fund becoming subject to registration with the Commodity Futures Trading Commissions as a commodity pool or a commodity pool operator; or
(6) invest more than 25% of its assets in a single industry.
8.3 Risk Factors.
(a) General.
Management of the Fund
SVOF/MM, LLC, an affiliate of the Investment Manager, will serve as the General Partner of the Fund. In that capacity, it will conduct the day-to-day operations of the Fund, including supervision of the Investment Manager and Co-Manager with respect to the Fund and reporting to the Board of Directors of the Fund. Accordingly, no potential purchaser of Common or Preferred Interests should purchase such interests unless such purchaser is willing to entrust the management of the Fund to SVOF/MM and the Board of Directors.
Pledge of Assets
The Common Interests represent equity interests in the Fund only and will not be insured or guaranteed by any person or entity. The creditors of the Fund will have a first claim on all of the Fund's assets included in the collateral for the Senior Facility. In the event of the dissolution of the Fund or otherwise, if the proceeds of the Fund's assets (after payment in full of obligations to any such debtors and of any liquidation preference to any holders of Preferred Interests) are insufficient to repay capital contributions made to the Fund by the holders of the common shares, no other assets will be available for the payment of any deficiency. None of the Board of Directors, the Investment Manager, the Co-Manager, SVOF/MM, the placement agent or any of their respective affiliates, have any liability for the repayment of capital contributions made to the Fund by the holders of common shares. Holders of Common Interests could experience a total loss of their investment in the Fund.
Leveraged Capital Structure
The Fund will issue preferred stock and/or debt (including, without limitation, amounts under the Senior Facility) in aggregate amounts not in excess of one-third of the Fund's consolidated gross assets after deducting liabilities other than the preferred shares and the principal amount outstanding under the Senior Facility (in the case of debt) and not more than one-half of the Fund's consolidated gross assets after deducting liabilities other than the Preferred Interests and the principal amount outstanding under the Senior Facility (in the case of Preferred Interests and debt combined). The use of leverage creates an opportunity for increased income and gains to the holders of Common Interests, but also creates increased risk of loss. The use of leverage magnifies the potential gains and losses from an investment and increases the risk of loss of capital. To the extent that income derived by the Fund from investments purchased with borrowed funds is greater than the cost of borrowing, the Fund's net income will be greater than if borrowing had not been used. Conversely, if the income from investments purchased with borrowed funds is not sufficient to cover the cost of borrowing, the net income of the Fund will be less than if borrowing had not been used, and the amount available for ultimate distribution to the holders of Common Interests
will be reduced. The extent to which the gains and losses associated with leveraged investing are increased will generally depend on the degree of leverage employed. The Fund may, under some circumstances, be required to dispose of the Fund Investments under unfavorable market conditions, thus causing the Fund to recognize a loss that might not otherwise have occurred. If an event of default under pertinent borrowing agreements occurs or an asset coverage maintenance provision of the Preferred Interests requires that certain leverage being utilized by the Fund be retired and thus Fund Investments are sold, losses also may occur that might otherwise not have occurred. In the event of a sale of Fund Investments upon default, secured creditors will be contractually entitled to direct such sales and may be expected to do so in their interest, rather than in the interests of the holders of common shares. The holders of Common Interests will incur losses if the proceeds from such a sale are insufficient, after payment in full of amounts due and payable on borrowed amounts, including administrative expenses, to repay all of the capital invested by holders of Common Interests. As a result, they could experience a total loss of their investment in the Fund.
Restrictions Imposed by the Senior Facility and Preferred Securities
By limiting the circumstances in which borrowings may occur under the Senior Facility, the Senior Facility in effect provides for various asset coverage, credit quality and diversification limitations on the Fund Investments. The Senior Facility also provides limitations on distributions on or repurchases of Common Interests and on redemptions of Series A Preferred Interests. The terms of the Series A Preferred Interests contain similar limitations. Such limitations may cause the Fund to be unable to make or retain certain potentially attractive investments or to be forced to sell investments at an inappropriate time and consequently impair the profitability or increase losses of the Fund or result in adverse tax consequences.
Default Risk
If an event of default occurs under the credit agreement (the "Credit Agreement") or if any third party utilized by the Fund to provide insurance in order to obtain credit enhancement for the Series A Preferred Interests and debt (an "Insurer") is required to make a payment with respect to the Series A Preferred Interests under the Series A Preferred Interests Policy, the Insurer (if it is not then in default) or the lenders under the Credit Agreement, pursuant to the Pledge Agreement (as defined in Item 10.2), would be permitted to accelerate amounts due under the Senior Facility and liquidate the assets of the Fund to pay off amounts owed under the Senior Facility and limitations would be imposed on the Fund with respect to the purchase or sale of investments. Such limitations may cause the Fund to be unable to make or retain certain potentially attractive investments or to be forced to sell investments at an inappropriate time and consequently impair the profitability or increase losses of the Fund or result in adverse tax consequences.
Restrictions on Transfer and Withdrawal
The offering of the Common Interests was not registered under the Securities Act or any state securities laws of any jurisdiction and Common Interests may not be transferred unless registered under applicable federal and state securities laws or unless an exemption from such laws is available. The Fund has no plans, and is under no obligation, to register any sale of the Common Interests under the Securities Act. Further, approval by the Fund of a transfer is required before any transfer may occur.
The Common Interests may be transferred only to other Qualified Investors and only with the prior written consent of the Fund, which will not be withheld unreasonably.
Lack of Liquidity of Common Interests
No market exists for the Common Interests, and none is expected to develop. Consequently, a purchaser must be prepared to hold the Common Interests for an indefinite period of time or until the termination date of the Fund. In addition, the Common Interests are subject to certain transfer restrictions which may further limit the liquidity of the common shares.
Nature of Fund Investments
General. The Fund will have broad discretion in making Fund Investments. The Fund Investments will generally consist of debt obligations and other securities and assets that present significant risks as a result of business, financial, market and legal uncertainties. There can be no assurance that the Investment Manager will correctly evaluate the nature and magnitude of the various factors that could affect the value of and return on the Fund Investments. Prices of the Fund Investments may be volatile, and a variety of other factors that are inherently difficult to predict, such as domestic or international economic and political developments, may significantly affect the results of the Fund's activities and the value of the Fund Investments. The Fund's performance over a particular period may not necessarily be indicative of the results that may be expected in future periods. Similarly, the past performance of the Investment Manager, the Co-Manager and their respective affiliates may not necessarily be indicative of the results the Investment Manager may be able to achieve with the Fund Investments in the future.
High-Yield Securities. A significant portion of the Fund Investments will consist of investments that may generally be characterized as "high-yield securities." Such securities are expected to be rated below investment-grade by one or more nationally recognized statistical rating organizations or will be unrated but of comparable credit quality to obligations rated below investment-grade, and have greater credit and liquidity risk than more highly rated obligations. High-yield securities are generally unsecured and may be subordinate to other obligations of the obligor. The lower rating of high-yield securities reflects a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions (including, for example, a
substantial period of rising interest rates or declining earnings) or both may impair the ability of the issuer to make payment of principal and interest. Many issuers of high-yield securities are highly leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their obligations. Overall declines in the below investment-grade bond and other markets may adversely affect such issuers by inhibiting their ability to refinance their obligations at maturity.
High-yield securities are often issued in connection with leveraged acquisitions or recapitalizations in which the issuers incur a substantially higher amount of indebtedness than the level at which they had previously operated. High-yield securities that are debt instruments have historically experienced greater default rates than has been the case for investment-grade securities. The Fund may also invest in equity securities issued by entities whose obligations are unrated or are rated below investment-grade.
The Fund will be authorized to invest in obligations of issuers which are generally trading at significantly higher yields than had been historically typical of the applicable issuer's obligations. Such investments may include debt obligations that have a heightened probability of being in covenant or payment default in the future. Such investments generally are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Typically such workout or bankruptcy proceedings result in only partial recovery of cash payments or an exchange of the defaulted security for other debt or equity securities of the issuer or its affiliates, which may in turn be illiquid or speculative.
High-yield securities purchased by the Fund will be subject to certain additional risks to the extent that such obligations may be unsecured and subordinated to substantial amounts of senior indebtedness, all or a significant portion of which may be secured. Moreover, such obligations purchased by the Fund may not be protected by financial covenants or limitations upon additional indebtedness.
Bank Loans. A portion of the Fund Investments may consist of loans and participations therein originated by banks and other financial institutions, typically referred to as "bank loans." The Fund Investments may include loans of a type generally incurred by borrowers in connection with highly leveraged transactions, often to finance internal growth, acquisitions, mergers or stock purchases, or for other reasons. As a result of the additional debt incurred by the borrower in the course of the transaction, the borrower's creditworthiness is often judged by the rating agencies to be below investment-grade. Such loans are typically private corporate loans which are negotiated by one or more commercial banks or financial institutions and syndicated among a group of commercial banks and financial institutions. In order to induce the lenders to extend credit and to offer a favorable interest rate, the borrower often provides the lenders with extensive information about its business which is not generally available to the public.
Bank loans are typically at the most senior level of the capital structure, and are often secured by specific collateral, including, but not limited to, trademarks, patents, accounts receivable, inventory, equipment, buildings, real estate, franchises and common and preferred stock of the obligor or its affiliates. Bank loans often contain restrictive covenants designed to limit the activities of the borrower in an effort to protect the right of lenders to receive timely payments of principal and interest. Such covenants may include restrictions on dividend payments, specific mandatory minimum financial ratios, limits on total debt and other financial tests. Bank loans usually have shorter terms than subordinated obligations and may require mandatory prepayments from excess cash flow, asset dispositions and offerings of debt and/or equity securities. The bank loans and other debt obligations to be acquired by the Fund are likely to be below investment-grade. For a discussion of the risks associated with below investment-grade investments, see "--High-Yield Securities" above.
The Fund may acquire interests in bank loans and other debt obligations either directly (by way of sale or assignment) or indirectly (by way of participation). The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, its rights can be more restricted than those of the assigning institution. A participation interest in a portion of a debt obligation typically results in a contractual relationship only with the institution participating out the interest, not with the borrower. In purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set-off against the borrower, and the Fund may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund will be exposed to the credit risk of both the borrower and the institution selling the participation.
Purchasers of bank loans are predominantly commercial banks, investment funds and investment banks. As secondary market trading volumes increase, new bank loans frequently adopt standardized documentation to facilitate loan trading which should improve market liquidity. There can be no assurance, however, that future levels of supply and demand in bank loan trading will provide an adequate degree of liquidity or that the current level of liquidity will continue. Because of the provision to holders of such loans of confidential information relating to the borrower, the unique and customized nature of the loan agreement, and the private syndication of the loan, bank loans are not as easily purchased or sold as a publicly traded security, and historically the trading volume in the bank loan market has been small relative to the high-yield debt market.
Distressed Debt. The Fund will be authorized to invest in the securities and other obligations of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. Such investments generally trade significantly below par and are considered speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Typically such workout or bankruptcy proceedings result in only
partial recovery of cash payments or an exchange of the defaulted obligation for other debt or equity securities of the issuer or its affiliates, which may in turn be illiquid or speculative.
There are a number of significant risks inherent in the bankruptcy process. First, many events in a bankruptcy are the product of contested matters and adversary proceedings and are beyond the control of the creditors. While creditors are generally given an opportunity to object to significant actions, there can be no assurance that a bankruptcy court in the exercise of its broad powers would not approve actions that would be contrary to the interests of the Fund. Second, the effect of a bankruptcy filing on an issuer may adversely and permanently affect the issuer. The issuer may lose its market position and key employees and otherwise become incapable of restoring itself as a viable entity. If for this or any other reason the proceeding is converted to a liquidation, the value of the issuer may not equal the liquidation value that was believed to exist at the time of the investment. Third, the duration of a bankruptcy proceeding is difficult to predict. A creditor's return on investment can be adversely affected by delays while the plan of reorganization is being negotiated, approved by the creditors and confirmed by the bankruptcy court and until it ultimately becomes effective. Fourth, the administrative costs in connection with a bankruptcy proceeding are frequently high and would be paid out of the debtor's estate prior to any return to creditors. For example, if a proceeding involves protracted or difficult litigation, or turns into a liquidation, substantial assets may be devoted to administrative costs. Fifth, bankruptcy law permits the classification of "substantially similar" claims in determining the classification of claims in a reorganization. Because the standard for classification is vague, there exists the risk that the Fund's influence with respect to the class of securities or other obligations it owns can be lost by increases in the number and amount of claims in that class or by different classification and treatment. Sixth, in the early stages of the bankruptcy process it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. Seventh, especially in the case of investments made prior to the commencement of bankruptcy proceedings, creditors can lose their ranking and priority if they exercise "domination and control" over a debtor and other creditors can demonstrate that they have been harmed by such actions. Eighth, certain claims that have priority by law (for example, claims for taxes) may be substantial.
In any investment involving distressed debt obligations, there exists the risk that the transaction involving such debt obligations will be unsuccessful, take considerable time or will result in a distribution of cash or a new security or obligation in exchange for the distressed debt obligations, the value of which may be less than the Fund's purchase price of such debt obligations. Furthermore, if an anticipated transaction does not occur, the Fund may be required to sell its investment at a loss. Given the substantial uncertainties concerning transactions involving distressed debt obligations in which the Fund will invest, there is a potential risk of loss by the Fund of its entire investment in any particular investment.
Investments in companies operating in workout modes or under Chapter 11 of the Bankruptcy Code are also, in certain circumstances, subject to certain additional liabilities which may exceed the value of the Fund's original investment in a Fund
Investment. For example, under certain circumstances, creditors who have inappropriately exercised control over the management and policies of a debtor may have their claims subordinated or disallowed or may be found liable for damages suffered by parties as a result of such actions. The Investment Manager's active management style may present a greater risk in this area than would a more passive approach. In addition, under certain circumstances, payments to the Fund and distributions by the Fund to its shareholders or payments on the debt may be reclaimed if any such payment is later determined to have been a fraudulent conveyance or a preferential payment.
The Investment Manager on behalf of the Fund may participate on committees formed by creditors to negotiate with the management of financially troubled companies that may or may not be in bankruptcy or may negotiate directly with debtors with respect to restructuring issues. If the Fund does choose to join a committee, the Fund would likely be only one of many participants, all of whom would be interested in obtaining an outcome that is in their individual best interests. There can be no assurance that the Fund would be successful in obtaining results most favorable to it in such proceedings, although the Fund may incur significant legal and other expenses in attempting to do so. As a result of participation by the Fund on such committees, the Fund may be deemed to have duties to other creditors represented by the committees, which might thereby expose the Fund to liability to such other creditors who disagree with the Fund's actions. Participation by the Fund on such committees may cause the Fund to be subject to certain restrictions on its ability to trade in a particular investment and may also make the Fund an "insider" for purposes of the federal securities laws. Either circumstance will restrict the Fund's ability to trade in or acquire additional positions in a particular investment when it might otherwise desire to do so.
Equity Securities. The Fund will also be permitted to invest in common and preferred stock and other equity securities, including both public and private equity securities. Equity securities generally involve a high degree of risk and will be subordinate to the debt securities and other indebtedness of the issuers of such equity securities. Prices of equity securities generally fluctuate more than prices of debt securities and are more likely to be affected by poor economic or market conditions. In some cases, the issuers of such equity securities may be highly leveraged or subject to other risks such as limited product lines, markets or financial resources. In addition, some of these equity securities may be illiquid. Because of perceived or actual illiquidity or investor concerns regarding leveraged capitalization, these securities often trade at significant discounts to otherwise comparable investments or are not readily tradeable. These securities generally do not produce current income for the Fund and may also be speculative. The Fund may experience a substantial or complete loss on individual equity securities.
Mezzanine Investments. Mezzanine Investments of the type in which the Fund intends to invest are primarily privately negotiated subordinated debt and equity securities issued in connection with leveraged transactions, such as management buyouts, acquisitions, refinancings, recapitalizations and later stage growth capital financings, and are generally rated below investment-grade. Mezzanine Investments may also include investments with equity participation features such as warrants, convertible securities,
senior equity investments and common stock. Mezzanine Investments are subject to the same risks described above in the case of high-yield securities, and also may be subject to risks associated with illiquid investments, since there will usually be relatively few holders of any particular Mezzanine Investment.
General Market and Credit Risks of Debt Obligations
Debt portfolios are subject to credit and interest rate risks. "Credit risk" refers to the likelihood that an issuer will default in the payment of principal and/or interest on an instrument. Financial strength and solvency of an issuer are the primary factors influencing credit risk. In addition, lack or inadequacy of collateral or credit enhancement for a debt instrument may affect its credit risk. Credit risk may change over the life of an instrument, and debt obligations which are rated by rating agencies are often reviewed and may be subject to downgrade. "Interest rate risk" refers to the risks associated with market changes in interest rates. Interest rate changes may affect the value of a debt instrument indirectly (especially in the case of fixed rate securities) and directly (especially in the case of instruments whose rates are adjustable). In general, rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive effect on price. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset caps or floors, among other factors). Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules.
An unstable geopolitical climate and threats of terrorism could have a material effect on general economic conditions, market conditions and market liquidity. A negative impact on economic fundamentals and consumer confidence may increase the risk of default of particular Fund Investments, negatively impact market value, increase market volatility, cause credit spreads to widen and reduce liquidity, all of which could have an adverse effect on the investment performance of the Fund. No assurance can be given as to the effect of these events on the value of or markets for Fund Investments.
Illiquidity of Fund Investments
The market value of Fund Investments will fluctuate with, among other things, changes in market rates of interest, general economic conditions, economic conditions in particular industries, the condition of financial markets and the financial condition of the issuers of Fund Investments. In addition, the lack of an established, liquid secondary market for many of the Fund Investments may have an adverse effect on the market value of Fund Investments and on the Fund's ability to dispose of them. Furthermore, Fund Investments will be subject to certain transfer restrictions that may also contribute to illiquidity. Therefore, no assurance can be given that, if the Fund is determined to dispose of a particular investment, it could dispose of such investment at the previously prevailing market price.
A portion of the Fund's investments will consist of securities that are subject to restrictions on resale by the Fund for reasons including that they were acquired in a "private placement" transaction or that the Fund is deemed to be an affiliate of the issuer of such securities. Generally, the Fund will be able to sell such securities without restriction to other large institutional investors but may be restrained in its ability to sell them to other investors. If restricted securities are sold to the public, the Fund may be deemed to be an underwriter or possibly a controlling person with respect thereto for the purposes of the Securities Act and be subject to liability as such under the Securities Act.
Dependence on Key Personnel
The success of the Fund will be highly dependent on the
financial and managerial expertise of the Investment Manager. The Investment
Committee of the Fund (the "Investment Committee") is currently comprised of
five voting members (Michael E. Tennenbaum, Mark K. Holdsworth, Howard M.
Levkowitz and Michael E. Leitner (the "TCP Voting Members") and a person
designated by Babson with the approval of TCP (initially Richard E. Spencer
II)) and 5 non-voting members from TCP. The loss of one or more of the TCP
Voting Members of the Investment Committee could have a material adverse effect
on the performance of the Fund. Although the Investment Manager and the TCP
Voting Members of the Investment Committee will devote a significant amount of
their respective efforts to the Fund, they actively manage investments for
other clients and are not required to (and will not) devote all of their time
to the Fund's affairs.
Interest Rate and Investment Risk Management
The Investment Manager is authorized to use various investment strategies to hedge interest rate risks. These strategies are generally accepted as portfolio management techniques and are regularly used by many investment funds and other institutional investors. Techniques and instruments may change over time as new instruments and strategies are developed or regulatory changes occur. The Investment Manager may use any or all such types of interest rate hedging transactions at any time and no particular strategy will dictate the use of one transaction rather than another. The choice of any particular interest rate hedging transactions will be a function of numerous variables, including market conditions. However, the Investment Manager has historically emphasized acquiring floating-rate assets based on the same or a similar index as its floating-rate liabilities.
Although the Investment Manager intends to engage in interest rate hedging transactions only for hedging and risk management purposes and not for speculation, use of interest rate hedging transactions involves certain risks. These risks include (i) the possibility that the market will move in a manner or direction that would have resulted in gain for the Fund had interest rate hedging transactions not been utilized, in which case it would have been better had the Fund not engaged in the interest rate hedging transactions, (ii) the risk of imperfect correlation between the risk sought to be hedged and the interest rate hedging transactions utilized and (iii) potential illiquidity for the hedging instrument utilized, which may make it difficult for the Fund to close out or unwind one or more interest rate hedging transactions.
The Fund is also authorized to enter into certain hedging and short sale transactions, referred to herein as "Defensive Hedge Transactions," for the purpose of protecting the market value of a Fund Investment for a period of time without having to currently dispose of such Fund Investment. Such Defensive Hedge Transactions may be entered into when the Fund is legally restricted from selling a Fund Investment or when the Fund otherwise determines that it is advisable to decrease its exposure to the risk of a decline in the market value of a Fund Investment. There can be no assurance that the Fund will accurately assess the risk of a market value decline with respect to a Fund Investment or enter into an appropriate Defensive Hedge Transaction to protect against such risk. Furthermore, the Fund is not obligated to enter into any Defensive Hedge Transaction.
The Fund may from time to time employ various investment programs including the use of derivatives, short sales, swap transactions, securities lending agreements and repurchase agreements. There can be no assurance that any such investment program will be undertaken successfully.
Risks Associated with Total Rate of Return Swaps and Other Credit Derivatives
In addition to hedging and short sale transactions entered into for the purpose of interest rate hedging and Defensive Hedge Transactions, the Fund is also authorized to make investments in the form of hedging and short sale transactions. These investments are referred to herein as "Structured Product Transactions" and are more generally known as total rate of return swaps or credit derivatives. These transactions generally provide for the transfer from one counterparty to another of certain credit risks inherent in the ownership of a financial asset such as a bank loan or a high-yield security. Such risks include, among other things, the risk of default and insolvency of the obligor of such asset, the risk that the credit of the obligor or the underlying collateral will decline or that credit spreads for like assets will change (thus affecting the market value of the financial asset). The transfer of credit risk pursuant to a credit derivative may be complete or partial, and may be for the life of the related asset or for a shorter period. Credit derivatives may be used as a risk management tool for a pool of financial assets, providing the Fund with the opportunity to gain or reduce exposure to one or more reference loans or other financial assets (each, a "Reference Asset") without actually owning or selling such assets in order, for example, to increase or reduce a concentration risk or to diversify a portfolio. Conversely, credit derivatives may be used by the Fund to reduce exposure to an owned asset without selling it in order, for example, to maintain relationships with clients, avoid difficult transfer restrictions, manage illiquid assets or hedge declining credit quality of the financial asset.
The Fund would typically enter into a Structured Product Transaction in order to permit the Fund to realize the same or similar economic benefit of owning one or more Reference Assets on a leveraged basis. However, because the Fund would not own the Reference Assets, the Fund may not have any voting rights with respect to the Reference Assets, and in such cases all decisions related to the obligors on the Reference Assets, including whether to exercise certain remedies, will be controlled by the swap
counterparties. In addition, the Fund will not benefit from general rights applicable to the holders of the Reference Assets, such as the right to indemnity and rights of setoff. The economic performance of the Reference Assets will largely depend upon the ability of the actual lenders or holders or their agents or trustees to administer the Reference Assets. Moreover, in monitoring and enforcing the lenders' or holders' rights under related documentation and in consenting to or proposing amendments to the terms included in such documentation, the actual lenders or holders will not have any obligation to consider the economic interests of the Fund.
Total rate of return swaps and other credit derivatives are subject to many of the same types of risks described above in "--Interest Rate and Investment Risk Management"; for example, in the event that the Fund enters into a credit derivative with a counterparty who subsequently becomes insolvent or files a bankruptcy case, the credit derivative may be terminated in accordance with its terms and the Fund's ability to realize its rights under the credit derivative could be adversely affected.
Total rate of return swaps and other credit derivatives are a relatively recent development in the financial markets. Consequently, there are certain legal, tax and market uncertainties that present risks in entering into such total rate of return swaps and other credit derivatives. There is currently little or no case law or litigation characterizing total rate of return swaps or other credit derivatives, interpreting their provisions, or characterizing their tax treatment. In addition, additional regulations and laws may apply to total rate of return swaps or other credit derivatives that have not heretofore been applied. There can be no assurance that future decisions construing similar provisions to those in any swap agreement or other related documents or additional regulations and laws will not have a material adverse effect on the Fund. Pending clarification of these uncertainties, the Fund intends to utilize these instruments primarily for hedging and risk management purposes.
The use of leverage will significantly increase the sensitivity of the market value of the total rate of return swaps or other credit derivatives to changes in the market value of the Reference Assets. The Reference Assets are subject to the risks related to the credit of their underlying obligors. These risks include the possibility of a default or bankruptcy of the obligors or a claim that the pledging of collateral to secure a loan constituted a fraudulent conveyance or preferential transfer that can be subordinated to the rights of other creditors of the obligors or nullified under applicable law.
Board Participation
It is anticipated that the Fund, through the TCP Voting Members of the Investment Committee, will be represented on the boards of some of the companies in which the Fund makes investments (although the Fund has no obligation to seek representation on any such boards). While such representation is important to the Investment Manager's investment strategy and should enhance the Investment Manager's ability to manage Fund Investments, it may also have the effect of impairing the ability of the Fund to sell the related Fund Investments when, and upon the terms, it might otherwise desire, including as a result of applicable securities laws.
Third-Party Litigation
The Fund's investment activities subject it to the normal risks of becoming involved in litigation by third parties. This risk is somewhat greater where the Fund exercises control or significant influence over a company's direction, including as a result of board participation. The expense of defending against claims made against the Fund by third parties and paying any amounts pursuant to settlements or judgments would, to the extent that (i) the Fund has not been able to protect itself through indemnification or other rights against the portfolio company or (ii) is not entitled to such protections or (iii) the portfolio company is not solvent, be borne by the Fund pursuant to indemnification obligations and reduce net assets. The Board of Directors, the Investment Manager and others are indemnified by the Fund in connection with such litigation, subject to certain conditions.
Lender Liability Considerations and Equitable Subordination
In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories (collectively termed "lender liability"). Generally, lender liability is founded upon the premise that an institutional lender has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Because of the nature of certain of the Fund Investments, the Fund could be subject to allegations of lender liability.
In addition, under common law principles that in some cases form the basis for lender liability claims, if a lending institution (i) intentionally takes an action that results in the under capitalization of a borrower to the detriment of other creditors of such borrower, (ii) engages in other inequitable conduct to the detriment of such other creditors, (iii) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (iv) uses its influence to dominate or control a borrower to the detriment of the other creditors of such borrower, a court may elect to subordinate the claim of the offending lending institution to the claims of the disadvantaged creditor or creditors, a remedy called "equitable subordination." Because of the nature of certain of the Fund Investments and investments in an obligor by affiliates of the Fund, the Fund could be subject to claims from creditors of an obligor that Fund Investments issued by such obligor that are held by the Fund should be equitably subordinated. A significant number of Fund Investments will involve investments in which the Fund would not be the lead creditor. It is, accordingly, possible that lender liability or equitable subordination claims affecting the Fund Investments could arise without the direct involvement of the Fund.
Fraudulent Conveyance Considerations
Various federal and state laws enacted for the protection of creditors may apply to the Fund Investments by virtue of the Fund's role as a creditor with respect to
such Fund Investments. If a court in a lawsuit brought by an unpaid creditor or representative of creditors of a borrower, such as a trustee in bankruptcy or the borrower as debtor-in-possession, were to find that the borrower did not receive fair consideration or reasonably equivalent value for incurring indebtedness evidenced by a Fund Investment and the grant of any security interest or other lien securing such Fund Investment, and, after giving effect to the incurring of such indebtedness, the borrower (i) was insolvent, (ii) was engaged in a business for which the assets remaining in such borrower constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could invalidate, in whole or in part, such indebtedness and such security interest or other lien as fraudulent conveyances, subordinate such indebtedness to existing or future creditors of the borrower or recover amounts previously paid by the borrower (including to the Fund) in satisfaction of such indebtedness or proceeds of such security interest or other lien previously applied in satisfaction of such indebtedness. In addition, in the event of the insolvency of an issuer of a Fund Investment, payments made on the Fund Investment could be subject to avoidance as a "preference" if made within a certain period of time (which may be as long as one year) before insolvency depending on a number of factors, including the amount of equity of the borrower owned by the Fund and its affiliates and any contractual arrangements between the borrower, on the one hand, and the Fund and its affiliates, on the other hand. The measure of insolvency for purposes of the foregoing will vary depending on the law of the jurisdiction which is being applied. Generally, however, a borrower would be considered insolvent at a particular time if the sum of its debts was greater than all of its property at a fair valuation or if the present fair saleable value of its assets was then less than the amount that would be required to pay its probable liabilities on its existing debts as they became absolute and matured. There can be no assurance as to what standard a court would apply in order to determine whether a borrower was insolvent after giving effect to the incurrence of the loan or that, regardless of the method of evaluation, a court would not determine that the borrower was "insolvent" upon giving effect to such incurrence.
In general, if payments on a Fund Investment are avoidable, whether as fraudulent conveyances or preferences, such payments can be recaptured either from the initial recipient (such as the Fund) or from subsequent transferees of such payments, including shareholders.
Projections
The Fund may rely upon projections, forecasts or estimates developed by the Investment Manager and/or a portfolio company concerning the portfolio company's future performance and cash flow. Projections, forecasts and estimates are forward-looking statements and are based upon certain assumptions. Actual events are difficult to predict and beyond the Fund's control. Actual events may differ from those assumed. Some important factors which could cause actual results to differ materially from those in any forward-looking statements include changes in interest rates; domestic and foreign business, market, financial or legal conditions; differences in the actual allocation of the Fund Investments among asset groups from those initially anticipated by the Investment Manager; changes in the degree of leverage actually used by the Fund from time to time;
the degree to which the Fund Investments are hedged and the effectiveness of such hedges; and the terms of and borrowing agreements, among others. In addition, the degree of risk will be increased as a result of leveraging of the Fund Investments. Accordingly, there can be no assurance that estimated returns or projections can be realized or that actual returns or results will not be materially lower than those estimated therein.
Projections are inherently subject to uncertainty and factors beyond the control of the Investment Manager and the portfolio company. The inaccuracy of certain assumptions, the failure to satisfy certain financial requirements and the occurrence of other unforeseen events could impair the ability of a portfolio company to realize projected values and cash flow.
Complexity of Legal and Financial Analysis
The level of analytical sophistication, both financial and legal, necessary for successful investment in the Fund Investments is unusually high. There is no assurance that the Investment Manager will correctly judge the nature and magnitude of the many factors that could affect the prospects for successful investments in Fund Investments.
Potential for Insufficient Investment Opportunities
The business of investing in Equity Securities, Distressed Debt, Mezzanine Investments and High Yielding Debt is highly competitive. The identification of attractive investment opportunities is difficult and involves a high degree of uncertainty. Consequently, there can be no assurance that the Investment Manager will be able to invest fully the Fund's assets or that suitable investment opportunities will be identified which satisfy the Fund's rate of return objective.
Conflicts of Interest
The Investment Manager, Co-Manager and their respective partners, officers, directors, stockholders, members, managers, employees, affiliates and agents may be subject to certain potential or actual conflicts of interest in connection with the activities of, and investments by, the Fund. Affiliates and employees of the Investment Manager are equity investors in the Fund.
Further, the Investment Manager is entitled to receive the Management Fee (as defined in Item 9.1) and SVOF/MM, which is owned by affiliates of TCP and Babson, is entitled to receive the Carried Interest. The Management Fee is not based on net asset value but is based on Management Fee Capital, which initially consists of the Initial Net Assets (as defined in Item 9.1), the total amounts of the Senior Facility available and the maximum aggregate liquidation preference of preferred shares issuable by the Feeder Fund and the Fund under the 1940 Act, regardless of whether the Fund borrows under the Senior Facility or issues preferred shares. The existence of the Carried Interest and the equity investments in the Fund by Tennenbaum & Co. LLC ("TCO"), TCP, the TCP Voting Members of the Investment Committee and Babson may cause the
Investment Manager to increase or decrease leverage or to approve and cause the Fund to make more speculative or less speculative Fund Investments than the Fund would otherwise make in the absence of such interests. The Management Fee may be higher than fees charged by other investment companies.
The Investment Manager and its respective affiliates, employees and associates currently do and in the future may manage other funds and accounts other than the assets of the Fund, including for certain holders of common shares ("Other Adviser Accounts"), that invest in assets eligible for purchase by the Fund. The investment policies, fee arrangements and other circumstances of the Fund may vary from those of Other Adviser Accounts. Accordingly, conflicts may arise regarding the allocation of investments or opportunities among the Fund and Other Adviser Accounts. In general, the Investment Manager and its affiliates will allocate investment opportunities pro rata among the Fund and Other Adviser Accounts (assuming the investment satisfies the objectives of each) based on the amount of funds each then has available for such investment and under management by the Investment Manager and its affiliates. Investment opportunities in private placements are subject to independent director approval and allocation pursuant to the terms of the co-investment exemptive order applicable to the Fund and described in Item 8.4 below. In certain cases, investment opportunities may be made other than on a pro rata basis. For example, the Fund may desire to retain an asset at the same time that one or more Other Adviser Accounts desire to sell it. The Investment Manager and its affiliates intend to allocate investment opportunities to the Fund and Other Adviser Accounts in a manner that they believe in their judgment and based upon their fiduciary duties to be appropriate given the investment objectives, size of transaction, investable assets, alternative investments potentially available, prior allocations, liquidity, maturity, expected holding period, diversification, lender covenants and other limitations of the Fund and the Other Adviser Accounts. All of the foregoing procedures could in certain circumstances affect adversely the price paid or received by the Fund or the availability or size of a particular investment purchased or sold by the Fund.
Similarly, the Co-Manager and its affiliates may give priority to their own accounts and those of their other advisory clients with respect to investment purchase or sale opportunities which come to their attention, and have made no agreement to make such opportunities available to the Fund.
All of the foregoing procedures could in certain circumstances affect adversely the price paid or received by the Fund or the availability or size of the position purchased or sold by the Fund.
The Fund, the Investment Manager and the administrative agent on the Credit Agreement use or have used the same legal counsel. Such counsel, the Fund's accountants and the Investment Manager's accountants do not represent the shareholders or prospective purchasers individually solely as a result of their investment in the Fund. Prospective purchasers of common shares should consult their own legal, tax and accounting advisers with respect to their investment in the Fund.
Brokerage
Subject to the supervision of the Board of Directors, decisions to buy and sell securities and bank debt for the Fund and decisions regarding brokerage commission rates are made by the Investment Manager. In certain instances the Fund may make purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the Investment Manager will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker; the size and difficulty in executing the order, and the value of the expected contribution of the broker to the investment performance of the Fund on a continuing basis. Accordingly, the cost of the brokerage commissions to the Fund in any transaction may be greater than that available from other brokers if the difference is reasonably justified by other aspects of the portfolio execution services offered. The extent to which the Investment Manager makes use of statistical, research and other services furnished by brokers is considered by the Investment Manager in the allocation of brokerage business, but there is not a formula by which such business is allocated. The Investment Manager does so in accordance with its judgment of the best interests of the Fund and its shareholders. The Investment Manager may also take into account payments made by brokers effecting transactions for the Fund to other persons on behalf of the Fund for services provided to the Fund for which the Fund would be obligated to pay (such as custodial and professional fees).
One or more of the other investment funds or accounts which the Investment Manager manages may own from time to time some of the same investments as the Fund. When two or more companies or accounts seek to purchase or sell the same securities, the securities actually purchased or sold and any transaction costs will be allocated among the companies and accounts on a good faith equitable basis by the Investment Manager in its discretion in accordance with the accounts' various investment objectives, subject to the allocation procedures adopted by the Board of Directors related to privately placed securities (including an implementation of any co-investment exemptive relief obtained by the Fund and the Investment Manager). In some cases, this system may adversely affect the price or size of the position obtainable for the Fund. In other cases, however, the ability of the Fund to participate in volume transactions may produce better execution for the Fund.
(b) Not Applicable.
8.4 Other Policies. The Investment Manager and Babson believe that, in certain circumstances, it may be in the best interests of the Fund to be able to co-invest with other registered and unregistered funds managed now or in the future by the Investment Manager and its affiliates in order to be able to participate in a wider range of transactions. Currently, SEC regulations and interpretations would permit registered investment companies, such as the Fund, to co-invest with registered and unregistered funds that are affiliated with the Investment Manager or Babson in publicly traded securities and in private placements where (i) the Investment Manager negotiates only the price, interest rate and similar price-related terms of the securities and not matters such as
covenants, collateral or management rights and (ii) each relevant account acquires and sells the securities at the same time in pro rata amounts (subject to exceptions approved by compliance personnel after considering the reasons for the requested exception). However, current SEC regulations and interpretations would not permit co-investment in private placements where the Investment Manager negotiates non-pricing terms such as covenants, collateral and management rights.
Under current SEC regulations, in the absence of an exemption the Fund and the Feeder Fund may be prohibited from co-investing with the Predecessor Funds or any other unregistered fund managed in the future by the Investment Manager or its affiliates or with other registered funds now or hereafter managed by the Investment Manager in certain private placements. The Investment Manager, the Predecessor Funds and the other funds managed by the Investment Manager have received an exemption from such regulations.
Under the order granting such exemption, each time the
Investment Manager proposes that an unregistered account or registered fund
acquire private placement securities that are suitable for the Fund, the
Investment Manager will offer to the Fund a pro rata amount of such securities
(based on Total Available Capital). The Fund's independent Directors will
review the proposed transaction and may authorize co-investment by the Fund if
a majority of them conclude that: (i) the transaction is consistent with the
Fund's investment objective and policies; (ii) the terms of co-investment are
fair to the Fund and its shareholders and do not involve overreaching; and
(iii) participation by the Fund would not disadvantage the Fund or be on a
basis different from or less advantageous than that of the participating
unregistered accounts and other registered funds. The Directors may also
approve a lower amount or determine that the Fund should not invest. In
addition, follow-on investments and disposition opportunities must be made
available on a pro rata basis and no co-investment (other than permitted
follow-on investments) is permitted where the Fund, on the one hand, or any
other account advised by the Investment Manager or an affiliate, on the other
hand, already hold securities of the issuer.
The Feeder Fund's Operating Agreement (the "Operating Agreement") and the Partnership Agreement of the Fund (the "Partnership Agreement") permit the Investment Manager, the Co-Manager and their respective affiliates to spend substantial time on other business activities, including investment management and advisory activities for entities with the same or overlapping investment objectives, investing for their own account with the Fund or any investor in the Fund, financial advisory services (including services for entities in which the Fund invests), and acting as directors, officers, creditor committee members or in similar capacities. Subject to the requirements of the 1940 Act, the Investment Manager, the Co-Manager and their respective affiliates and associates intend to engage in such activities and may receive compensation from third parties for their services. Subject to the same requirements, such compensation may be payable by entities in which the Fund invests in connection with actual or contemplated investments, and the Investment Manager and the Co-Manager may receive fees and other compensation in connection with structuring Fund Investments which they will share.
8.5 Not Applicable.
8.6 Not Applicable.
ITEM 9. MANAGEMENT
9.1 General.
(a) Board of Directors. The Board of Directors will set broad policies
for the Fund and its officers, and SVOF/MM, LLC, an affiliate of the Investment
Manager, will serve as the General Partner of the Fund. In that capacity, it
will conduct the day-to-day operations of the Fund, including supervision of
the Investment Manager and Co-Manager with respect to the Fund and reporting to
the Board of Directors of the Fund. The Board of Directors consists of three
persons, two of whom are not interested persons of the Fund for purposes of
Section 2(a)(19) of the 1940 Act. The same directors will serve as directors of
the Feeder Fund for the purpose of exercising the oversight functions required
by the 1940 Act. The holders of the preferred securities of the entity in
question, voting separately as a class, will be entitled to elect two of the
directors of that entity. The remaining directors of that entity will be
subject to election by holders of common securities and preferred securities of
the entity in question, voting together as a single class.
(b) Investment Manager. Tennenbaum Capital Partners, LLC ("TCP" or the "Investment Manager") serves as the investment manager of the Fund. TCP maintains its office at 2951 28th Street, Suite 1000, Santa Monica, California 90405. In addition, Babson Capital Management LLC ("Babson" or the "Co-Manager") serves as co-manager. Babson maintains its office at 1500 Main Street, Suite 2800, Springfield, MA 01115. Babson, a member of the MassMutual Financial Group ("MassMutual"), is an indirect, majority owned subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual Life"). Each of TCP and Babson is a registered investment adviser under the Advisers Act. The managing member of TCP is Tennenbaum & Co. LLC ("TCO"), whose managing member is Michael E. Tennenbaum. The TCP members of the Fund's Investment Committee have collectively almost 90 years of experience in investing, business management, auditing, data systems, law and investment banking. TCP also serves as the investment manager of the Predecessor Funds, each of which has an investment objective and investment policies similar to those of the Fund.
The Fund and/or the Feeder Fund will pay aggregate management fees (the "Management Fee") of 1.00% per year of the "Management Fee Capital". The Management Fee Capital initially consists of (i) the aggregate value at the closing time of the net assets of the Fund and the Feeder Fund attributable to the Common Interests (the "Initial Net Assets"), regardless of whether the Fund distributes or repurchases Common Interests in respect of such amount, (ii) the maximum amount available to be borrowed by the Fund and the Feeder Fund under the 1940 Act in respect of the Initial Net Assets, regardless of whether the Fund or the Feeder Fund has any borrowings outstanding under the Senior Facility and (iii) the maximum aggregate liquidation preference of preferred securities the Fund and the Feeder Fund would be authorized to issue under the 1940 Act
based upon the total amount of the Initial Net Assets and assuming that the Fund and the Feeder Fund have borrowed the maximum amount available to be borrowed under the Senior Facility, regardless of whether the Fund or the Feeder Fund has issued such preferred securities. At such time as all borrowings under the Senior Facility have been repaid and no further borrowings are permitted thereunder, Management Fee Capital will be reduced to equal the sum of the Initial Net Assets, regardless of whether the Fund has made distributions or repurchased Common Interests in respect of such amount, plus the aggregate liquidation preference of Preferred Interests then outstanding, thereby reducing the amounts on which the Management Fee is paid. At such time as all borrowings under the Senior Facility have been repaid and no further borrowings are permitted thereunder, and no more than $1,000,000 in liquidation preference of Preferred Interests remains outstanding, Management Fee Capital will be further reduced to equal the Initial Net Assets, regardless of whether the Fund has made distributions or repurchased Common Interests in respect of such amount, thereby further reducing the amounts on which the Management Fee is paid. The Management Fee will be paid to the Investment Manager, which will pay a portion of such Management Fee to the Co-Manager. A Discussion regarding the basis for the Board of Directors approving the investment advisory contract (the "Investment Management Agreement") will be available in the Fund's report to interestholders for the period ending December 31, 2006.
The Fund will allocate and pay to SVOF/MM, which is wholly owned by TCP, Babson and their respective affiliates, as General Partner (i) 100% of the amount by which the cumulative distributions and amounts distributable to the holders of the Common Interests exceed an 8% annual weighted average return on undistributed capital attributable to the aggregate cost basis of the membership interests in the Predecessor Funds redeemed in exchange for the common shares of the Feeder Fund (the "Hurdle") until SVOF/MM has received from the Fund an amount equal to 25% of the aggregate cumulative distributions of net income and gain to the holders of the Common Interests (such amounts, the "Catch-up Amount"), and (ii) thereafter an amount (payable at the same time as any distributions to the holders of the Common Interests) such that after receipt thereof SVOF/MM will have received from the Fund an amount equal to 20%, and the holders of the Common Interests will have received 80%, of the incremental aggregate distributions of net income and gain in excess of the Fund's cost basis to the holders of the Common Interests and to SVOF/MM as described below. Such amounts allocable and payable to SVOF/MM in its capacity as General Parnter are referred to herein as the "Carried Interest." For purposes of calculating whether the Hurdle has been exceeded and whether SVOF/MM has received the Catch-up Amount, the Fund's performance will include that of SVARF for periods preceding July 31, 2006 (the "Closing Date") and the distributions of the Fund will include the portion of SVARF's distributions for periods preceding the Closing Date attributable to its investors in the Feeder Fund who participated in the Combination multiplied by the ratio of the Net Asset Value of the Feeder Fund immediately after giving effect to the transactions on the Closing Date to such Net Asset Value attributable to the shares of the Feeder Fund acquired by investors in SVARF. Making these calculations on the foregoing bases is more favorable to investors in the Fund than utilizing the blended performance and distributions of SVBF II and SVARF. As of March 31, 2006, these calculations would have resulted in the Fund having a cumulative excess return over the Hurdle sufficient to fund approximately 1.9 years of the Hurdle.
The Carried Interest will be earned by SVOF/MM in its capacity as General Partner of the Fund or, if the Board of Directors approve the issuance of Series S Preferred Stock of the Feeder Fund to SVOF/MM upon termination of the Fund, paid as dividends on the Series S Preferred Stock (the "Series S Preferred Stock"), which will be redeemable by the Feeder Fund at its liquidation preference as specified in the paragraph below in the event the Investment Management Agreement is terminated. Approval by the board of directors of the Feeder Fund of the issuance of the Series S Preferred Stock will be based only on receipt of an exemptive order or no-action type of comfort from the staff of the SEC regarding use of the Series S Preferred Stock. Alternatively, the Carried Interest may be paid as a fee pursuant to the Investment Management Agreement. The amounts expected to be payable under any of the foregoing structures will be the same.
If the Investment Management Agreement is terminated for any reason, the Fund will have the right to remove SVOF/MM as general partner or to call the Series S Preferred Stock at its liquidation preference. In such circumstances the Feeder Fund will engage at its own expense a firm acceptable to the Feeder Fund and the Investment Manager to determine the maximum reasonable fair value as of the termination date of the Fund's consolidated assets (assuming each asset is readily marketable among institutional investors without minority discount and with an appropriate control premium for any control positions and ascribing an appropriate net present value to unamortized organizational and offering costs and going concern value). After review of such firm's work papers by the Investment Manager and the Feeder Fund and resolution of any comments therefrom, such firm shall render its report as to valuation, and the Fund shall pay to the Investment Manager or SVOF/MM, as the case may be, any Management Fee or Carried Interest, as the case may be, payable pursuant to the paragraphs above as if all of the consolidated assets of the Fund had been sold at the values indicated in such report and any net income and gain distributed. Such report must be completed within 90 days after notice of termination of the Investment Management Agreement.
Certain employees and affiliates of TCP, including the TCP Voting Members of the Investment Committee, as well as members of the TCP Board of Advisors, will own an economic interest in SVOF/MM and will receive from SVOF/MM distributions that will equal approximately the amount of any Carried Interest attributable to any common shares owned by such persons. Members of the TCP Board of Advisors will only receive such an economic interest in SVOF/MM with respect to the first $2 million of common shares in the Feeder Fund acquired by such persons in respect of their holdings in SVBF II and SVARF.
After the first two years, each Investment Management Agreement will terminate unless its continuance is specifically approved at least annually by both (i) the vote of a majority of the Board of Directors or the vote of a majority of the outstanding voting securities of the Feeder Fund or the Fund as applicable, at the time outstanding, and (ii) the vote of a majority of the Board of Directors who are not parties to the Investment Management Agreement or interested persons of any party to the Investment Management Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Investment Management Agreement may also be terminated by the Feeder Fund or the Fund as applicable, at any time upon giving the Investment Manager
60 days' notice, provided that such termination must be directed or approved by a majority of the Board of Directors in office at the time or by the holders of a majority of the voting securities of the Feeder Fund or the Fund as applicable, at the time outstanding. Each Investment Management Agreement may also be terminated by the Investment Manager on 60 days' written notice. The Investment Management Agreement will also immediately terminate in the event of its assignment. As used in this paragraph, the terms "majority of the outstanding voting securities," "interested person" and "assignment" have the same meanings as in the 1940 Act.
Origination, management, finders, breakup and similar fees payable with respect to Fund Investments ("Origination Fees") will be payable to the Fund. The Fund will monitor such fees with a view to maintaining its status as a RIC, one of the requirements of which is that no more than 10% of the Fund's gross revenues in any year consist of non-investment-related income.
The Fund will be responsible for paying the fees of the Investment Manager, the Carried Interest, due diligence and negotiation expenses, fees and expenses of custodians, administrators, transfer and distribution agents, counsel and directors, insurance, filings and registrations, proxy expenses, expenses of communications to investors, compliance expenses, interest, taxes, portfolio transaction expenses, costs of responding to regulatory inquiries and reporting to regulatory authorities, costs and expenses of preparing and maintaining the books and records of the Fund, indemnification, litigation and other extraordinary expenses and such other expenses as are approved by the directors as being reasonably related to the organization, offering, capitalization, operation or administration of the Fund and any portfolio investments. Organization, offering and capitalization expenses are anticipated to consist primarily of placement fees for the preferred shares and commitment and administrative agent fees for the Senior Facility and approximates 0.50% of the initial Management Fee Capital. Expenses associated with investments by multiple funds will be shared proportionately by the participating funds. Expenses associated with the general overhead of the Investment Manager or Co-Manager will not be covered by the Fund.
(c) Portfolio Management. The TCP Voting Members of the Investment Committee will be primarily responsible for managing the Fund Investments. Other investment professionals of TCP will participate in Investment Committee meetings on a regular basis. The Investment Committee will review and discuss the purchase and sale of all Fund Investments other than short-term investments in high-quality debt securities maturing in less than 367 days from purchase or investment funds whose portfolios at all times have an effective duration of less than 367 days and whose shares are redeemable daily at net asset value and other than hedging and risk management transactions, and approval by a majority vote of the Investment Committee will be required prior to the purchase or sale of any Fund Investment (other than cash and cash equivalents). The Investment Committee will seek investments in companies which it believes to have strong, defensible and enduring business franchises operating in industries that have attractive risk-reward profiles--an approach which TCP currently employs on behalf of its other accounts and which TCP (and prior to its formation, TCO and Michael E. Tennenbaum) has employed since 1987. The following are summaries of the background
and experience of the TCP Voting Members of the Investment Committee. There can be no assurance that such persons will continue to be employed by TCP, or, if so employed, be involved in the management of the Fund Investments. The Statement of Additional Information provides additional information about the portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities issued by the Fund.
MICHAEL E. TENNENBAUM, a founding Partner of TCP, is the Senior Managing Partner and a voting member of the Investment Committee. Before forming TCP in 1996, Mr. Tennenbaum served for 32 years in various capacities at Bear Stearns, including Vice Chairman, Investment Banking. His responsibilities at Bear Stearns included managing the firm's Risk Arbitrage Department, Investment Research Department, Options Department, and its Los Angeles Corporate Finance Department. Mr. Tennenbaum has served on the Boards of many public and private companies. He currently serves as Chairman of Pemco Aviation Group, Inc. and Chairman of the Board of Anacomp, Inc. He previously served as a Director of Bear Stearns Companies, Inc., Jenny Craig, Inc., Tosco Corporation and Party City Corporation.
Mr. Tennenbaum is Trustee Emeritus of the Georgia Tech Foundation and was Chairman of its Investment Committee; he is Founder of the Tennenbaum Institute for Enterprise Transformation at the Georgia Tech School of Industrial and Systems Engineering. He is a Vice-Chairman of the Board of Governors of the Boys & Girls Clubs of America and Chairman of its investment group; he is a member of the Committee on University Resources (COUR) at Harvard University; he is a Director of the Los Angeles World Affairs Council; he is a Member of the UCLA School of Medicine Board of Visitors and Founder of the Tennenbaum Interdisciplinary Center at the Neuropsychiatric Institute at UCLA; he is also a member of the National Innovation Initiative Strategy Council. Mr. Tennenbaum was a member of the Harvard Business School Board of Associates; was a Commissioner on the Intercity High-Speed Rail Commission for California and Chairman of the California High-Speed Rail Authority. He served as Chairman of the Special Financial Advisory Committee to the Mayor of Los Angeles.
A graduate of the Georgia Institute of Technology with a degree in Industrial Engineering, Mr. Tennenbaum received an M.B.A. with honors from the Harvard Business School.
MARK K. HOLDSWORTH, a founding Partner of TCP, is a Managing Partner and a voting member of the Investment Committee. Prior to joining the firm in 1996, Mr. Holdsworth was a Vice President, Corporate Finance, of US Bancorp Libra, a high yield debt securities investment banking firm. He also worked as a generalist in Corporate Finance at Salomon Brothers Inc, and as an Associate at a Los Angeles real estate advisory firm. He currently serves as Chairman of the Board of Directors of the International Wire Group, and is a Director of Eagle Picher Corporation, and has served on a number of formal and informal creditor committees.
He received a B.A. in Physics from Pomona College, a B.S. with honors in Engineering and Applied Science (concentration in Mechanical Engineering) from the California Institute of Technology, and an M.B.A. from Harvard Business School.
HOWARD M. LEVKOWITZ, a founding Partner of TCP, is a Managing Partner and a voting member of the Investment Committee. Prior to joining TCP in the beginning of 1997, he was an attorney at Dewey Ballantine. Mr. Levkowitz is President of TCP's registered investment funds. He has served on both public and private company boards and has been involved in a number of creditors committees and restructurings. He also serves as a director of several non-profit organizations.
He received a B.A. in History with high honors from the University of Pennsylvania, a B.S. in Economics (concentration in finance) with high honors from The Wharton School, and a J.D. from the University of Southern California.
MICHAEL E. LEITNER will be a Partner effective December 31, 2006 (currently Managing Director) and is a voting memeber of the Investment Committee. Prior to joining TCP, he served as Senior Vice President of Corporate Development for WilTel Communications, leading WilTel's mergers and acquisitions effort. Prior to that, he served as President and CFO of GlobeNet Communications, leading the company through a successful turnaround and sale transaction, and Vice President of Corporate Development of 360networks. Prior to that, he served as Senior Director of Corporate Development for Microsoft Corporation, managing corporate investments and acquisitions in the telecommunications, media, managed services, and business applications software sectors. Prior to Microsoft, he was a Vice President in the M&A group at Merrill Lynch. He currently serves as a representative for Tennenbaum on the boards of ITC^DeltaCom, Inc. and Anacomp, Inc.
He received a B.A. in Economics from the University of California, Los Angeles and an M.B.A. from the University of Michigan.
Co-Manager Key Personnel
The name of the principal employee of Babson who will be involved in Babson's activities as Co-Manager and his principal occupations during the past five years are listed below.
RICHARD E. SPENCER II is a Managing Director of Babson. Mr. Spencer joined MassMutual in 1989. He holds a B.A. in Economics and History from Bucknell University and an M.B.A. from the State University of New York at Buffalo. Mr. Spencer is responsible for the origination, analysis and portfolio management of mezzanine and private equity investments. He is Vice President of MassMutual Corporate Investors, MassMutual Participation Investors and Manager of Mezzco LLC, the General Partner of Tower Square Capital Partners, L.P. Mr. Spencer was transferred from MassMutual Life's Investment Management Department to Babson on January 1, 2000. He is a CFA.
(d) Not Applicable.
(e) Custodian. Wells Fargo Bank, National Association, with a place of business at 9062 Old Annapolis Rd., Columbia, MD 21045-1951, Attn: Corporate Trust Services - Special Value Continuation Partners, LP, will serve as custodian for the Fund (the "Custodian"), and in such capacity, will maintain certain financial and accounting books and records pursuant to agreements with the Fund.
(f) Expenses. The Fund and/or the Feeder Fund will be responsible for paying the fees of the Investment Manager, the Carried Interest, due diligence and negotiation expenses, fees and expenses of custodians, administrators, transfer and distribution agents, counsel and directors, insurance, filings and registrations, proxy expenses, expenses of communications to investors, compliance expenses, interest, taxes, portfolio transaction expenses, costs of responding to regulatory inquiries and reporting to regulatory authorities, costs and expenses of preparing and maintaining the books and records of the Fund, indemnification, litigation and other extraordinary expenses and such other expenses as are approved by the directors as being reasonably related to the organization, offering, capitalization, operation or administration of the Fund and any portfolio investments.
(g) Not applicable.
9.2 Non-resident Managers. Not applicable.
9.3 Control Persons. The Fund is owned entirely by the Feeder Fund except for (i) the Carried Interest rights of the General Partner and (ii) the Series A Preferred Interests.
ITEM 10. CAPITAL STOCK, LONG-TERM DEBT, AND OTHER
SECURITIES
10.1 Capital Stock. Common Shares
The Fund is authorized to issue an unlimited number of Common Interests. The Common Interests have no preference, preemptive, conversion, appraisal, exchange or redemption rights, and there are no sinking fund provisions applicable to the Common Interests. Each holder of Common Interests has one vote per Common Interest held by it on all matters subject to approval by the holders of the Common Interests. Further, holders of Common Interests have voting rights on the election of the Board of Directors, which will be governed by plurality voting. No person has any liability for obligations of the Fund by reason of owning Common Interests, although each person that subscribes for Common Interests is liable for the full amount of such subscription.
The rights attached to the Common Interests are set forth in the Partnership Agreement of the Fund. Such Partnership Agreement may be amended by the Board of Directors without a vote of holders of Common Interests or Preferred Interests in any manner that does not materially and adversely affect the holders of the Common Interests or the Preferred Interests, by the affirmative vote of not less than a
majority of the Common Interests and Preferred Interests outstanding and entitled to vote in the case of any amendment that does adversely and materially affect the holders of the Common Interests and the Preferred Interests and by the affirmative vote of not less than a majority of the outstanding Common Interests or Preferred Interests voting as a separate class in the event of any amendment that adversely and materially affects the contract rights of one class but not the other or affects one class materially differently than the other class. The consent of any Insurer would likely be required for certain amendments that could adversely affect its interests.
The Fund may merge or consolidate with any other entity, or sell, lease or exchange all or substantially all of the Fund's assets upon the affirmative vote of the holders of not less than two-thirds of the Common Interests and Preferred Interests. The consent of the Insurer will be required for such actions if the ratings assigned to the Senior Facility or the Series A Preferred Interests (after giving effect to the Policies) would be reduced as a result thereof. The Fund will terminate its existence on July 31, 2016, subject to up to two one-year extensions if requested by the Investment Manager and approved by the holders of a majority of the common shares and preferred shares. Notwithstanding the foregoing, in the event that the Feeder Fund issues one share of its Series S Preferred Share to SVOF/MM it would be liquidated and all of its assets would be transferred to the Feeder Fund and investment management compensation would be paid pursuant to the Series S Preferred Share and the Investment Management Agreement of the Feeder Fund rather than that of the Fund. The holders of the common shares and preferred shares will also vote on the management fee at such time. In addition, the Fund may be terminated prior to the expiration of its term upon the occurrence of certain events set forth in the Partnership Agreement.
The Feeder Fund will invest substantially all of its assets in the Common Interests of the Fund and expects to own all or substantially all of such Common Interests. The common shares of the Feeder Fund are junior to the preferred shares and are structurally junior to the Preferred Interests and indebtedness of the Fund, including borrowings under the Senior Facility, and other liabilities of the Feeder Fund. Prospective investors should review the terms of the Senior Facility and the Preferred Interests to understand fully the extent of subordination of the Common Interests and the limitations on distributions, voting rights and other matters imposed by the terms of such other securities.
The Fund will issue Common Interests in an amount equal to the aggregate net asset value of the assets contributed to it by SVBF II and SVARF. The Common Interests will be entitled to all residual income and gain of the Fund after payment of dividends on the Series A Preferred Interests, interest on the Fund's debt and other liabilities and expenses and the Carried Interest to the General Partner. The Common Interests will have one vote per $1,000 of net asset value as of the end of the quarter preceding the date on which any vote or consent of the Common Interests is required. All of the voting rights of the Common Interests will be passed through to the holders of common shares and Series Z Preferred Shares of the Feeder Fund on an equal per share basis. The Partnership Agreement may be amended by the General Partner with the consent of a majority of the Board of Directors without any vote or consent of
the limited partners with respect to any matter as to which a vote of partners is not required by the 1940 Act. On any matter as to which the 1940 Act requires a vote, approval by plurality (in the case of elections of directors), a majority of interests present and voting on the matter in question or, where required by the 1940 Act, the lesser of a majority of the votes of the outstanding voting securities of the Fund or the votes of at least 2/3 of such outstanding voting securities, if a quorum of at least a majority of such voting securities is present, will be sufficient to approve such matter.
SVOF/MM, LLC, an affiliate of the Investment Manager, will serve as the General Partner of the Fund. In that capacity, it will conduct the day-to-day operations of the Fund, including supervision of the Investment Manager and Co-Manager with respect to the Fund and reporting to the Board of Directors of the Fund.
Preferred Securities
The Fund is authorized to issue an unlimited number of preferred shares, with each preferred share having such liquidation preference and other terms authorized by the Board of Directors. The Fund has two series of preferred shares outstanding.
Asset Coverage. Under the 1940 Act, the Fund is generally not permitted to issue preferred shares unless immediately after such issuance the value of the Fund's assets, less all liabilities and indebtedness of the Fund that are not senior securities (such as fees for services, due diligence expenses and other expense accruals), is at least 200% of all indebtedness of the Fund representing senior securities plus the liquidation value of all outstanding preferred shares (i.e., the liquidation value plus the Fund's debt may not exceed 50% of the Fund's assets less all liabilities and indebtedness of the Fund that are not senior securities; compliance with this test will be calculated on a consolidated basis with the Feeder Fund). The Fund may also issue preferred shares if the proceeds will be used to reduce indebtedness. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its common shares or repurchase any common shares unless, at the time of and after giving effect to such declaration or repurchase, the same 200% asset coverage test set forth in the preceding sentence is met. If preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to the extent necessary in order to maintain coverage of any preferred shares of at least 200%.
The Fund has issued $134 million in liquidation preference of Series A Preferred Interests. The Fund anticipates that the dividend rate on the Series A Preferred Interests will be re-set periodically to reflect changes in short-term interest rates for instruments having a similar credit rating as the Series A Preferred Interests and that investors who no longer wish to hold all or a portion of their Series A Preferred Interests will be able to sell them periodically at liquidation preference to the liquidity support provider. In the event the Feeder Fund issues the Series S Preferred Stock, the Fund will no longer be necessary and will consequently be terminated and the Series A Preferred Interests will be converted or exchanged into Series A preferred shares of the Feeder Fund having substantially the same terms. In addition, as a condition to obtaining ratings on the Series A Preferred Interests, the terms of the Series A Preferred Interests issued
include asset coverage maintenance provisions similar to those in the Senior Facility. These provisions require a reduction of indebtedness or the redemption of Series A Preferred Interests in the event of non-compliance by the Fund and may also prohibit dividends and other distributions on the common shares in such circumstances. In order to meet redemption requirements, the Fund may have to liquidate portfolio securities. Such liquidations and redemptions, or reductions in indebtedness, would cause the Fund to incur related transaction costs and could result in capital losses to the Fund and the Feeder Fund.
The holders of the preferred securities of the entity in question, voting separately as a class, will be entitled to elect two of the directors of that entity. The remaining directors of that entity will be subject to election by holders of common shares and preferred securities of the entity in question, voting together as a single class.
Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Feeder Fund or the Fund, the holders of preferred shares or Series A Preferred Interests, as applicable, would be entitled to receive or have set aside a preferential liquidating distribution, which is expected to equal the original purchase price per preferred share or interest plus accumulated and unpaid dividends, whether or not declared, before any distribution of assets is made to holders of common shares or Common Interests, as applicable. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of preferred shares of the Feeder Fund or Series A Preferred Interests, as applicable, will not be entitled to any further participation in any distribution of assets by the Feeder Fund or the Fund.
Voting Rights. The 1940 Act requires that the holders of any preferred securities, voting separately as a single class, have the right to elect at least two directors at all times. The remaining directors are subject to election by holders of the common equity interests and preferred securities, voting together as a single class. In addition, the holders of any preferred securities would have the right to elect a majority of the directors of the Fund at any time two years' dividends on any preferred shares are unpaid. The 1940 Act also requires that, in addition to any approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred securities, voting separately as a class, would be required to (1) adopt any plan of reorganization that would adversely affect the preferred securities, and (2) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in subclassification as a closed-end management investment company or changes in fundamental investment restrictions. As a result of these voting rights, the ability of the Feeder Fund and the Fund to take any such actions may be impeded to the extent that there are any preferred securities outstanding. The terms of the Series A Preferred Interests contain a consent for such securities to be converted or exchanged at any time, in connection with the liquidation or transfer to the Feeder Fund of the assets of the Fund, into shares of the Feeder Fund having substantially the same terms.
The affirmative vote of the holders of a majority of the outstanding preferred securities of the Feeder Fund or the Fund, as applicable, voting as a separate
class, will be required to amend, alter or repeal any of the preferences, rights or powers of holders of such preferred securities so as to affect materially and adversely such preferences, rights or powers, or to increase or decrease the authorized number of preferred securities. The class vote of holders of preferred securities described above will in each case be in addition to any other vote required to authorize the action in question.
Distributions, Redemption and Purchase. The holders of preferred shares will be entitled to receive periodic distributions at a specified rate or formula or varying rates established by auction or remarketing mechanisms when, as and if declared by the Board of Directors. The terms of the preferred shares are expected to provide that (1) they are redeemable by the Fund in whole or in part at the original purchase price per share plus accumulated and unpaid dividends per share, (2) the Fund may tender for or purchase preferred shares and (3) the Fund may subsequently reissue any shares so tendered for or purchased. Any redemption or purchase of preferred shares by the Fund will reduce the leverage applicable to the common shares, while any reissuance of shares by the Fund will increase that leverage.
Covenants under the Insurance Agreements. If the Feeder Fund and the Fund determine to utilize insurance provided by a third party (an "Insurer") in order to obtain credit enhancement for the Series A Preferred Interests and debt, the insurance agreements (the "Insurance Agreements") would be expected to contain certain covenants of the Fund.
Series S and Series Z Preferred Shares. The Feeder Fund is authorized to issue one share of its Series S Preferred Shares to SVOF/MM, LLC, having a liquidation preference of $1,000 plus accumulated but unpaid dividends. In such event the Carried Interest would be paid as dividends on the Series S Preferred Share to be held by SVOF/MM, which will be redeemable by the Feeder Fund for its liquidation preference in the event the Investment Management Agreement is terminated. In connection with such issuance, the Fund would be liquidated and all of its assets transferred to the Feeder Fund and investment management fees would be paid pursuant to the Investment Management Agreement of the Feeder Fund rather than that of the Fund. The Series S Preferred Share will rank on par with the Series A Preferred Interests and Series Z Preferred Shares and will vote with them as a single class.
The Feeder Fund has issued 49 shares of its Series Z Preferred Shares, having a liquidation preference of $500 per share plus accumulated but unpaid dividends and paying dividends at an annual rate equal to 8% of their liquidation preference. The Series Z Preferred Shares will rank on a par with the Series A preferred shares and Series S Preferred Stock that may be issued with respect to the payment of dividends and distribution of amounts on liquidation, and will vote with such shares on matters submitted to a vote of holders of preferred shares of the Feeder Fund. The Series Z Preferred Shares will be redeemable at any time at the option of the Feeder Fund and may only be transferred with the consent of the Feeder Fund.
The Series Z Preferred Shares and the Series S Preferred Stock will not be rated or insured by the Insurer, but the liquidation preference and dividends of such
shares will be taken into account in the various asset coverage tests applicable to any Series A preferred shares that may become outstanding and the Series A Preferred Interests and the Senior Facility described herein.
10.2 Long-Term Debt. The Fund will issue debt (including, without limitation, amounts under the Senior Facility) in aggregate amounts not in excess of one-third of the Fund's consolidated gross assets after deducting liabilities other than the preferred securities and the principal amount outstanding under the Senior Facility. The Fund or the Feeder Fund may also borrow money in an amount equal to 5% of its total assets as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund Investments.
The Senior Facility is a revolving credit facility pursuant to which amounts may be drawn up to a maximum amount as determined from time to time in accordance with drawdown criteria described in the Credit Agreement. The Senior Facility will be secured by the collateral.
Amounts drawn under the Senior Facility may be repaid in whole or in part at any time and from time to time at the election of the Fund from funds available therefor.
By limiting the circumstances in which the Fund may borrow under the Senior Facility, the Credit Agreement in effect provides for various asset coverage, credit quality and diversification limitations on the Fund Investments. The Senior Facility also provides prohibitions on other borrowings, limitations on foreign investments, limitations on changes in the Operating Agreement or Partnership Agreement that would materially adversely affect the Feeder Fund or the Fund, the Policies and certain other agreements or the Fund's investment objective and a prohibition on distributions on or repurchases of common and preferred securities if after giving effect thereto the Fund would be in default under the Credit Agreement. An event of default will also occur under the Credit Agreement if the Fund fails to declare regular dividends on the Series A Preferred Interests.
Indebtedness under the Senior Facility will be limited based upon the discounted value of the collateral (the "Over-Collateralization Test"), determined under procedures described therein. The Credit Agreement will require that the market value of certain Fund Investments (as well as other excluded investments) be excluded from the calculation of the Over-Collateralization Test to the extent that the assets exceed the limits set forth therein. If the Over-Collateralization Test is not met, the Fund would be obligated to come into compliance or make sufficient principal payments on the outstanding borrowing under the Senior Facility or redeem sufficient Series A Preferred Interests to come into compliance.
The Credit Agreement has various events of default, including a default of the Fund in the observance or performance of the Over-Collateralization Test (including specified grace and cure periods), a default in the performance or breach of any covenant
(including, without limitation, any covenants of payment), obligation, warranty or other agreement of the Feeder Fund or the Fund contained in the Credit Agreement, the removal of the Investment Manager pursuant to the terms of the Investment Management Agreement without a replacement investment manager being named within a specified time frame or certain events of bankruptcy, insolvency or reorganization of the Feeder Fund or the Fund. In the event of a default under the Credit Agreement, the administrative agent with respect to the Senior Facility (the "Administrative Agent"), will, if directed by the Insurer so long as the Insurer is not in default (or the lenders if the Insurer is in default), terminate any additional commitments of the lenders to the Fund and the Fund and the Feeder Fund would be required to repay principal of and interest on outstanding borrowings under the Senior Facility to the extent provided in the Credit Agreement prior to paying certain liabilities and prior to redeeming or repurchasing any preferred or common securities.
If the Senior Facility is terminated for any reason, restrictions similar to those contained in the Credit Agreement will still apply to the Fund and the Feeder Fund and the common securities under the Series A Preferred Interests Insurance Agreement so long as the Series A Preferred Interests Policy remains in effect.
If utilized, the Insurance Agreements would be expected to contain certain covenants of the Feeder Fund and the Portfolio Fund.
In connection with the Credit Agreement, the Fund has also entered into a pledge and intercreditor agreement with the Custodian and the Administrative Agent (the "Pledge Agreement") pursuant to which all or a substantial portion of the assets of the Fund will be pledged to the secured parties representative to secure the repayment of any amounts borrowed by the Fund under the Credit Agreement and obligations of the Fund under certain other agreements, including secured hedging transactions and the Pledge Agreement. The Custodian will be required to take all actions that it is directed to take in accordance with the Pledge Agreement to preserve the rights of the secured parties under the Pledge Agreement with respect to the collateral, and in certain circumstances will be prevented from releasing any collateral if an event of default has occurred or is occurring under the Credit Agreement.
It is a condition of the Fund's ability to borrow under the Credit Agreement that the Senior Facility be rated AA- by S&P and Aa3 by Moody's. If insurance is utilized, it is expected that the Insurance Agreements would provide that the Fund will notify the Insurer if an interest or principal payment with respect to the Senior Facility has not been made when due, and the Insurer will promptly thereafter pay an amount equal to any such interest or principal payment to the Administrative Agent with or the lenders under the Senior Facility, as applicable. In addition, as a condition to the Insurer making any payment under the Insurance Agreements, the Insurer would be assigned any rights the Administrative Agent or the lenders under the Senior Facility may have with respect to such payment, including any rights such parties might have
with respect to the assets of the Fund under the Pledge Agreement. An Insurer would have the ability to enforce the rights of the lenders under the Credit Agreement if an event of default occurs under the Credit Agreement and to enforce its rights under the Insurance Agreements. It is expected that the Insurance Agreements would not be able to be amended without the consent of the Administrative Agent and would terminate upon the earlier to occur of the termination of the Credit Agreement or the payment by the Insurer of all amounts insured under the policy.
10.3 General. Not Applicable.
10.4 Taxes.
Taxation of the Fund and its Partners
The following discussion is based on the advice of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund and the Investment Manager. This discussion is only a general summary of certain current federal income tax laws regarding the Fund and holders of its Common Interests and does not purport to deal with all of the federal income tax consequences or any of the state, local or foreign tax considerations applicable to the Fund or its shareholders, or to all categories of investors. In particular, special tax considerations that may apply to certain types of taxpayers, including securities dealers, banks, entities treated as partnerships for U.S. federal income tax purposes, persons holding common shares as part of a hedge and insurance companies, are not addressed. This discussion is based on the Code, regulations issued thereunder, and interpretations, rulings and decisions currently in effect (or in some cases proposed), all of which are subject to change, potentially with retroactive effect. Any such change may adversely affect the federal income tax consequences described herein. Prospective investors should consult their own tax advisors regarding the federal, state, local, foreign income and other tax consequences to them of purchasing the common shares, including the effects of any changes, including proposed changes, in the tax laws.
For purposes of this section a "U.S. Person" is, as determined
for U.S. federal income tax purposes, (i) a citizen or individual resident of
the U.S.; (ii) a corporation which is created or organized under the law of the
U.S., any state thereof or the District of Columbia; (iii) an estate, the income
of which is subject to U.S. federal income tax without regard to its source;
(iv) or a trust if (A) a court within the United States is able to exercise
primary supervision over the administration of the trust, and one or more U.S.
persons have the authority to control all substantial decisions of the trust or
(B) the trust was in existence on August 20, 1996, and properly elected to be
treated as a U.S. person. For purposes of this section a "Non-U.S. Person" is
(i) an individual that is not a citizen or resident of the United States or (ii)
a corporation or other entity treated as a corporation for U.S. federal income
tax purposes that is not created or organized under the laws of the United
States, any of the States or the District of Columbia.
If a partnership, including for this purpose any entity treated as a partnership for U.S. federal income tax purposes, is a partner in the Fund (a "Partner"), the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of such partner and the activities of the partnership. A Partner
that is a partnership, and partners in such partnership, should consult their tax advisors to determine the U.S. federal income tax consequences of acquiring, holding and disposing of Interests.
U.S. Federal Income Tax Status of the Fund. The Fund generally intends to conduct its affairs such that it will be treated as a partnership and not as an association or a publicly traded partnership subject to tax as a corporation for U.S. federal income tax purposes. No assurance can be given that the IRS will not challenge such classification of the Fund.
If for any reason the Fund were treated as a corporation for U.S. federal income tax purposes, capital gains and losses and other income and deductions recognized by the Fund would not be passed through to the Partners, which could cause any Partner that intend to be treated as a "regulated investment company" for U.S. federal income tax purposes, such as the Feeder Fund, to fail to so qualify, and the Fund could be subject to full, net basis corporate tax on its income. The remainder of this discussion assumes that for U.S. federal income tax purposes the Fund will be treated as a partnership and not as association or publicly traded partnership subject to tax as corporations, and an investor in the Fund will be treated as a partner in it.
Taxation of Partners on the Fund's Profits and Losses. The Fund will not itself generally be subject to U.S. federal income tax. Rather, each Partner, other than Partners that own only Preferred Interests (a "Preferred Partner"), in computing its U.S. federal income tax liability for a taxable year, will be required to take into account its allocable share of all items of Fund income, gain, loss, deduction and credit for the taxable year of the Fund ending with or within such Partner's taxable year, even though the Fund does not intend to make distributions. Such treatment could give rise to so-called "phantom income" for the Partner. Each Partner will have a separate capital account in the Feeder Fund that will be maintained on a U.S. federal income tax basis (each, a "Tax Basis Capital Account"). The Tax Basis Capital Account will not reflect, on a current basis, unrealized gains or losses and is not relevant in determining amounts distributable to Partners in redemption of their Interests or otherwise. In certain circumstances, the characterization of an item of profit or loss for a Partner will be determined at the Fund (rather than at the Partner) level.
Preferred Partners. The amounts payable to a Preferred Partner in accordance with the Statement of Preferences for each series of Preferred Interests ("Preferred Partner Payments") shall be treated by such holder and the Fund as "guaranteed payments" under Section 707(c) of the Code. Accordingly, Preferred Partners, will not be allocated items of Fund income, gain, loss, deduction and credit for the taxable year of the Fund and will recognize ordinary income in an amount equal the guaranteed payments made to, in the case of cash basis Preferred Partners, or accrued by, in the case of accrual basis Preferred Partners, them. (Except as otherwise specified or as the context otherwise dictates, references in this discussion to Preferred Partners are to Partners that are solely Preferred Partners and references to allocations to Partners are to Partners to the extent that they are not Preferred Partners.)
Allocation of Fund Profits and Losses. For U.S. federal income tax purposes, a
Partner's allocable share of items of Fund income, gain, loss, deduction,
expenditure and credit will be determined as provided by the Partnership
Agreement), if such allocations either have "substantial economic effect" or
are determined to be in accordance with the Partner's Interests in the Fund.
Allocations at the Fund generally will be made in a manner intended to
eliminate, insofar as possible, any disparity between a Partner's Capital
Account and its tax basis account, consistent with principles set forth in
Section 704(c) of the Code. If the allocations provided by the Partnership
Agreement were successfully challenged by the IRS, the redetermination of the
allocations to a particular Partner for U.S. federal income tax purposes could
be less favorable than under such allocations.
Special Allocations. Notwithstanding the discussion above, if, for any reason, allocations of net profit and net loss (or any item of income, gain, loss or expense taken into account in determining net profit and net loss) do not correspond to distributions of amounts reflecting the aggregate net profit of the Fund made or required to be made by the Fund pursuant to the Partnership Agreement (due, for example, to events occurring between the time that such allocations are made and the time that the related distributions are made), then the General Partner shall allocate net profit and net loss (and, if necessary, items of Fund income (including gross income), gain, loss and expense taken into account in determining net profit and net loss) and any other items of Fund income, gain, loss and expense recognized in subsequent accounting periods among the Partners in such a manner as shall, in the General Partner's sole discretion, eliminate as rapidly as possible the disparity between the prior allocations of net profit and net loss (or items taken into account in determining Net Profit and Net Loss), on the one hand, and those non-corresponding distributions, on the other hand. Furthermore, if in the opinion of the General Partner, the allocations of income, gain, loss and expense provided for herein do not comply with the applicable Code provisions or Treasury Regulations (including the provisions relating to nonrecourse deductions and partner nonrecourse deductions), then, notwithstanding anything in the Partnership Agreement to the contrary, such allocations shall, upon notice in writing to each Partner, be modified in such manner as the General Partner determines is necessary to satisfy the relevant provisions of the Code or Treasury Regulations, and the General Partner shall have the right to amend this Agreement (without the consent of any other Partner being required for such amendment) to reflect any such modification. It is the intention of the General Partner and the Partners, however, that no such modification shall alter materially the economic arrangement among the Partners
Adjusted Tax Basis for a Partner's Interest in the Fund. For U.S. federal income tax purposes, a Partner's adjusted tax basis for its interest in the Fund generally will be equal to the amount of its initial Capital Contribution and will be increased by (a) any additional Capital Contributions made by such Partner and (b) such Partner's allocable share of (i) items of Fund taxable income and gain and (ii) nonrecourse indebtedness of the Fund (as defined for U.S. federal income tax purposes and allocated among the Partners in accordance with their profit sharing ratios). Such adjusted tax basis generally will be decreased, but not below zero, by such Partner's allocable share of (a) items of Fund taxable deduction, expense and loss and (b) distributions by the Fund or
constructive distributions resulting from a reduction in such Partner's share of nonrecourse indebtedness of the Fund (as defined for U.S. federal income tax purposes). Preferred Partners will not have a share of the nonrecourse indebtedness of the Fund, and Preferred Partner Payments will not affect the Preferred Partner's basis for its interest in the Fund.
If the recognition of a Partner's distributive share of Fund losses would otherwise reduce its adjusted tax basis for its interest below zero, the recognition of such losses by the Partner would be deferred until such time as the recognition of such losses would not reduce the Partner's tax basis below zero. To the extent that the Fund's distributions (or constructive distributions, as described above) would reduce a Partner's adjusted tax basis for its interest below zero, such distributions would generally constitute taxable income to the Partner and would be treated as gain from the sale or exchange of a capital asset except as described below.
In the event a Partner sells or exchanges its Interests, the Partner generally will recognize gain or loss in an amount equal to the difference between the amount of the sales proceeds and the Partner's adjusted tax basis for such interest. Such Partner's adjusted tax basis will be adjusted for this purpose by its allocable share of the Fund's income or loss for the fiscal year of the sale or distribution. Any gain or loss recognized with respect to such a sale or distribution generally will be treated as capital gain or loss. However, to the extent that the proceeds of the sale are attributable to such Partner's allocable share of the Fund's "unrealized receivables" or "substantially appreciated inventory", as defined in Section 751 of the Code, any gain will be treated as ordinary income. The Fund will be required to reduce the tax basis in its remaining property following certain distributions in complete liquidation of a Partner's interest in the Fund. This would occur when, subject to a de minimis exception, the departing Partner recognizes a loss upon the liquidation or takes property distributed in-kind with a tax basis that is in excess of its fair market immediately following the distribution. This reduction in the basis of the Fund's remaining property is intended to prevent certain duplications of losses.
Nature of the Fund's Investments. The Fund will directly and indirectly participate in a variety of sophisticated financial instruments and transactions. In some cases, the tax rules applicable to such instruments and transactions will be uncertain. In addition, under current U.S. federal income tax laws, such instruments and transactions may cause the Fund to recognize gains and losses which are either ordinary or capital in nature, or a combination of the two. The character of income, gain or loss as ordinary or capital may vary with the type of transaction. Furthermore, certain provisions of the Code may have the effect of deferring the recognition of losses realized by the Fund. The tax consequences of these and other investment techniques will depend upon their particular terms. Such transactions may result in gain, loss or other items of income or deduction to the Fund at various times, with the result that the Fund may recognize gain or other income prior to a time at which it is able to make distributions to the Partners.
Deemed Dividends. Under Section 305 of the Code, certain redemption premiums and "pay-in-kind" features or other accretion in respect of preferred stock and, in certain
circumstances, adjustments in the conversion ratios of convertible debt or convertible stock and the existence of redemption premiums may give rise to deemed dividend income. This income would have to be reported for U.S. federal income tax purposes even though no cash with respect thereto would have been received by the Fund, or distributed to the Partners (other than the Preferred Partners). It is possible that the Fund will acquire stock or convertible debt that would cause it to have income from such deemed dividends
Reorganizations and Debt Modifications. The Fund may, as a result of participating in workouts, loan modifications, reorganizations, restructurings and other transactions, receive securities or other property in exchange for securities held by the Fund. To the extent these transactions do not qualify as non-taxable reorganizations under the Code or are otherwise subject to tax, the Fund may be required to recognize income or gain, which will be allocable to the Partners, without the receipt of cash with respect to such income.
Limited Deduction for Certain Expenses. An individual, estate or fund may deduct so-called "miscellaneous itemized deductions", which may include certain expenses of the Fund (including the management fee), only to the extent that such deductions exceed two percent of the adjusted gross income of the taxpayer. The amount of a Partner's allocable share of such expenses that is subject to this disallowance rule will depend on the Partner's aggregate miscellaneous itemized deductions from all sources and adjusted gross income for any taxable year. Thus, the extent, if any, to which such expenses will be subject to disallowance will depend on each Partner's particular circumstances each year. In addition the Code also imposes other limitations on itemized deductions of high-income individuals.
It is intended that the Carried Interest will constitute an allocable share of the Fund's earnings and not a fee. No assurance can be given, however, that the IRS could not successfully assert that the Carried Interest should be recharacterized as a fee, in which case Partners could be subject to the limitations on deductibility relating to miscellaneous itemized deductions and certain other itemized deductions of high-income individuals, as described above.
Syndication expenses of the Fund (i.e., expenditures made in connection with the marketing and issuance of interests, including placement fees) are neither deductible nor amortizable.
Limitation on Deductibility of Capital Losses. Capital losses generally are deductible by individuals only to the extent of capital gains for the taxable year plus up to $3,000 of ordinary income ($1,500 in the case of a husband and wife filing separate returns). Excess capital losses may be carried forward indefinitely. Capital losses generally are deductible by corporations only to the extent of capital gains for the taxable year. Corporations may carry capital losses back three years and forward five years. Prospective investors should consult their tax advisors regarding the deductibility of capital losses.
Limitation on Deductibility of Fund Losses to Amount at Risk. A Partner is restricted from taking into account for U.S. federal income tax purposes any Fund loss in excess of the adjusted tax basis of such Partner's interest in the Fund, as described above. In addition, the Code restricts individuals, certain non-corporate taxpayers and certain closely held corporations from taking into account for U.S. federal income tax purposes any Fund net loss in excess of the amounts for which such Partner is "at risk" with respect to its interest in the Fund as of the end of the Fund's taxable year in which such loss occurred. The amount for which a Partner is "at risk" with respect to its interest in the Fund generally is equal to such Partner's adjusted tax basis for such interest, less (a) any amounts borrowed (i) in connection with its acquisition of such interest for which such Partner is not personally liable and for which it has pledged no property other than its interest; (ii) from persons who have a proprietary interest in the Fund and from certain persons related to such persons; and (iii) for which such Partner is protected against loss through nonrecourse financing, guarantees or similar arrangements; and (b) such Partner's allocable share of indebtedness of the Fund included in such Partner's adjusted tax basis for its interest in the Fund.
Limitation on Deductibility of Passive Losses. In addition to the limitations on the deductibility of losses described above, the Code places certain restrictions on the ability of individuals, certain non-corporate taxpayers and certain closely held corporations to use trade or business losses sustained by limited partnerships and other businesses in which the taxpayer does not materially participate to offset income from other sources (the "passive activity loss rules").
The Fund's investment activities generally are not expected to constitute a passive activity for purposes of the passive activity loss rules. Therefore, the passive activity loss rules generally should not apply to limit losses sustained by the Fund. Furthermore, a Partner will not be able to use losses from its interests in passive activities to offset its share of income and capital gain from the Fund that is not "passive activity income".
Limitation on Deductibility of Investment Interest. Interest paid or accrued on indebtedness properly allocable to property held for investment, other than a passive activity ("investment interest"), generally is deductible by individuals and other non-corporate taxpayers only to the extent it does not exceed net investment income. A Partner's net investment income generally is the excess, if any, of the Partner's investment income from all sources over investment expenses from all sources (i.e., non-interest deductions allowed that are directly connected with the production of investment income). Investment income, which generally includes gross income from property held for investment, excludes certain qualified dividends and net capital gain attributable to the disposition of property held for investment (and thus should not include any of the Fund's gains on the sale of its investments), unless the Partner elects to pay tax on such gain at ordinary income rates. Investment interest disallowed under this limitation is carried forward and treated as investment interest in succeeding taxable years. Any item of income or expense taken into account under the passive activity loss limitation is excluded from investment income and expense for purposes of computing net investment income.
Any interest paid by a Partner on borrowings incurred to purchase Interests could be considered "investment interest" under the Code. It is expected, however, that investment income other than certain qualified dividends and certain capital gains from the Fund passed through to Partners would qualify as "net investment income" that would increase the amount of investment interest that each Partner would be entitled to deduct. Accordingly, because the amount of any Partner's investment interest subject to disallowance in any taxable year will depend on the amount of investment income passed through by the Fund as well as investment income and expenses of the Partner from sources other than the Fund, the extent, if any, to which interest of Fund indebtedness will be subject to disallowance will depend on each Partner's particular circumstances.
Straddle and Wash Sale Rules. The IRS may treat certain positions in securities held (directly or indirectly) by a Partner and its indirect interest in positions in similar securities held by the Fund as "straddles" for U.S. federal income tax purposes. The application of the "straddle" rules in such a case may affect a Partner's holding period for the securities involved, may defer the recognition of losses with respect to positions in such securities and may require the capitalization (rather than the deduction) of certain interest and carrying charges that are allocable to a position which is part of such straddle. Under the "wash sale" rules, loss on the sale of stock or securities is disallowed if, within 30 days before or after such sale, a taxpayer has acquired or entered into a contract or option to acquire substantially identical stock or securities. It is possible that the IRS could argue that a Partner should take into account transactions by the Fund in determining whether the Partner has individually entered into a wash sale transaction. The Fund generally will not be in a position to furnish to Partners information regarding its securities positions which would permit a Partner to determine whether such Partner's transactions in securities should be treated as offsetting positions for purposes of the straddle rules or as wash sale transactions for purposes of the wash sale rules.
Income from Investments in Non-U.S. Corporations. The Fund may invest in non-U.S. corporations that could be classified as PFIC's or CFC's (as defined for U.S. federal income tax purposes). For U.S. federal income tax purposes, these investments may, among other things, cause a Partner to recognize taxable income without a corresponding receipt of cash, to incur an interest charge on taxable income that is deemed to have been deferred and/or to recognize ordinary income that would have otherwise been treated as capital gains. In the event that the Fund invests in, or is treated for U.S. federal income tax purposes as, a PFIC, the Fund will endeavor, but cannot guarantee that it will be able, to cause the PFIC to comply with applicable requirements, including supplying sufficient information to the Fund each year, to enable the Fund to make the requisite qualifying electing fund ("QEF") election, which would result in QEF treatment with regard to such investment. If the QEF election is made, Partners (other than those that are solely Preferred Partners) would be required to include the relevant tax items in its income without regard to cash distributions made by the QEF to the Fund.
Non-U.S. Currency Gains or Losses. If the Fund makes an investment or obtains financing denominated in a currency other than the U.S. dollar, then the Fund may recognize gain or loss attributable to fluctuations in such currency relative to the U.S. dollar. The Fund may also recognize gain or loss on such fluctuations occurring between
the times it obtains and disposes of non-U.S. currency, between the time it accrues and collects income denominated in a non-U.S. currency, or between the times it accrues and pays liabilities denominated in a non-U.S. currency. Such gains or losses generally will be treated as ordinary income or loss. Each Partner must take into account its allocable share of the Fund's allocable share of such gains and losses.
State and Local Taxes. A Partner may be subject to tax return filing obligations and income, franchise and other taxes in state or local jurisdictions in which the Fund operates or is deemed to operate, as well as in such Partner's own state or locality of residence or domicile. In addition, the Fund itself may be subject to tax liability in certain jurisdictions in which it operates or is deemed to operate and a Partner may be subject to tax treatment in such Partner's own state or locality of residence or domicile different than that described above with respect to its interest in the Fund.
Non-U.S. Taxes. The business activities of the Fund may be conducted such that the Fund could be subject to regular income taxation in certain non-U.S. jurisdictions. Moreover, certain dividends, interest, and other income allocable to the Fund from sources outside of the U.S. may be subject to withholding taxes imposed by other countries. Partners will be required to include their allocable share of such taxes in their income and generally will be entitled to claim either a credit (subject, however, to various limitations on foreign tax credits) or a deduction (subject to the limitations generally applicable to deductions) for their allocable share of such non-U.S. taxes in computing their U.S. federal income taxes.
Reportable Transactions. Treasury regulations require that each taxpayer participating in a "reportable transaction" must disclose such participation to the IRS. The scope and application of these rules is not completely clear. An investment in the Fund may be considered participation in a "reportable transaction" if, for example, the Fund recognizes certain significant losses in the future. In the event an investment in the Feeder Fund constitutes participation in a "reportable transaction", each investor who must file a U.S. federal income tax return may be required to file Form 8886 with the IRS, including attaching it to such return, thereby disclosing certain information relating to the Feeder Fund to the IRS. In addition, the Feeder Fund and its advisors may be required to maintain a list of the investors and to furnish this list and certain other information to the IRS upon its written request. Prospective investors are urged to consult their tax advisors regarding the applicability of these rules to an investment in the Feeder Fund.
Information Reporting. Partners, including Preferred Partners, who are U.S. Persons may be required to provide to the Fund IRS Forms W-9 (in the case of U.S. Persons) or W-8 ECI (in the case of Non-U.S. Persons) to avoid the imposition of U.S. withholding tax.
Tax Elections. The Code provides for several optional tax accounting and reporting elections. For example, the Code permits adjustments to the basis of Fund property upon distributions of Fund property to a Partner and transfers of Interests, including transfers by reason of death, provided that a Fund election has been made pursuant to Section 754 of the Code. The General Partner will have sole discretion with respect to all such
elections. Moreover, the General Partner has not yet decided which optional elections, if any, it will make. It is possible that the General Partner's elections could result in a materially adverse outcome for the Fund and the Partners, and certain elections may be irrevocable. For example, the Fund currently anticipates making an election under Section 475(f) of the Code to apply the mark-to-market tax accounting method; at a later date, however, the Fund may decide to request permission from the IRS to discontinue such election. Once made, such an election is irrevocable without the consent of the IRS, with the effect that the Fund would be deemed to recognize gain or loss on any security held at the close of the taxable year as if such security had been sold on the last day of the taxable year. Any such deemed gain or loss would be ordinary.
Non-U.S. Persons. Persons who are Non-U.S. Persons are not permitted to become Partners unless they hold their Interest in connection with the conduct of a trade or business within the Unites States and provide the Fund, at such times as the Fund reasonably requests and at such other times as required by law, with a duly completed and executed IRS Form W-8ECI.
Non-U.S. Persons treated as engaged in a U.S. trade or business are generally subject to U.S. federal income tax at the graduated rates applicable to U.S. Persons on their net income which is considered to be effectively connected with such U.S. trade or business. Non-U.S. Persons that are corporations may also be subject to a 30% branch profits tax on such effectively connected income. The 30% rate applicable to branch profits may be reduced or eliminated under the provisions of an applicable income tax treaty between the United States and the country in which the Non-U.S. Person resides or is organized.
Prospective investors who are Non-U.S. Persons are urged to consult their tax advisors with regard to the U.S. federal income tax consequences to them of acquiring, holding and disposing of Interests and Preferred Interests, as well as the effects of state, local and non-U.S. tax laws.
Reports to Partners. As promptly after the end of each fiscal year as is practicable, the Fund will endeavor to deliver Schedules K-1 to all Partners. Partners, however, will likely be required to obtain extensions for filing their U.S. federal, state and local income tax returns each year.
Tax Audits. Under the Code, adjustments to tax liability with respect to Fund items generally will be made at the Fund level in a single partnership proceeding rather than in separate proceedings with each Partner. The General Partner will represent the Fund as the "tax matters partner" at the commencement of an audit of the Fund. In general, the General Partner may enter into a settlement agreement with the IRS on behalf of, and binding upon, the Partners and consent on behalf of the Fund to extend the statute of limitations for assessing a deficiency with respect to a Fund item. Successful adjustments by the IRS of Fund items of income, gain, loss, deduction or expense could change a Partner's U.S. federal income tax liabilities. Prior to settlement, however, a Partner may file a statement with the IRS providing that the General Partner does not have authority to settle on behalf of such Partner.
10.5 Outstanding Securities.
---------------------------- -------------------------- --------------------------- ------------------------
Amount Outstanding
Exclusive of Amount
Amount Held by Registrant Shown Under Previous
Title of Class Amount Authorized or for its Account(1) Column(1)
---------------------------- -------------------------- --------------------------- ------------------------
Common Interests Unlimited Amount None 1 Share
Preferred Interests Unlimited Amount None 6700 Shares
Indebtedness Under
Credit Agreement $266 Million None $266 million
(1) As of September 30, 2006.
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10.6 Securities Ratings. None.
ITEM 11. DEFAULTS AND ARREARS ON SENIOR SECURITIES
11.1 Not Applicable.
11.2 Not Applicable.
ITEM 12. LEGAL PROCEEDINGS
Not Applicable.
ITEM 13. TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
Part B Caption Prospectus Caption
Item No. ------- ------------------
14. Cover Page................................................... Not Applicable
15. Table of Contents............................................ Not Applicable
16. General Information and
History......................................................
General
Description
of
the
Registrant
17. Investment Objective and
Policies.....................................................
Investment
Objective
and
Policies
18. Management................................................... Management
19. Control Persons and Principal
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Holders of Securities........................................ Control Persons and Principal
Holders of Securities
20. Investment Advisory and Other
Services..................................................... Management
21. Portfolio Managers........................................... Portfolio Managers
22. Brokerage Allocation and Other
Practices.................................................... Management
23. Taxes........................................................ Capital Stock, Long Term
Debt, and Other Securities
24. Financial Statements......................................... Not Applicable
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PART B
ITEM 14. COVER PAGE
Not Applicable.
ITEM 15. TABLE OF CONTENTS
Part B Caption Prospectus Caption
Item No. ------- ------------------
14. Cover Page................................................... Not Applicable
15. Table of Contents............................................ Not Applicable
16. General Information and
History......................................................
General
Description
of
the
Registrant
17. Investment Objective and
Policies.....................................................
Investment
Objective
and
Policies;
Risk
Factors
18. Management................................................... Management of the Fund;
Officers and Directors
19. Control Persons and Principal
Holders of Securities........................................ Control Persons and Principal
Holders of Securities
20. Investment Advisory and Other
Services..................................................... Management of the Fund
21. Portfolio Managers........................................... Portfolio Managers
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22. Brokerage Allocation and Other Practices..................... Management of the Fund
23. Taxes........................................................ Taxation of the Fund
24. Financial Statements......................................... Not Applicable
ITEM 16. Not Applicable.
ITEM 17. INVESTMENT OBJECTIVE AND POLICIES
17.1 See Item 8 - General Description of the Registrant.
17.2 Not Applicable.
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ITEM 18. MANAGEMENT
18.1 The following individuals are the officers and directors of the Fund. A brief statement of their present positions and principal occupations during the past five years is also provided.
INDEPENDENT DIRECTORS
Number of
Term of Portfolios
Office and in Fund Other
Position(s) Length of Complex Directorships
Name, Age and Business Held With Time Principal Occupation(s) Overseen Held by
Address Registrant Served During Past 5 Years by Director Director
---------------------- -------------- ------------- -------------------------------- ----------- --------------
Leo .R. Jalenak (76) Director, Audit Indefinite Director, Audit Committee Two None
c/o Tennenbaum Capital Committee Member, Term. Served Member and Transactions
Partners, LLC, 2951 28th Transactions since July 31, Committee Member of the Fund;
Street, Suite 1000, Santa Committee Member 2006. Mr. Jalenak retired in 1993 as
Monica, California 90405 Chairman of a Gibson Greetings
Company. He previously served
as a Director of Party City,
Lufkin Industries, Perrigo
Company, Dyersburg
Corporation and First Funds.
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Franklin R. Johnson (69) Director, Audit Indefinite Director, Audit Committee Two Director, Audit
c/o Tennenbaum Capital Committee Member, Term. Served Member and Transactions Committee Committee Member
Partners, LLC, 2951 28th Transactions since July 31, Member of the Fund; Director, and Nominating and
Street, Suite 1000, Santa Committee Member 2006 Audit Committee Member and Governance
Monica, California 90405 Nominating and Governance Committee Member
Committee Member of Reliance of Reliance Steel
Steel & Aluminum Co.; formerly & Aluminum Co.
Director and Audit Committee
Member of Party City Corporation;
formerly, Chief Financial
Officer of Rysher Entertainment;
formerly, Price Waterhouse
employee.
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INTERESTED DIRECTORS AND OFFICERS
Number of
Term of Portfolios
Office and in Fund Other
Position(s) Length of Complex Directorships
Name, Age and Business Held With Time Principal Occupation(s) Overseen Held by
Address Registrant Served During Past 5 Years by Director Director
---------------------- -------------- ------------- -------------------------------- ----------- --------------
Howard M. Levkowitz (39) Director, Indefinite Term. Director, President and Four as None
c/o Tennenbaum Capital President and Served since Authorized Person of the Fund; Director;
Partners, LLC, 2951 28th Authorized July 31, 2006 Managing Partner and voting Five as
Street, Suite 1000, Santa Person member of the Investment President
Monica, California 90405 Committee of TCP; formerly,
attorney at Dewey Ballantine.
Peyman S. Ardestani (38) Chief Indefinite Term. Chief Financial Officer of the Five None
c/o Tennenbaum Capital Financial Served since Fund; formerly Vice President
Partners, LLC, 2951 28th Officer July 31, 2006 at Mellon Financial Corporation;
Street, Suite 1000, Santa Assistant Vice President at
Monica, California 90405 Trust Company of the West.
Hugh Steven Wilson (58) Chief Indefinite Term. Chief Executive Officer and Five Member of Board
Executive Served since Authorized Person of the Fund, of Directors of
Officer and July 31, 2006. Managing Partner of TCP; Pemco Aviation
Authorized formerly partner at Latham Group, Inc.
Person & Watkins;
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Mark K. Holdsworth (41) Authorized Indefinite Term. Authorized Person of the Fund; Five Director of
c/o Tennenbaum Capital Person Served since Managing Partner and voting International
Partners, LLC, 2951 28th July 31, 2006. member of the Investment Committee Wire Group,
Street, Suite 1000, Santa of TCP; Director of Pemco Aviation Inc.
Monica, California 90405 Group, Inc. and Chairman of its
Finance Committee; Director of
International Wire Group, Inc.;
formerly, Vice President,
Corporate Finance, of US Bancorp
Libra, a high-yield debt securities
investment banking firm; formerly,
generalist in Corporate Finance
at Salomon Brothers, Inc.;
formerly, Associate at a Los
Angeles real estate advisory firm.
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Jeevan B. Gore (32) Secretary Indefinite Term. Analyst at TCP; formerly, Five None
c/o Tennenbaum Capital Served since attorney at Latham & Watkins
Partners, LLC, 2951 28th October 19,
Street, Suite 1000, Santa 2006
Monica, California 90405
David A Hollander (45) Authorized Indefinite Term. Authorized Person of the Fund; Five None
c/o Tennenbaum Capital Person Served since Managing Director and General
Partners, LLC, 2951 28th July 31, 2006. Counsel of TCP; formerly,
Street, Suite 1000, Santa attorney O'Melveny & Myers LLP.
Monica, California
90405
Paul L. Davis (32) Chief Indefinite Term. Chief Compliance Officer of the
c/o Tennenbaum Capital Compliance Served since Fund; Chief Compliance Officer
Partners, LLC, 2951 28th Officer July 31, 2006 and VP Finance of TCP; formerly,
Street, Suite 1000, Santa Corporate Controller of a
Monica, California 90405 publicly traded stock brokerage;
formerly, Auditor with Arthur
Andersen, LLP.
Michael E. Tennenbaum (71) Authorized Indefinite Term. Authorized Person ot the Fund; Five Chairman of
c/o Tennenbaum Capital Person Served since Senior Managing Partner and Pemco Aviation
Partners, LLC, 2951 28th July 31, 2006. voting member of the Investment Group, Inc.;
Street, Suite 1000, Santa Committee of TPC; formerly, Chairman of the
Monica, California 90405 served for 32years in various Board of Anacomp,
capacities at Bear Stearns Inc.
including Vice Chairman,
Investment Banking.
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The Fund is authorized to pay each Director who is not an
"affiliated person" of the Fund, the Investment Manager or the Co-Manager the
following amounts for serving as a Director: (i) $50,000 a year; (ii) $5,000 for
each meeting of the Board of Directors or a committee thereof physically
attended by such Director; (iii) $5,000 for each regular meeting of the Board of
Directors or a committee thereof attended via telephone by such Director and
(iv) $1,000 for each special meeting of the Board of Directors or a committee
thereof attended via telephone by such Director. The Chairman of the Audit
Committee shall receive an additional $5,000 per year. Each Director will
also be entitled to reimbursement for all out-of-pocket expenses of such Director in attending each meeting of the Board of Directors of the Fund and any committee thereof.
18.2 See Item 18.1.
18.3 Not Applicable
18.4 Not Applicable
18.5 The Fund has established an Audit Committee, consisting of Franklin R. Johnson and Leo R. Jalenak, Jr. The Audit Committee is charged with providing informed, vigilant and effective oversight of the Fund's financial reporting processes and the internal controls that protect the integrity of the reporting process. The Audit Committee has had one meeting since the Closing Date.
The Fund has established a Transactions Committee, consisting of Franklin R. Johnson and Leo R. Jalenak, Jr. The Transactions Committee is charged with reviewing the co-investment of private placement securities by the Fund with any of the portfolios in the Fund Complex.
18.6 Prior to the Closing Date, Franklin R. Johnson was a director of Special Value Opportunities Fund, LLC, a registered investment company advised by TCP. Prior to the Closing Date, Leo R. Jalenak, Jr. was a director of Special Value Expansion Fund, LLC, a registered investment company advised by TCP.
18.7
------------------------ ---------------------------------- ---------------------------------
Name of Director Dollar Range of Equity Aggregate Dollar Range of
Securities in the Registrant(1) Equity Securities in All
Registered Investment Companies
Overseen by Director in Family
of Investment Companies(1)
------------------------ ---------------------------------- ---------------------------------
Franklin R. Johnson Not Applicable Not Applicable
------------------------ ---------------------------------- ---------------------------------
Leo R. Jalenak, Jr. Not Applicable Not Applicable
------------------------ ---------------------------------- ---------------------------------
Howard M. Levkowitz Not Applicable Not Applicable
------------------------ ---------------------------------- ---------------------------------
(1) The Fund was not in existence as of December 31, 2005.
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18.8 Not Applicable
18.9 Not Applicable
18.10 Not Applicable
18.11 Not Applicable
18.12 Not Applicable
18.13 Not Applicable
18.14 The Fund, the Investment Manager and the other registered funds which are clients of the Investment Manager have adopted a Consolidated Code of Ethics (the "Code of Ethics") in accordance with Rule 17j-1 under the 1940 Act and Rule 204A-1(a) under the Investment Advisers Act of 1940. Persons subject to the Code of Ethics are permitted to purchase securities, but such persons are generally not permitted to purchase or sell, directly or indirectly, any security in which such person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to such person's actual knowledge at the time of such purchase or sale is being considered for purchase or sale or being purchased or sold by the Fund or other clients of the Investment Manager, without the prior written approval of the Chief Compliance Officer of the Investment Manager or his designee. Persons subject to the Code of Ethics may not participate in securities transactions on a joint basis with the Fund or other clients of the Investment Manager. Persons subject to the Code of Ethics may not participate in initial public offerings or in private placements of securities unless cleared to do so by the Compliance Officer of the Investment Manager. Indirect interests and participation through investment in the Fund or interests in the Investment Manager or SVOF/MM are permitted.
The Co-Manager has also adopted a code of ethics which provides similar restrictions in relation to the Fund's investments on employees and affiliates of the Co-Manager involved in the Fund's investment program.
These codes of ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The codes of ethics are also available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, by electronic request, after paying a duplicating fee, at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
18.15 The Board of Directors of the Fund has delegated the voting of proxies for Fund securities to the Investment Manager pursuant to the Investment Manager's proxy voting guidelines. Under these guidelines, the Investment manager will vote proxies related to Fund securities in the best interests of the Fund and its shareholders. A copy of the Investment Manager's proxy voting procedures are attached as Exhibit S to this registration statement.
ITEM 19. CONTROL PERSONS AND
PRINCIPAL HOLDERS OF SECURITIES
19.1 None
19.2 Five Percent Owners.
--------------------------------------------------------------------------------
Name of Owner Address Percentage Percentage
Owned of Owned
Record Only Beneficially
Only
--------------------------------------------------------------------------------
Special Value c/o Tennenbaum Capital 100% 100%
Continuation Partners, LLC
Fund, LLC 2951 28th Street, Suite 1000
Santa Monica, CA 90405
--------------------------------------------------------------------------------
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Nieuw Amsterdam Receivables Corp. is the record and beneficial holder of 1,675 Series A Preferred Interests (25% of total outstanding); Variable Funding Capital Company LLC is the record and beneficial holder of 2512.5 Series A Preferred Interests (37.5% of total outstanding); Versailles Assets LLC is the beneficial holder 2512.5 Series A Preferred Interests (37.5% of total outstanding).
19.3 The officers and Directors of the Fund as a group own less than 1% of the equity securities of the Fund.
ITEM 20. INVESTMENT ADVISORY AND OTHER SERVICES
20.1-6 See Item 9 - Management.
20.7 The Fund's independent auditors are Ernst & Young LLP,
Five Times Square, New York, New York 10036. Ernst & Young LLP audits the Fund.
20.8 Not Applicable.
ITEM 21. PORTFOLIO MANAGERS
21.1 Other Accounts Managed. The TCP Voting Members of the Investment Committee will be primarily responsible for managing the Fund Investments. The TCP Voting Members of the Investment Committee of the fund are Michael E. Tennenbaum, Mark K. Holdsworth, Howard M. Levkowitz and Michael E. Leitner. The person designated by Babson, with the approval of TCP, as a voting member on the Investment Committee is Richard E. Spencer II.
As of June 30, 2006, Michael E. Tennenbaum, Mark K. Holdsworth and Howard M. Levkowitz managed the following client accounts:
Number of Assets Number of Accounts
Type of Account Accounts of Accounts Subject to a
Performance Fee
Registered Investment 2 $1,714 million 2
Companies
Other Pooled 7 $1,690 million 7
Investment Vehicles
Other Accounts 1 $1 million 1
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As of June 30, 2006, Richard E. Spencer II managed the following client accounts:
Number of Assets Number of Accounts
Type of Account Accounts of Accounts Subject to a
Performance Fee
Registered Investment 1 $1,275 million 1
Companies
Other Pooled 2 $910 million 2
Investment Vehicles
Other Accounts 0 $0 0
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The Investment Manager has built a professional working environment, a firm-wide compliance culture and compliance policies and procedures designed to treat all clients of the Investment Manager on a fair and equitable basis. The Investment Manager has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest. Nevertheless, the Investment Manager furnishes advisory services to numerous clients in addition to the Fund, and the Investment Manager may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which may pay higher fees to the Investment Manager, or with respect to which the portfolio managers may otherwise have an interest), which may be the same as or different from those made to the Fund. In addition, the Investment Manager, its affiliates and any officer, director, stockholder or employee may or may not have an interest in the investment opportunity whose purchase and sale the Investment Manager recommends to the Fund. Actions with respect to a particular investment opportunity may not be the same as actions which the Investment Manager, or any of its affiliates, or any officer, director, stockholder, employee or any member of their families may take with respect to the same or similar investment opportunity. Moreover, the Investment Manager may refrain from rendering any advice or services concerning a potential investment opportunity with respect to which any of the Investment Manger's (or its affiliates') officers, directors or employees may have a conflict of interest or with respect to which any such person possesses material non-public information.
The Investment Manager, its affiliates or their officers and employees serve or may serve as officers, directors, principals or advisors of entities that operate in the same or related lines of business or of investment funds managed by affiliates of the Investment Manager. Accordingly, these individuals and the Investment Manager may have obligations to those entities or funds or to other clients, the fulfillment of which might not be in the best interests of the Fund. The Investment Manager may face conflicts in the allocation of investment opportunities among the Fund and other clients. In order to enable the Investment Manager, its affiliates, officers and employees to fulfill
their fiduciary duties to each of the entities to which they may owe fiduciary duties, the Investment Manager will endeavor to allocate investment opportunities among the entities to which it owes fiduciary duties on a fair and equitable basis. An investment opportunity that is suitable for multiple clients of the Investment Manager and its affiliates may not be capable of being shared among some or all of such clients due to the limited scale of the opportunity or other factors, including regulatory restrictions imposed by the 1940 Act. There can be no assurance that the Investment Manager's or its affiliates' efforts to allocate any particular investment opportunity fairly among all clients for whom such opportunity is appropriate will result in an allocation of all or part of such opportunity to the Fund. Not all conflicts of interest can be expected to be resolved in favor of the Fund.
21.2 Compensation. Each of the Portfolio Managers except Mr. Tennenbaum receives a fixed salary from the Investment Manager. Additionally, each of the Portfolio Managers except Mr. Leitner receives fixed periodic distributions from the Investment Manager or the General Partner, and periodic pro rata distributions of the profits of the Investment Manager or the General Partner based on his equity interest therein. Such distributions include performance fees paid to the Investment Manager or the General Partner by two of the other registered investment companies and the separate account. Performance allocations from the other pooled investment vehicles are paid to the managing member or general partner of each such vehicle (together, the "Managing Members"). Each of the Portfolio Managers receives periodic pro rata distributions of the profits of the Managing Members, based on his equity interests therein. Mr. Leitner does not have equity interests in the Investment Manager and only has equity interests in one of the Managing Members. Mr. Tennenbaum receives all distributions from the Investment Manager and the Managing Members through Tennenbaum & Co., LLC ("TCO"), which holds Mr. Tennenbaum's equity interest in such entities. Mr. Tennenbaum is the managing member of TCO. Each of the Portfolio Manager is also eligible for a discretionary bonus paid by the Investment Manager based on an assessment by the Investment Manager of the Portfolio Manager's relative contribution to the Investment Manager's overall activities. TCO is reimbursed by the Investment Adviser, the Registrant, and/or one or more of the Other Accounts for the reasonable business use of a private aircraft. The Investment Manager pays a monthly rental fee to TCO for the use of certain personal property items.
21.3 Ownership of Securities. As of the date of this part B, none of the TCP Voting Members of the Investment Committee or Richard E. Spencer II, the Babson representative on the Investment Committee, beneficially owns any securities issued by the Fund; please see Form N-2 for the Feeder Fund for the ownership of securities in the Feeder Fund by such individuals.
ITEM 22. BROKERAGE ALLOCATION AND OTHER PRACTICES
22.1 See Item 9 - Management, above. Subject to the supervision of the Board of Directors, decisions to buy and sell securities and bank debt for the Fund and decisions regarding brokerage commission rates are made by the Investment Manager. Transactions on stock exchanges involve the payment by the Fund of brokerage commissions. In certain instances the Fund may make purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the Investment Manager will take the following into consideration: the best net price available; the reliability, integrity and financial condition of the broker; the size and difficulty in executing the order, and the value of the expected contribution of the broker to the investment performance of the Fund on a continuing basis. Accordingly, the cost of the brokerage commissions to the Fund in any transaction may be greater than that available from other brokers if the difference is reasonably justified by other aspects of the portfolio execution services offered. The extent to which the Investment Manager makes
use of statistical, research and other services furnished by brokers is considered by the Investment Manager in the allocation of brokerage business, but there is not a formula by which such business is allocated. The Investment Manager does so in accordance with its judgment of the best interests of the Fund and its shareholders. The Investment Manager may also take into account payments made by brokers effecting transactions for the Fund to other persons on behalf of the Fund for services provided to the Fund for which the Fund would be obligated to pay (such as custodial and professional fees).
One or more of the other investment funds or accounts which the Investment Manager manages may own from time to time some of the same investments as the Fund. When two or more companies or accounts seek to purchase or sell the same securities, the securities actually purchased or sold and any transaction costs will be allocated among the companies and accounts on a good faith equitable basis by the Investment Manager in its discretion in accordance with the accounts' various investment objectives, subject to the allocation procedures adopted by the Board of Directors related to privately placed securities (including an implementation of any co-investment exemptive relief obtained by the Fund and the Investment Manager). In some cases, this system may adversely affect the price or size of the position obtainable for the Fund. In other cases, however, the ability of the Fund to participate in volume transactions may produce better execution for the Fund. It is the opinion of the Board of Directors that this advantage, when combined with the other benefits available due to the Investment Manager's organization, outweighs any disadvantages that may be said to exist from exposure to simultaneous transactions.
22.2 None.
22.3 See response to Item 22.1.
22.4 None.
22.5 None.
ITEM 23. TAX STATUS
See response to Item 10.4.
ITEM 24. FINANCIAL STATEMENTS
Not Applicable.
PART C
ITEM 25. FINANCIAL STATEMENTS AND EXHIBITS
25.1 FINANCIAL STATEMENTS:
Not Applicable.
25.2 EXHIBITS:
The exhibits to this Registration Statement are listed in the Exhibit Index located elsewhere herein.
ITEM 26. MARKETING ARRANGEMENTS
None.
ITEM 27. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not Applicable.
ITEM 28. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH REGISTRANT
None.
ITEM 29. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Common Interests 1
Preferred Shares 3
ITEM 30. INDEMNIFICATION
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The Partnership Agreement provides that none of the Directors, the Investment Manager, the Co-Manager or their respective affiliates or any officer, director, member, manager, employee, stockholder, assign, representative or agent (including the placement agent) of any such person (the "Indemnified Persons") will be liable, responsible or accountable in damages or otherwise to the Fund or any Member for any loss, liability, damage, settlement, costs, or other expense (including reasonable attorneys' fees) incurred by reason of any act or omission or any alleged act or omission performed or omitted by such person, in connection with the establishment, management or operations of the Fund or the Fund Investments (including in connection with serving on creditors' committees and boards of directors for companies in the Fund Investments portfolio) unless such act or failure to act arises out of Disabling Conduct.
The Partnership Agreement also provides that the Fund will indemnify the Indemnified Persons with respect to any act or omission described above as long as (i) such person's activities do not constitute Disabling Conduct and (ii) there has been a determination (a) by a final decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification was brought that such indemnitee is entitled to indemnification or, (b) in the absence of such a decision, by (1) a majority vote of a quorum of those Directors who are neither "interested persons" of the Fund (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (the "Disinterested Non-Party Directors"), that the indemnitee is entitled to indemnification, or (2) if such quorum is not obtainable or even if obtainable, if such majority so directs, independent legal counsel in a written opinion concludes that the indemnitee should be entitled to indemnification.
All determinations to make advance payments in connection
with the expense of defending any proceeding shall be authorized and made as
follows. The Fund shall make advance payments in connection with the expenses
of defending any action with respect to which indemnification might be sought
if the Fund receives a written affirmation by the indemnitee of the
indemnitee's good faith belief that the standards of conduct necessary for
indemnification have been met and a written undertaking to reimburse the Fund
unless it is subsequently determined that the indemnitee is entitled to such
indemnification and if a majority of the Directors determine that the
applicable standards of conduct necessary for indemnification appear to have
been met. In addition, at least one of the following conditions must be met:
(i) the indemnitee shall provide adequate security for the undertaking, (ii)
the Fund shall be insured against losses arising by reason of any lawful
advances, or (iii) a majority of a quorum of the Disinterested Non-Party
Directors, or if a majority vote of such quorum so direct, independent legal
counsel in a written opinion, shall conclude, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is
substantial reason to believe that the indemnitee ultimately will be found
entitled to indemnification. The rights accruing to any indemnitee under these
provisions shall not exclude any other right which any person may have or in
the future acquire under the Operating Agreement, any statute, agreement, vote
of the shareholders of the Fund or Directors who are "disinterested persons"
(as defined in Section 2(a)(19) of the 1940 Act) or any other right to which he
or she may be lawfully entitled.
Subject to any limitations provided by the 1940 Act and the Partnership Agreement, the Fund shall have the power and authority to indemnify and provide for the advance payment of expenses to employees, agents and other persons providing services to the Fund or serving in any capacity at the request of the Fund to the full extent corporations organized under the Delaware General Corporation Law may indemnify or provide for the advance payment of expenses for such persons, provided that such indemnification has been approved by a majority of the Directors.
A successful claim for indemnification could reduce the Fund's assets available for distribution to the Fund's shareholders.
ITEM 31. BUSINESS AND OTHER
CONNECTIONS OF INVESTMENT ADVISER
For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and directors of the Adviser, reference is made to the Adviser's current Form ADV, which shall be filed under the Investment Advisers Act of 1940, and incorporated herein by reference upon filing.
ITEM 32. LOCATION OF ACCOUNTS AND RECORDS
The address of the Investment Manager and the location of the
Fund's accounts and records is TCP, 2951 28th Street, Suite 1000, Santa Monica,
CA 90405. TCP's telephone number is (310) 566-1000, and its facsimile number is
(310) 566-1010.
ITEM 33. MANAGEMENT SERVICES
Except as described above in Item 9 - Management, the Fund is not a party to any management service related contract.
ITEM 34. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, as of the 31st day of October, 2006.
Special Value Continuation Partners, LP
(Registrant)
Name Title
---- -----
/s/ Howard M. Levkowitz President
--------------------------------------
Howard M. Levkowitz
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SCHEDULE OF EXHIBITS TO FORM N-2
Exhibit Exhibit Number Exhibit A.......... Partnership Agreement Exhibit B.......... Not Applicable Exhibit C.......... None Exhibit D ......... Statement of Preferences of Preferred Interests Exhibit E.......... None Exhibit F.......... Not Applicable Exhibit G-1........ Investment Management Agreement Exhibit G-2 ....... Co-Management Agreement Exhibit H.......... Not Applicable Exhibit I.......... None Exhibit J.......... Custodial Agreement Exhibit K-2 ....... Pledge and Intercreditor Agreement Exhibit L.......... Not Applicable Exhibit M.......... None Exhibit N.......... Not Applicable Exhibit O.......... Not Applicable Exhibit P.......... None Exhibit Q.......... None Exhibit R.......... Consolidated Code of Ethics Exhibit S ......... Proxy Voting Policy |
Exhibit A
PARTNERSHIP AGREEMENT
OF
SPECIAL VALUE CONTINUATION PARTNERS, LP
a Delaware Limited Partnership
Dated as of July 31, 2006
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINED TERMS.......................................................1
SECTION 2. LIMITED PARTNERSHIP FORMATION AND IDENTIFICATION...................10
2.1 Formation...................................................10
2.2 Name and Place of Business..................................10
2.3 Records of Partners.........................................10
2.4 Limited Partnership.........................................10
SECTION 3. PURPOSE, NATURE OF BUSINESS AND POWERS.............................11
SECTION 4. TERM...............................................................11
SECTION 5. PARTNERSHIP INTERESTS..............................................11
5.1 Capital Accounts............................................11
5.2 Classes and Series..........................................12
5.3 Issuance of Interests.......................................12
5.4 Rights of Partners..........................................12
SECTION 6. REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS.................13
SECTION 7. CAPITAL ACCOUNTS AND ALLOCATIONS...................................13
7.1 Capital Contributions of Partners...........................13
7.2 Withdrawal of Capital.......................................13
7.3 Capital Accounts............................................14
7.4 Allocations in General......................................15
7.5 Allocation of Net Profit and Net Loss.......................15
7.6 Corrective Adjustments......................................17
7.7 Special Allocations.........................................17
7.8 Adjustments to Reflect Changes in Interests.................18
7.9 Allocation of Taxable Income and Loss.......................18
7.10 Guaranteed Payments.........................................19
7.11 Allocation of Nonrecourse Deductions........................19
7.12 Allocation of Partner Nonrecourse Deductions................19
7.13 Excess Nonrecourse Liabilities..............................19
7.14 Treatment of Certain Distributions..........................19
SECTION 8. DISTRIBUTIONS......................................................20
8.1 Distributions...............................................20
8.2 Withholding.................................................21
SECTION 9. MANAGEMENT, GENERAL PARTNER AND BOARD OF DIRECTORS.................22
9.1 Management Generally........................................22
9.2 Board of Directors..........................................23
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9.3 Expenses of the Company.....................................25
9.4 Partners' Consent...........................................26
9.5 Exculpation.................................................27
9.6 Indemnification; No Duty of Investigation; Reliance on
Experts.....................................................27
9.7 Director Limited Liability..................................29
9.8 Certain Other Activities....................................29
9.9 Tax Matters.................................................30
SECTION 10. PARTNERS..........................................................31
10.1 Identity and Contributions..................................31
10.2 No Management Power or Liability............................31
10.3 Amendments..................................................31
10.4 Merger, Consolidation, Liquidation..........................33
10.5 List of Partners............................................34
10.6 Limitations.................................................34
10.7 Meetings....................................................34
10.8 Action Without a Meeting....................................35
10.9 Procedures..................................................35
10.10 Voting......................................................35
10.11 Removal of the General Partner..............................37
SECTION 11. ADMISSION OF ADDITIONAL PARTNERS; ASSIGNMENTS OR TRANSFERS OF
INTERESTS.........................................................37
11.1 Admission of Additional Partners............................37
11.2 Assignments or Transfers of Interests.......................37
SECTION 12. POWER OF ATTORNEY.................................................40
12.1 Appointment of General Partner..............................40
12.2 Nature of Special Power.....................................41
SECTION 13. BOOKS, RECORDS AND REPORTS........................................41
13.1 Books.......................................................41
13.2 Reports.....................................................42
SECTION 14. VALUATION OF ASSETS AND INTERESTS.................................43
SECTION 15. BANK ACCOUNTS; CUSTODIAN..........................................43
15.1 Bank Accounts Generally.....................................43
15.2 Custodian...................................................44
SECTION 16. DISSOLUTION AND TERMINATION OF THE COMPANY........................44
16.1 Dissolution Generally.......................................44
16.2 Continuation of Company.....................................44
16.3 Events Causing Dissolution..................................44
16.4 Distribution of Assets on Liquidation.......................45
16.5 Liquidation Statement.......................................45
16.6 Director's Liability Upon Dissolution or Removal............46
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SECTION 17. GENERAL PROVISIONS................................................46
17.1 Notices and Distributions...................................46
17.2 Survival of Rights..........................................46
17.3 Construction................................................47
17.4 Section Headings............................................47
17.5 Agreement in Counterparts...................................47
17.6 Governing Law...............................................47
17.7 Additional Documents........................................47
17.8 Severability................................................47
17.9 Pronouns....................................................48
17.10 Entire Agreement............................................48
17.11 Arbitration.................................................48
17.12 Waiver of Partition.........................................48
17.13 Non-Petition Covenant.......................................48
17.14 Filing......................................................48
Appendix A Statement of Preferences of Series A Cumulative Preferred
Interests..................................................A-1
Appendix B Form of Notice of Transfer.................................B-1
Appendix C Schedule of Partners.......................................C-1
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SPECIAL VALUE CONTINUATION PARTNERS, LP
A Delaware Limited Partnership
PARTNERSHIP AGREEMENT
This Agreement, dated as of July 31, 2006 (this "Agreement"), when executed by Special Value Continuation Fund, LLC (the "Parent") as limited partner and by SVOF/MM, LLC (the "General Partner") as general partner, shall be the partnership agreement of the Company.
Upon the terms and subject to the conditions described below, the parties to this Agreement, which shall include all Persons becoming Partners at any time, as a condition of becoming and for so long as they remain partners, agree as follows:
SECTION 1.
DEFINED TERMS
The terms set forth below shall have the indicated meanings.
"Accounting Period" means a one year period commencing on the first day of the Fiscal Year, or any period of shorter duration commencing upon the day following the last day of the preceding Accounting Period and terminating upon the earlier of (a) the last day of the then current Fiscal Year or (b) the day preceding the effective date of any change in the relative Interests of the Partners, a Transfer by any Partner of its Interest or any other similar transaction or event, as determined by the General Partner in its sole discretion; provided, however, that the first Accounting Period shall extend from the Closing Date until no later than December 31, 2006.
"Adjusted Capital Account" means, with respect to the Capital Account of any Partner, the balance, if any, in such Partner's Capital Account as of the end of the relevant Accounting Period, after giving effect to all allocations made with respect to such Accounting Period under Sections 7.5-7.8 and to the following adjustments:
(i) credit to such Capital Account any amount that the Partner is obligated to restore pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to Treasury Regulations Section 1.704-2(g)(1) or 1.704-2(i)(5); and
(1) debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) that are attributable to such Capital Account.
The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Advisers Act" means the Investment Advisers Act of 1940 and the rules and regulations promulgated thereunder and applicable exemptions granted therefrom, as amended from time to time.
"Advisory Agreement" means the Investment Management Agreement between the Company and the Investment Manager, dated on or about the Closing Date, as such agreement may be amended, modified, revised or restated, from time to time, in accordance with the terms hereof and thereof, and any substantially similar agreement with a successor Investment Manager permitted by the terms hereof and thereof.
"Advisory Fee" means the fee payable to the Investment Manager under the Advisory Agreement.
"Affiliated Person" has the meaning set forth in the Investment Company Act.
"Aggregate Net Loss" means, as calculated from time to time, the excess (if any) of the aggregate Net Loss for the then current and all previous Accounting Periods over the aggregate Net Profit for the then current and all previous Accounting Periods, taking into account adjustments under Section 7.5(b).
"Aggregate Net Profit" means, as calculated from time to time, the excess (if any) of the aggregate Net Profit for the then current and all previous Accounting Periods over the aggregate Net Loss for the then current and all previous Accounting Periods, taking into account adjustments under Section 7.5(b).
"Agreement" means this Partnership Agreement, as originally executed and as amended from time to time.
"Assets" means all cash, Cash Equivalents, securities, investments and other property and assets of any type of the Company.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or any other day on which banks in New York, New York or Los Angeles, California are required by law to be closed. All references to Business Day herein shall be based on the time in New York, New York.
"Capital Contribution" means a contribution to the Company in cash or in kind by a Partner or Person becoming a Partner or by any predecessor holder of the interests held by such Partner.
"Catch-up Amount" has the meaning set forth in Section 8.1(b)(iii).
"Cash Equivalents" has the meaning assigned to such term in the Credit Agreement; provided that if the Credit Agreement is terminated without replacement, such term shall have the meaning assigned to it in the relevant Statement of Preferences (or if the Statement of Preferences has been terminated, those provisions in effect on the date of such termination).
"Certificate" means the Certificate of Limited Partnership of the Company, filed with the Secretary of State on July 17, 2006, and any and all amendments thereto and restatements thereof filed with the Secretary of State.
"Closing Date" means the date as of which the transactions contemplated by the Contribution Agreement among Special Value Bond Fund II, LLC, Special Value Absolute Return Fund, LLC and the Company shall have occurred.
"Co-Advisory Agreement" means the Co-Management Agreement among the Company, the Co-Manager and the Investment Manager, dated on or about the Closing Date, as such agreement may be amended, modified, revised or restated, from time to time, in accordance with the terms hereof and thereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
"Co-Manager" means Babson Capital Management, LLC in its capacity as co-investment manager to the Company and any successor thereto selected in accordance with the Co-Advisory Agreement and the Investment Company Act.
"Common Partner" means a Partner holding Common Interests of the Company.
"Common Interests" means the common limited partner interests of the Company having the rights and other terms set forth in this Agreement.
"Company" means Special Value Continuation Partners, LP, a Delaware limited partnership, as it may from time to time be constituted.
"Cost Basis" means, as of any time of determination with respect to any Asset, the Company's adjusted tax basis in that Asset at such time as determined for federal income tax purposes; provided, however, that if the Company has made an election under Section 754 of the Code, such tax basis shall be determined after giving effect to adjustments made under Section 734 of the Code but (except as provided in Treasury Regulation Section 1.734-2(b)(1)) without regard to adjustments made under Section 743 of the Code.
"Credit Agreement" means (a) the Credit Agreement, dated on or about the Closing Date, by and among the Company, the Parent, certain lenders party thereto and the arranger and administrative agent therefor, as the same may be amended, modified, restated, supplemented, refinanced, extended, refunded or replaced (in whole or in part) (including with lenders other than the initial lenders) from time to time and (b) any related agreements or instruments in respect of any amendment, modification, restatement, supplement, refinancing, extension, refunding or replacement of senior indebtedness (including one or more replacement credit agreements).
"Custodial Account" means one or more segregated accounts maintained pursuant to the requirements of the Investment Company Act and other applicable law to hold the Assets.
"Custodian" means an entity which maintains the Custodial Account pursuant to the requirements of the Investment Company Act and other applicable law.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del. C. ss.17-101, et seq.), as amended from time to time and any successor thereto.
"Director" means each director of the Company who at the time in question has been duly elected or appointed and has qualified as a director in accordance with the provisions hereof and is then in office.
"Disabling Conduct" shall have the meaning set forth in
Section 9.5.
"Disinterested Non-Party Directors" shall have the meaning set forth in Section 9.6.
"Excess Nonrecourse Liabilities" means excess nonrecourse liabilities within the meaning of Treasury Regulations ss. 1.752-3(a)(3).
"Fiscal Quarter" means a three calendar month period ending
March 31, June 30, September 30 or December 31 of a Fiscal Year.
"Fiscal Year" means the Company's fiscal year, which shall
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end on each December 31 unless otherwise determined by the Board of Directors.
"General Partner" means SVOF/MM, LLC, a Delaware limited liability company.
"Hurdle" has the meaning set forth in Section 8.1(b)(ii).
"Incapacity" or "Incapacitated" means, as to any Person, the bankruptcy, insolvency, death, disability, adjudication of incompetence or insanity, dissolution or termination, as the case may be, of such Person.
"Indemnified Person" shall have the meaning assigned to such term in Section 9.5.
"Independent Director" means a Director that is not an Interested Person.
"Interested Person" has the meaning given to such term in the Investment Company Act.
"Interests" means the Common Interests and the Preferred Interests issued by the Company.
"Investment Company Act" means the Investment Company Act of 1940 and the rules and regulations promulgated thereunder and applicable exemptions granted therefrom, as amended from time to time.
"Investment Manager" means Tennenbaum Capital Partners, LLC, a Delaware limited liability company, in its capacity as investment manager to the Company, and any successor thereto selected in accordance with the Advisory Agreement and the Investment Company Act.
"Investment Period" means the period commencing on the Closing Date and ending on July 31, 2016.
"Manager Affiliate" has the meaning set forth in Section 9.8.
"Net Asset Value" means the value of the Assets less the liabilities of the Company and less the liquidation preference of any Preferred Interests, calculated pursuant to Section 14 in accordance with generally accepted accounting principles and in compliance with the Investment Company Act.
"Net Loss" means any realized and unrealized net decrease in the net asset value of the Company (after liabilities of any sort (whether contingent or otherwise), guaranteed payments and expenses of any sort) from the beginning of an Accounting Period to the end of such Accounting Period (determined in accordance with U.S. generally accepted accounting principles consistently applied), excluding from such calculation any increase due to any Capital Contributions made during such Accounting Period and any decrease due to any distributions or withdrawals made during such Accounting Period.
"Net Profit" means any realized and unrealized net increase in the net asset value of the Company (after liabilities of any sort (whether contingent or otherwise), guaranteed payments and expenses of any sort) from the beginning of a Accounting Period to the end of such Accounting Period (determined in accordance with U.S. generally accepted accounting principles consistently applied), excluding from such calculation any increase due to any Capital Contributions made during such Accounting Period and any decrease due to any distributions or withdrawals made during such Accounting Period.
"Nonrecourse Deduction" means a nonrecourse deduction determined pursuant to Treasury Regulations ss. 1.704-2(c).
"Nonrecourse Distribution" means a distribution to a Partner that is allocable to a net increase in Company Minimum Gain pursuant to Treasury Regulations ss. 1.704-2(h)(1).
"Nonrecourse Liability" has the meaning assigned to it in Treasury Regulations ss. 1.704-2(b)(3).
"Notice of Transfer" means a Notice of Transfer in the form of Appendix B, including the certifications forming a part thereof.
"Offering Memorandum" means the Confidential Private Offering Memorandum, dated May, 2006, relating to the common shares of the Parent, as amended or supplemented from time to time.
"Other Accounts" has the meaning set forth in Section 9.8.
"Parent" has the meaning set forth in the preamble.
"Partially Adjusted Capital Account" means with respect to any Partner as of the last day of any Accounting Period, the Capital Account of such Partner as of the beginning of the Accounting Period ending on such date, adjusted as set forth in Section 7.3 to reflect (a) all contributions made by and distributions made to such Partner during the Accounting Period ending on such date and (b) all allocations of items of Company income, gain, loss or expense made for such Accounting Period pursuant to Sections 7.5-7.8, but (c) before giving effect to any allocation of Net Profit or Net Loss made for such Accounting Period pursuant to Section 7.5.
"Partner" means any Person that is admitted as a Common Partner, Preferred Partner or General Partner of the Company in accordance with the terms of this Agreement at the time of reference thereto.
"Partner Nonrecourse Debt" means any liability of the Company to the extent that (i) the liability is nonrecourse for purposes of Treasury Regulations ss. 1.1001-2 and (ii) a Partner or a Related Person bears the economic risk of loss under Treasury Regulations ss. 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" means minimum gain attributable to Partner Nonrecourse Debt pursuant to Treasury Regulations ss. 1.704-2(i)(2).
"Partner Nonrecourse Deduction" means any item of Book loss or deduction that is attributable to a Partner Nonrecourse Debt pursuant to Treasury Regulations ss. 1.704-2(i).
"Partner Nonrecourse Distribution" means a distribution to a Partner that is allocable to a net increase in such Partner's share of Partner Nonrecourse Debt Minimum Gain pursuant to Treasury Regulations ss. 1.704-2(i)(6).
"Person" means any human being, partnership, limited liability company, corporation, trust or other entity.
"Portfolio Company" means any Person that has issued any securities or incurred any obligations that are then owned, or that previously were owned, by the Company.
"Preferred Partner" means a Partner holding Preferred Interests of the Company.
"Preferred Interests" means the preferred limited partner interests of the Company having the rights and other terms set forth in the Statement of Preferences for the applicable series thereof, including without limitation any Series A Preferred Interests.
"Previously Undistributed Net Profit" means, as calculated from time to time, the excess, if any, of (i) Aggregate Net Profit over (ii) the aggregate amount of distributions pursuant to Section 8.1(b) made prior to the time of calculation.
"Secretary of State" means the Secretary of State of the State of Delaware.
"Section 8.1 Percentage" means a percentage interest from
time to time for each Partner as follows: (i) 100% for the Common Partners
(pro rata in accordance with their relative Capital Account balances) to the
extent that the Hurdle has not been met; (ii) thereafter, 100% to the General
Partner until the General Partner has received all amounts due it pursuant to
Section 8.1(b)(iii) of this Agreement; and (iii) at all other times, 80% to
the Common Partners (pro rata in accordance with their relative Capital
Account balances), and 20% to the General Partner.
"Section 705(a)(2)(B) Expenditures" means non-deductible expenditures of the Company that are described in Section 705(a)(2)(B) of the Code, and organization and syndication expenditures and disallowed losses to the extent that such expenditures or losses are treated as expenditures described in Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations ss. 1.704-1(b)(2)(iv)(i).
"Securities Act" means the Securities Act of 1933 and the rules and regulations promulgated thereunder and applicable exemptions granted therefrom, as amended from time to time.
"Series A Preferred Interests" means the Series A Cumulative Preferred Interests of the Company, the Statement of Preferences of which is attached hereto as Appendix A.
"Statement of Preferences" means any statement of preferences setting forth the rights and other terms of any Preferred Interests issued by the Company.
"Substituted Partner" means any Person admitted as a Partner pursuant to Section 11.2(b).
"Target Capital Account" means, with respect to any Partner as of the last day of any Accounting Period, an amount (which may be either a positive or a deficit balance) equal to the amount that such Partner would receive as a distribution if all assets held by the Company on such date were sold for an aggregate amount of cash equal to the fair market value (as computed for Capital Account purposes as of such last day of such Accounting Period) of such assets, all liabilities were satisfied in accordance with their terms and all remaining cash were distributed to the Partners in accordance with the relevant provisions of Section 8 (computed after the contributions received and distributions made by the Company during the Accounting Period ending on such date have been taken into account as provided in Section 7.3).
"Tax Matters Partner" means the General Partner in its capacity as the "tax matters partner" pursuant to Section 9.9(a).
"Transaction Documents" has the meaning assigned to such term in the Credit Agreement.
"Transfer" or "Transferred" means, with respect to any legal or beneficial interest in the Company, a direct or indirect sale, transfer, assignment, gift, pledge, hypothecation or other disposition or encumbrance of any nature of or on such interest, whether by operation of law or otherwise (including a transfer as a result of a merger or consolidation involving a Partner or a sale of all or substantially all of a Partner's assets).
"Transferee" means, with respect to any legal or beneficial interest in the Company, the Person to whom the Transferor of such interest desires to Transfer or has Transferred such interest.
"Transferor" means, with respect to any legal or beneficial interest in the Company, the Partner or other Person desiring to Transfer such interest.
"Treasury Regulations" means the United States Treasury regulations promulgated under the Code.
"Valuation Date" means (i) the last Business Day of each Fiscal Quarter, (ii) a date selected by the Company within 48 hours prior to each issuance (exclusive of Sundays and holidays) of Common Interests by the Company, (iii) each distribution declaration date (after giving effect to the relevant declaration), (iv) the date on which the Company terminates, and (v) such other dates as determined by the Board of Directors, in accordance with the valuation policies and guidelines approved from time to time by the Board of Directors.
SECTION 2.
LIMITED PARTNERSHIP FORMATION AND IDENTIFICATION
2.1 Formation
The Company has been formed as a limited partnership pursuant to the Delaware Act by the filing of the Certificate with the Secretary of State, Division of Corporations, in accordance with the Delaware Act on July 17, 2006. The Company is hereby continued under, and its business and affairs shall be conducted in accordance with, the Delaware Act, and this Agreement shall be governed by the laws of the State of Delaware. Common Partners shall be admitted as Partners of the Company upon the Closing Date and upon any approved Transfer. Preferred Partners shall be admitted as Partners of the Company pursuant to the provisions of the applicable Statement of Preferences.
2.2 Name and Place of Business
The name of the Company shall be "Special Value Continuation Partners, LP" or such other name or names as may be selected by the General Partner from time to time with written notice given to the Partners of such change. The principal office of the Company shall be at the principal place of business of the General Partner at 2951 28th Street, Suite 1000, Santa Monica, California 90405, or other or additional places of business as may be selected from time to time by the Company.
2.3 Records of Partners
The addresses and schedules of capital accounts and other matters related to the Partners shall be those set forth in the Company records. A Partner may change its address by written notice to the Company, in care of the General Partner, at the address set forth in Section 2.2.
2.4 Limited Partnership
The Company has been formed as a limited partnership under and pursuant to the Delaware Act. The Board of Directors and the Partners specifically intend and agree that the Company shall, for purposes of the Code and state tax laws, be classified as a partnership and none of them shall make any election or take any other action that would cause their relationship under this Agreement to be excluded from the application of all or any part of Subchapter K of the Code (or any successor provisions). The Partners specifically intend and agree that the Company shall be a limited partnership pursuant to the Delaware Act and not any other type of venture.
SECTION 3.
PURPOSE, NATURE OF BUSINESS AND POWERS
(a) The purposes of the Company and the business to be carried on by it, subject to the limitations contained elsewhere in this Agreement, are to engage in any business lawful for a corporation or partnership formed under the laws of the State of Delaware, including to act as an investment company.
(b) The Company shall have the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purposes and business described herein and for the protection and benefit of the Company, and shall have, without limitation, any and all of the powers of a partnership organized under the laws of the State of Delaware.
(c) All property owned by the Company, real or personal, tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Partner or Director, individually, shall have any ownership of such property.
SECTION 4.
TERM
The existence of the Company commenced on the date the Certificate was filed in the Office of the Secretary of State and shall continue in full force and effect until the end of the Investment Period, plus up to two one-year extensions if requested by the General Partner and approved by Common Partners holding a majority of the Common Interests.
SECTION 5.
PARTNERSHIP INTERESTS
5.1 Capital Accounts
A capital account ("Capital Account") shall be established for each Partner and shall initially equal the Capital Contribution of such Partner, which shall be equal to the aggregate amount of cash contributed by such Partner to the Company plus the fair market value of property contributed by such Partner to the Company (net of any liabilities secured by such property that the Company is considered to assume or take subject or pursuant to Section 752 of the Code), minus the amount of money and the fair market value of property, if any, distributed to such Partner by the Company (net of any liabilities secured by such property that such Partner is considered to assume or take subject or pursuant to Section
752 of the Code) in connection with the Capital Contribution. Each such Capital Account shall be adjusted in accordance with the provisions of Section 7.
5.2 Classes and Series
The General Partner shall have the authority, with the approval of the Directors and without the approval of any other Partners of the Company, create, classify or reclassify one or more classes of Interests and one or more series of any or all of such classes, each of which classes and series thereof shall have such designations, powers, preferences, voting, conversion and other rights, limitations, qualifications and terms and conditions as the General Partner with the approval of the Directors shall determine from time to time with respect to each such class or series; provided, however, that no reclassification of any existing Interests and no modifications of any of the designations, powers, preferences, voting, conversion or other rights, limitations, qualifications and terms and conditions of any existing Interests may be made by the General Partner without the affirmative vote of the Partners specified in Section 10.3 to the extent required thereby and the satisfaction of any conditions to such reclassification as set forth in the applicable Statement of Preferences. The designations, powers, preferences, voting, conversion and other rights, limitations, qualifications and terms and conditions of the Series A Preferred Interests in the form of the Statement of Preferences therefor are attached as Appendix A.
5.3 Issuance of Interests
(a) Subject to Section 5.3(b), the General Partner, in its discretion, may from time to time without vote of the Partners issue Interests of any class or any series of any such class to such Person or Persons and for such amount and type of consideration, including cash or property, at such time or times, and on such terms as the General Partner with the approval of the Directors may determine, and may in such manner acquire other assets (including the acquisition of assets subject to, and in connection with the assumption of, liabilities) and businesses.
(b) Number of Holders. The aggregate number of Partners at no time shall exceed 95 "partners", as determined for purposes of ss.1.7704-1(h) of the Treasury Regulations. Each Holder of a Preferred Unit and a Common Membership Interest must (i) be a "United States Person" (as defined in Section 7701(a)(30) of the Code), or (ii) represent to the Company that it holds its Interest in the Company in connection with its conduct of a trade or business within the United States, as determined for U.S. federal income tax purposes, and provide the Company with a properly executed IRS Form W-8 ECI with respect to its acquisition of its interest in the company upon becoming a Partner and at such subsequent times as required by law or as the Company may reasonably request.
5.4 Rights of Partners
The Interests shall be personal property giving
only the rights specifically set forth in this Agreement.
The ownership of the Assets of every description is vested in the Company. The
right to conduct and supervise the conduct of the business of the Company is
vested exclusively in the General Partner, subject to the rights of the
Directors specified herein or required by the Investment Company Act (subject
to the right of the General Partner and Board of Directors to delegate all or any part of their authority to any person or group of persons, including, without limitation, the Investment Manager), and the Partners shall have no interest therein other than the beneficial interest conferred by their Interests, and they shall have no right to call for any partition or division of any property, profits, rights or interests of the Company nor can any Partner (other than the General Partner) be called upon to share or assume any losses of the Company or suffer an assessment of any kind by virtue of their ownership of Interests. No Interests of any class or series shall entitle the holder to preference, preemptive, appraisal, conversion or exchange rights (except as otherwise specified in this Agreement or as specified by the General Partner in the designation or redesignation of any such class or series).
SECTION 6.
REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS
The Corporation Trust Company is hereby designated, subject to change by the General Partner, as the registered office of the Company and as the agent upon whom process issued by authority of or under any law of the State of Delaware may be served.
SECTION 7.
CAPITAL ACCOUNTS AND ALLOCATIONS
7.1 Capital Contributions of Partners
(a) Prior to being admitted as a Partner of the Company at the Closing Date, the initial Common Partner must satisfy the General Partner that it and each of its equity holders that is indirectly charged the amounts allocated to the General Partner pursuant to Section 7.3(c) is an "accredited investor" as defined in Rule 501(a) under the Securities Act and a "qualified client" within the meaning of Rule 205-3 of the Advisers Act and on the Closing shall be deemed to have contributed to the Company all of the Company's Net Asset Value on the Closing Date. On the date of issuance of any Preferred Interests, the Person who is admitted as a Partner in respect of such Preferred Interest in accordance with the applicable Statement of Preferences shall, in connection therewith, contribute to the Company an amount in cash equal to the purchase price for such Preferred Interest.
7.2 Withdrawal of Capital
No Partner shall have any right to withdraw from the Company except in connection with the admission of one or more Transferees of all of such Partner's Interests in the Company. No Partner shall have any right to require the Company to repurchase or redeem all or any portion of its Interests except as provided in or pursuant to any Statement of Preferences.
7.3 Capital Accounts
(a) Without limiting the generality of the foregoing and subject to paragraphs (b), (c), (d) and (e) below and to Section 7.8, the Capital Account maintained for each Partner shall initially have a balance equal to the Capital Contribution made by such Partner to the Company; thereafter, such balance will be increased by the aggregate amount of Net Profit and other items of income and gain allocated to such Partner pursuant to Sections 7.4-7.8; decreased by the aggregate amount of distributions made by the Company to such Partner; decreased by the aggregate amount of Net Loss and other items of deduction, expenditure and loss allocated to such Partner pursuant to Sections 7.4-7.8. In crediting or debiting a Partner's Capital Account, whether in connection with its Capital Contribution or thereafter, the Capital Account balance shall be (i) increased by the amount of any liability of the Company that the Partner assumes (within the meaning of Treasury Regulations ss. 1.704-1(b)(2)(iv)(c)) (excluding liabilities assumed in connection with the distribution of Company property and excluding increases in such Partner's share of Company liabilities pursuant to Section 752 of the Code) and (ii) decreased by the amount of any individual liability of such Partner's for which the Company becomes personally and primarily liable (excluding liabilities assumed in connection with the contribution of property to the Company by such Partner and excluding decreases in such Partner's share of Company liabilities pursuant to Section 752 of the Code).
(b) The General Partner may adjust the Partners' Capital Accounts in accordance with, and upon the occurrence of an event described in Treasury Regulations Section 1.704-1(b)(2)(iv)(f) including but not limited to the addition of new Partners, to reflect a revaluation of the Company's assets on the Company's books. Such adjustments to the Partners' Capital Accounts shall be made in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss with respect to such revalued property.
(c) Except as may be required by the Delaware Act or any other applicable law, no Partner with a negative balance in its Capital Account shall have any obligation, in connection with the liquidation of the Company or otherwise, to restore such negative balance.
(d) Upon any Transfer (other than a pledge or hypothecation) of an interest in the Company, a proportionate share of the Capital Account of the Transferor shall be transferred to the Transferee, and the Transferee shall be deemed to have made the contributions that were made by the Transferor and to have received the distributions and allocations that were received by the Transferor from the Company, in each case to the extent of the interest transferred.
(e) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b)(2)(iv), as amended, and shall be interpreted and applied in a manner consistent with such Treasury Regulations. The General Partner shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with the Treasury Regulations promulgated under Section 704 of the Code.
7.4 Allocations in General
Company income, gain, loss and expense shall be allocated to the Capital Accounts of the Partners in accordance with Sections 7.5-7.9.
7.5 Allocation of Net Profit and Net Loss
The General Partner shall seek to determine and allocate all items of profit, gain, loss and deductions, as described below, with respect to each Accounting Period of the Company within 45 days after the end of each Accounting Period other than any Accounting Period ending on the last day of the Fiscal Year and within 60 days after the end of each Fiscal Year. After giving effect to the special allocations set forth in Sections 7.6, 7.7 and 7.8, the Net Profit or Net Loss of the Company for such Accounting Period shall be allocated to the Capital Accounts of the Partners as follows:
(a) Net Profit and Net Loss of the Company shall be allocated among the Partners so as to reduce proportionately (i) in the case of Net Profit, the difference between their respective Target Capital Accounts and Partially Adjusted Capital Accounts as of the end of such Accounting Period, or (ii) in the case of Net Loss, the difference between their respective Partially Adjusted Capital Accounts and Target Capital Accounts as of the end of such Accounting Period. No portion of the Company's Net Profit or Net Loss for any Accounting Period shall be allocated to any Partner, in the case of Net Profit, whose Partially Adjusted Capital Account is greater than or equal to its Target Capital Account or, in the case of Net Loss, whose Target Capital Account is greater than or equal to its Partially Adjusted Capital Account as of the end of such Accounting Period.
(b) The following special allocations of items of Company income, gain, loss and expense taken into account in determining Net Profit and Net Loss shall be made in the circumstances described below:
(i) if the Company has Net Profit for any Accounting Period and, notwithstanding the application of Section 7.5(a), any Partner's Partially Adjusted Capital Account is greater than its Target Capital Account (determined prior to giving effect to this Section 7.5(b)), then the Partner with such difference shall be specially allocated items of Company loss or expense for such Accounting Period that are taken into account in determining Net Profit and Net Loss (to the extent available) equal to the difference between its Partially Adjusted Capital Account and its Target Capital Account;
(ii) if the Company has Net Loss for any Accounting Period and, notwithstanding the application of Section 7.5(a), any Partner's Partially Adjusted Capital Account is less than its Target Capital Account (determined prior to giving effect to this Section 7.5(b)), then the Partner with such difference shall be specially allocated items of Company income or gain for such Accounting Period that are taken into account in determining Net Profit and Net Loss (to the extent available) equal to the difference between its Partially Adjusted Capital Account and its Target Capital Account; and
(iii) if the Company has neither Net Profit nor Net
Loss for any Accounting Period and, notwithstanding the application of
Section 7.5(a), any Partner's Target Capital Account differs from its
Partially Adjusted Capital Account (determined prior to giving effect to
this Section 7.5(b)), then the Partner with such difference shall be
specially allocated items of Company income or gain (if such Partner's
Target Capital Account exceeds its Partially Adjusted Capital Account) or
loss or expense (if such Partner's Target Capital Account is less than
its Partially Adjusted Capital Account) for such Accounting Period that
are taken into account in determining Net Profit and Net Loss (to the
extent available) equal to the difference between its Partially Adjusted
Capital Account and its Target Capital Account.
(c) The Net Profit or Net Loss of the Company for purposes
of determining allocations to the Capital Accounts of the Partners will be
determined in the same manner as the determination of the Company's taxable
income, except that (i) items that are required by Section 703(a)(1) of the
Code to be separately stated will be included; (ii) items of income that are
exempt from inclusion in gross income for federal income tax purposes will be
treated as items of income, and related deductions that are disallowed under
Section 265 of the Code will be treated as deductions; (iii) Section
705(a)(2)(B) Expenditures will be treated as deductions; (iv) items of gain,
loss, depreciation, amortization, or depletion that would be computed for
federal income tax purposes by reference to the Cost Basis of an item of
Company property will be determined by reference to the value of such item of
property for purposes of determining Net Asset Value; and (v) the effects of
upward and downward revaluations of Company property pursuant to Section
7.3(b) will be treated as gain or loss respectively from the sale of such
property.
(d) In the event that the value of any item of Company property for purposes of determining Net Asset Value differs from its Cost Basis, subject to Treasury Regulations ss. 1.704-3(d)(2), the amount of depreciation, depletion, or amortization for purposes of determining Net Profit or Net Loss for a period with respect to such property will be computed so as to bear the same relationship to the value of such property for purposes of determining Net Asset Value as the depreciation, depletion, or amortization computed for tax purposes with respect to such property for such period bears to the Cost Basis of such property. If the Cost Basis of such property is zero, the depreciation, depletion, or amortization with respect to such property for purposes of determining Net Profit or Net Loss will be computed by using a method consistent with the method that would be used for tax purposes if the Cost Basis of such property were greater than zero.
(e) The parties hereto acknowledge and agree that the purpose of the allocations set forth in this Section 7.5 is to allocate Net Profit and Net Loss among the Partners in a manner that conforms, as closely as possible, to the manner in which amounts reflecting Aggregate Net Profit would be distributed among the Partners pursuant to Section 8. In all events, the basic economic arrangement of the Partners set forth in Section 8 shall be controlling. The parties hereto further acknowledge and confirm the authority of the General Partner, pursuant to Section 7.6 or otherwise, to make such corrective allocations as it deems necessary to achieve the purpose described in the two immediately preceding sentences.
7.6 Corrective Adjustments
If, for any reason, allocations of Net Profit and Net Loss (or any item of income, gain, loss or expense taken into account in determining Net Profit and Net Loss) do not correspond to distributions of amounts reflecting Aggregate Net Profit or other property made or required to be made by the Company pursuant to Section 8 (due, for example, to events occurring between the time that such allocations are made and the time that the related distributions are made), then the General Partner shall allocate Net Profit and Net Loss (and, if necessary, items of Company income (including gross income), gain, loss and expense taken into account in determining Net Profit and Net Loss) and any other items of Company income, gain, loss and expense recognized in subsequent Accounting Periods among the Partners in such a manner as shall, in the General Partner's sole discretion, eliminate as rapidly as possible the disparity between the prior allocations of Net Profit and Net Loss (or items taken into account in determining Net Profit and Net Loss), on the one hand, and those non-corresponding distributions, on the other hand. In all cases, any corrective adjustments made pursuant to this Section 7.6 shall be controlled by the economic arrangement of the Partners set forth in Section 8.
7.7 Special Allocations
Prior to making any allocations under Section 7.5 or Section 7.6, the following special allocations shall be made in the following order:
(a) Limitation on Net Losses. If any allocation of Net Loss or an item of deduction, expenditure or loss to be made pursuant to Section 7.5, Section 7.6 or this Section 7.7 for any Accounting Period would cause a deficit in any Partner's Adjusted Capital Account (or would increase the amount of any such deficit), then the relevant amount shall be allocated to such Partners that have positive Adjusted Capital Account balances in proportion to the respective amounts of such positive balances until all such positive balances have been reduced to zero.
(b) Qualified Income Offset. If any Partner unexpectedly receives any adjustment, allocation or distribution described in Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(6) that creates or increases a deficit in the Adjusted Capital Account of such Partner, then items of income and gain (consisting of a pro rata portion of each item of Company income, including gross income, and gain for the relevant Fiscal Year and, if necessary, for subsequent Fiscal Years) shall be allocated to such Partner in an amount and manner sufficient to eliminate such deficit as quickly as possible. This Section 7.7(b) is intended to constitute a "qualified income offset" within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d), and this Section 7.7(b) shall be interpreted and applied consistently therewith.
(c) Substantial Economic Effect. Notwithstanding anything in this Agreement to the contrary, if the allocation of any item of income, gain, loss or expense pursuant to this Section 7 does not have substantial economic effect under Treasury Regulations Section 1.704-1(b)(2) and is not in accordance with the Partners' interests in the Company within the meaning of Treasury Regulations Section 1.704-1(b)(3), then such item shall be reallocated in such manner as to (i) have substantial economic effect or be in
accordance with the Partners' interests in the Company and (ii) result as nearly as possible in the respective balances of the Capital Accounts that would have been obtained if such item had instead been allocated under the provisions of this Section 7 without giving effect to this Section 7.7(c).
(d) Corrective Allocations. If any amount is allocated pursuant to paragraph (a), (b) or (c) of this Section 7.7, then, notwithstanding anything in Section 7.5 to the contrary (but subject to the provisions of paragraphs (a), (b) and (c) of this Section 7.7), income, gain, loss and expense, or items thereof, shall thereafter be allocated in such manner and to such extent as may be necessary so that, after such allocation, the respective balances of the Capital Accounts will equal as nearly as possible the balances that would have been obtained if the amount allocated pursuant to paragraph (a), (b) or (c) of this Section 7.7 instead had been allocated under the provisions of Sections 7.5-7.8 without giving effect to the provisions of such paragraph.
(e) Amendments to Allocations. The provisions hereof governing Company allocations and distributions, including the distribution of assets upon liquidation of the Company, are intended to comply with the requirements of Sections 704(b) and (c) of the Code and the Treasury Regulations that have been or may be promulgated thereunder, and shall be interpreted and applied in a manner consistent therewith. If, in the opinion of the General Partner, the allocations of income, gain, loss and expense provided for herein do not comply with (i) such Code provisions or Treasury Regulations or (ii) any other applicable provisions of the Code or Treasury Regulations (including the provisions relating to nonrecourse deductions and partner nonrecourse deductions), then, notwithstanding anything in this Agreement to the contrary, such allocations shall, upon notice in writing to each Partner, be modified in such manner as the General Partner determines is necessary to satisfy the relevant provisions of the Code or Treasury Regulations, and the General Partner shall have the right to amend this Agreement (without the consent of any other Partner being required for such amendment) to reflect any such modification; provided, however, that no such modification shall alter materially the economic arrangement among the Partners.
7.8 Adjustments to Reflect Changes in Interests
With respect to any Accounting Period during which any Partner's interest in the Company changes, whether by reason of the admission of a new Partner, the withdrawal of a Partner, a non-pro rata contribution of capital to the Company or otherwise as described in Section 706(d)(1) of the Code and Treasury Regulations issued thereunder, allocations of Net Profit, Net Loss and other items of Company income, gain, loss and expense shall be adjusted appropriately to take into account the varying interests of the Partners during such Accounting Period. The General Partner, in good faith and subject to approval by the Directors, shall select the method (or combination of methods) of making such adjustments.
7.9 Allocation of Taxable Income and Loss
(a) Except as otherwise provided in this Section 7.9, the taxable income or loss of the Company for any Accounting Period shall be allocated among the Partners in proportion to and in the same manner as Net Profit, Net Loss and separate items of income, gain, loss and expense (excluding items for which there are no related tax items) are allocated among
the Partners for Capital Account purposes pursuant to the provisions of Sections 7.5, 7.6, 7.7 and 7.8 giving effect to Sections 704(b) and (c) of the Code. Except as otherwise provided in this Section 7.9, the allocable share of a Partner for tax purposes in each specified item of income, gain, loss or expense of the Company comprising Net Profit, Net Loss or any item allocated pursuant to Section 7.5, 7.6, 7.7 or 7.8, as the case may be, shall be the same as such Partner's allocable share of Net Profit, Net Loss or the corresponding item for such Accounting Period. To the fullest extent practicable and permitted under the Code, all items of ordinary deduction and income shall be allocated separately from items of capital loss and gain.
(b) The items of income, gain, loss and expense allocated to the Partners for tax purposes pursuant to this Section 7.9 shall not be reflected in the Partners' Capital Accounts. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intent of this Agreement and is consistent with the economic arrangement among the Partners.
7.10 Guaranteed Payments
The amounts payable to a Preferred Partner pursuant to Section 8.1 shall be treated by such holder and the Company as "guaranteed payments" under Section 707(c) of the Code.
7.11 Allocation of Nonrecourse Deductions
Nonrecourse Deductions for each fiscal year will be allocated among the Partners in proportion to their respective Section 8.1 Percentages for such fiscal year.
7.12 Allocation of Partner Nonrecourse Deductions
Notwithstanding any other provisions of the Agreement, any item of Partner Nonrecourse Deduction with respect to a Partner Nonrecourse Debt will be allocated to the Partner or Partners who bear the economic risk loss for such Partner Nonrecourse Debt in accordance with Treasury Regulations ss. 1.704-2(i).
7.13 Excess Nonrecourse Liabilities
For the purpose of determining the Partners' shares of the Company's Excess Nonrecourse Liabilities pursuant to Treasury Regulations ss.ss. 1.752-3(a)(3) and 1.707-5(a)(2)(ii), and solely for such purpose, the Partners' interests in profits are hereby specified to be their respective Section 8.1(b) Percentages.
7.14 Treatment of Certain Distributions
(a) In the event that (i) the Company makes a distribution that would (but for this subsection (a)) be treated as a Nonrecourse Distribution, and (ii) such distribution does not cause or increase a deficit
balance in the Capital Account of the Partner receiving such distribution as of the end of the Company's taxable year in which such distribution occurs, then such distribution may be treated as not constituting a Nonrecourse Distribution to the extent permitted by Treasury Regulations ss. 1.704-2(h)(3).
(b) In the event that (i) the Company makes a distribution that would (but for this subsection (b)) be treated as a Partner Nonrecourse Distribution, and (ii) such distribution does not cause or increase a deficit balance in the Capital Account of the Partner receiving such distribution as of the end of the Company's taxable year in which such distribution occurs, then such distribution may be treated as not constituting a Partner Nonrecourse Distribution to the extent permitted by Treasury Regulations ss. 1.704-2(i)(6).
SECTION 8.
DISTRIBUTIONS
8.1 Distributions
(a) From time to time, the General Partner will determine, subject to approval by the Directors if they so determine, the amount of distributions to be made, in the order of priority set forth in Section 8.1(b), of all or any portion of the Company's Aggregate Net Profit, in each case to the extent permitted by the Borrowing Arrangements, the Statement of Preferences for any Preferred Interests and any other agreements to which the Company is subject. Amounts not distributed may be reinvested in Fund Investments.
(b) Distributions of amounts reflecting Previously Undistributed Net Profit shall be made at such times as the General Partner in its sole discretion may determine and in the following order of priority:
(i) 100% to the Preferred Partners in accordance with the Statement of Preferences for each series of Preferred Interests;
(ii) 100% to the Common Partners in accordance with their relative Capital Account balances until the cumulative distributions and amounts distributable in respect of the Common Interest exceeds an 8% annual weighted average return on undistributed Capital Contributions attributable to the aggregate cost basis of the membership interests of Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC that were redeemed on the Closing Date in exchange for common shares in the Parent (such return, the "Hurdle");
(iii) 100% to the General Partner until the General Partner has received 25% of the cumulative sum of all amounts previously distributed to the Common Partners under this Section 8.1(b) (such distributions, the "Catch-up Amount"); and
(iv) 80% to the Common Partners in accordance with their relative Capital Account balances and 20% to the General Partner.
(c) For purposes of determining whether the Hurdle has been exceeded and whether the General Partner has received the Catch-up Amount, the performance of the Company will include the performance of Special Value Absolute Return Fund, LLC for periods prior to the Closing Date and the distributions made by the Company pursuant to Section 8.1(b)(i), (ii), (iii) and (iv) will include an amount equal to the product of (i) the portion of the distributions made by Special Value Absolute Return Fund, LLC prior to the Closing Date attributable to its investors who have become members of the Parent multiplied by (ii) the ratio of Net Asset Value of the Parent immediately after giving effect to the transactions occurring on the Closing Date to such Net Asset Value attributable to the shares of the Parent acquired on the Closing Date by investors in Special Value Absolute Return Fund, LLC.
(d) The General Partner may, subject to approval by the
Directors if they so determine, determine to distribute to any class or
classes of the Partners any amounts representing a return of capital or
designated as a return of capital ("Returned Capital"); provided, however,
that the General Partner shall not make a distribution of Returned Capital at
any time when it could not make a distribution pursuant to Section 8.1(b).
Such Returned Capital shall not be distributed in accordance with Section
8.1(b). Any Returned Capital to be distributed shall be distributed to the
Partners in proportion to their respective Interests in the class or classes
to which such capital is being distributed.
(e) No Partner shall be entitled to receive distributions in any Accounting Period in excess of its Capital Account balance, after taking into account allocations of Net Profit or Net Loss for the applicable Accounting Period.
(f) Any distribution by the Company pursuant to the terms of this Section 8.1 or Section 16.4 to the Person shown on the Company's records as a Partner or to such Person's legal representatives, or to the assignee of the right to receive such distributions as provided herein, shall acquit the Company and the General Partner of all liability to any other Person who may be interested in such distribution by reason of any other assignment or Transfer of such Partner's Interest for any reason (including an assignment or Transfer thereof by reason of death, incompetence, bankruptcy or liquidation of such Partner).
(g) Notwithstanding any provision to the contrary contained in this Agreement, the Company, and the General Partner on behalf of the Company, shall not make a distribution to any Partner on account of its Interest if such distribution would violate Section 17-607 of the Delaware Act or other applicable law.
(h) Notwithstanding the foregoing provisions of this Section
8.1 (or any other provision hereof), the General Partner may set aside
reasonable reserves for anticipated liabilities, obligations or commitments of
the Company.
8.2 Withholding
(a) The Company shall comply with withholding requirements under United States federal, state and local law and shall remit amounts withheld to and file required forms with the applicable jurisdictions. To the extent the Company is required to withhold and pay over any amount to any authority with respect to distributions or allocations to the General Partner,
the amount withheld shall be deemed to be a distribution by the Company to the General Partner in the amount of the withholding.
(b) If any amount was withheld on income received by the Company and the amount of the withholding was calculated, under applicable law, with respect to income allocable to some (but not all) of the Partners such withholding (and any related tax or book income or deduction item) shall be allocated, in a manner reasonably determined by the General Partner, to the Partners with respect to whom the withholding was calculated, and distributions shall be adjusted accordingly; provided, however, that if the Partner to whom such withholding is allocated is not a United States person for U.S. federal income tax purposes, such Partner shall reimburse the Company for the excess of the withholding tax paid on its behalf over the amount that otherwise would have been payable in respect of such Partner had such Partner been a United States person. If the Partner fails to so reimburse the Company, such excess will be treated as an advance repayable with interest out of the first available amounts that would otherwise be payable to such Partner.
SECTION 9.
MANAGEMENT, GENERAL PARTNER AND BOARD OF DIRECTORS
9.1 Management Generally
(a) Subject to the requirements of the Investment Company Act, the voting rights of the Interests and the rights of the Board of Directors set forth herein, the management of the Company shall be vested exclusively in the General Partner, which shall have, subject to the foregoing, all of the power and authority of a "general partner" of the Company within the meaning of the Delaware Act, including the authority to appoint officers and to authorize persons to act on behalf of the Company and engage third parties to provide services to the Company and to perform any permissible activity and is further authorized to delegate such power and authority to such officers or authorized Persons as it determines to be appropriate. The Board of Directors may designate one or more committees each of which shall have all or such lesser portion of the power and authority of the entire Board of Directors as the Directors shall determine from time to time, except to the extent that action by the entire Board of Directors or particular Directors is required by the Investment Company Act.
(b) Notwithstanding Section 9.1(a), the Board of Directors shall have, and the General Partner hereby irrevocably delegates to them pursuant to Section 17-403(c) of the Delaware Act, all of the power and authority set forth in any provision of this Agreement or conferred on them with respect to an investment company by or pursuant to the Investment Company Act and any other federal securities laws, including to appoint and terminate the General Partner, the Investment Manager, the Co-Manager and the independent public accountants of the Company in accordance with the provisions of Section 15 of the Investment Company Act, to establish the policies and procedures for determining the Net Asset Value of the Company and to review and adjust the determinations thereof by the General Partner, to approve all policies and procedures, including compliance policies and procedures, of the Company and of the General Partner, the Investment Manager, the Co-Manager and any transfer agent, to approve co-investments as
contemplated by any exemptive order applicable to the Company and to resolve conflicts of interest between the Company and Affiliated Persons thereof. Notwithstanding Section 9.1(a), the Board of Directors shall have full power and authority to allocate any or all of the investment management of the Company's Assets to the Investment Manager or the Co-Manager instead of to the General Partner.
(c) Except as expressly set forth herein, the Partners, in their capacity as such, shall have no part in the management of the Company, and shall have no authority or right to act on behalf of the Company in connection with any matter. Employees, officers, authorized Persons and agents of the Company shall have authority to act on behalf and in the name of the Company to the extent authorized by the General Partner.
9.2 Board of Directors
(a) Subject to the terms of each Statement of Preferences, the number of Directors shall be such number, not less than three, as shall be approved from time to time by a majority of Directors then in office. No reduction in the number of Directors shall have the effect of removing any Director from office prior to the expiration of his or her term. An individual nominated as a Director shall be at least 21 years of age and not older than such age as shall be approved from time to time by not less than two-thirds of the Directors then in office and shall not be under legal disability. Directors need not own Interests or be Partners and may succeed themselves in office. The names and addresses of the Directors shall be set forth in the records of the Company.
(b) Any Director may resign as a Director (without need for prior or subsequent accounting) by an instrument in writing signed by him and delivered or mailed to the Chairman, if any, the President or the Secretary and such resignation shall be effective upon such delivery, or at a later date provided in such instrument. Subject to the rights of the Preferred Interests with respect to Directors elected solely by the Preferred Interests pursuant to the Investment Company Act, any Director may be removed (provided that the aggregate number of Directors after such removal shall not be less than the minimum number specified in Section 9.2(a) hereof) for cause at any time by the act of a majority of the remaining Directors, specifying the date when such removal shall become effective. Subject to the rights of the Preferred Interests with respect to Directors elected solely by the Preferred Interests pursuant to the Investment Company Act, any Independent Director may be removed (provided that the aggregate number of Directors after such removal shall not be less than the minimum number Section 9.2(a) hereof) without cause at any time by the act of two-thirds of the remaining Directors, and any Director can be removed without cause by vote of not less than two-thirds of the aggregate voting power of the Interests entitled to vote in the election of such Director, specifying the date when such removal shall become effective.
(c) The term of office of a Director shall terminate and a vacancy shall occur in the event of the removal, resignation, incompetence or other incapacity to perform the duties of the office, or death, of a Director. Subject to the rights of the Preferred Interests with respect to Directors elected solely by the Preferred Interests pursuant to the Investment Company Act and pursuant to any Statement of Preferences, whenever a vacancy in the Board of Directors shall occur, the remaining Directors may fill such vacancy
by appointing an individual having the qualifications described in this Agreement by a written instrument signed or adopted by a majority of the Directors then in office or by election of the holders of Interests, or may leave such vacancy unfilled, or may reduce the number of Directors (provided that the aggregate number of Directors after such removal shall not be less than the minimum specified in Section 9.2(a) hereof). Any vacancy created by an increase in Directors may be filled by the appointment of an individual having the qualifications described in this Agreement by a majority of the Directors then in office or by election of the holders of Interests. No vacancy shall operate to annul this Agreement or to revoke any existing agency created pursuant to the terms of this Agreement. Whenever a vacancy in the number of Directors shall occur, until such vacancy is filled as provided herein, the Directors in office, regardless of their number, shall have all the powers granted to the Directors and shall discharge all the duties imposed upon the Directors by this Agreement.
(d) Meetings of the Directors shall be held from time to time upon the call of the Chairman, if any, the President, the Secretary or any two Directors. Regular meetings of the Directors may be held without call or notice at a time and place fixed by resolution of the Directors. Notice of any other meeting shall be mailed via overnight courier not less than 48 hours before the meeting or otherwise actually delivered orally or in writing not less than 24 hours before the meeting, but may be waived in writing by any Director either before or after such meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. The Directors may act with or without a meeting. A quorum for all meetings of the Directors shall be one-third of the Directors then in office. Unless provided otherwise in this Agreement, any action of the Directors may be taken at a meeting by vote of a majority of the Directors present (a quorum being present) or without a meeting by written consent of a majority of the Directors or such other proportion as shall be specified herein for action at a meeting at which all Directors then in office are present.
(i) Any committee of the Directors may act with or without a meeting. A quorum for all meetings of any such committee shall be one third of the Partners thereof. Unless provided otherwise in this Agreement, any action of any such committee may be taken at a meeting by vote of a majority of the Partners of such committee present (a quorum being present) or without a meeting by written consent of a majority of the Partners of such committee or such other proportion as shall be specified herein for action at a meeting at which all committee Partners are present.
(ii) With respect to actions of the Directors and any committee of the Directors, Directors who are Interested Persons in any action to be taken may be counted for quorum purposes under this Section and shall be entitled to vote to the extent not prohibited by the Investment Company Act.
(iii) All or any one or more Directors may participate in a meeting of the Directors or any committee thereof by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other; participation in a meeting pursuant to any such communications system
shall constitute presence in person at such meeting except as otherwise provided by the Investment Company Act.
(iv) The Directors may, but shall not be required to, elect a Chairman of the Board of Directors, who shall not, in his or her capacity as such, be an officer of the Company and who shall serve at the pleasure of the Board of Directors. Any Chairman of the Board of Directors elected by the Directors need not be an Independent Director, unless otherwise required by applicable law.
(e) The Directors shall elect a Chief Executive Officer, a Secretary and a Chief Financial Officer and any other authorized persons who shall serve at the pleasure of the Board of Directors or until their successors are elected. The Directors may elect or appoint or may authorize the Chairman, if any, or Chief Executive Officer to appoint such other officers or agents or other authorized persons with such other titles and powers as the Board of Directors may deem to be advisable. Any Chairman shall, and the Chief Executive Officer, Secretary and Chief Financial Officer may, but need not, be a Director.
(f) The Directors and officers shall owe to the Company and the holders of Interests the same fiduciary duties as owed by directors and officers of corporations to such corporations and their stockholders under the general corporation law of the State of Delaware. Directors elected by the holders of Preferred Interests shall have no special duties to the holders of Preferred Interests. The powers of the Directors may be exercised without order of or resort to any court. No Director shall be obligated to give any bond or other security for the performance of any of his duties or powers hereunder.
(g) The Board of Directors may adopt and from time to time amend or repeal By-Laws ("By-Laws") for the conduct of the business of the Company. Such By-Laws shall be binding on the Company and the Partners unless inconsistent with the provisions of this Agreement. The Partners shall not have authority to adopt, amend or repeal By-Laws.
(h) Any determination as to what is in the interests of the Company made by the Directors in good faith shall be conclusive. In construing the provisions of this Agreement, the presumption shall be in favor of a grant of power to the Directors.
(i) The Directors shall have the power, without any amendment to this Agreement or any Statement of Preferences adopted hereunder, to impose restrictions on the activities of Partners with respect to the Company or any Portfolio Company to prevent limitations on the Company's ability to invest in certain industries, such as utilities, communications, gambling, interstate transportation and insurance. Such limitations shall be binding upon all Partners.
9.3 Expenses of the Company
(a) The Company shall have power to incur and pay out of the Assets or income of the Company any expenses necessary or appropriate to carry out any of the purposes of this Agreement, and the business of the Company. The Directors may pay themselves such compensation as they in good faith may deem reasonable and may be reimbursed for expenses reasonably incurred by themselves on behalf of the Company.
(b) The Company shall pay, and shall reimburse the General Partner, the Investment Manager, the Co-Manager and each of their respective Affiliates for, any costs and expenses that, in the good faith judgment of the Board of Directors, are incurred in the formation, financing or operation of the Company, including, without limitation, the Advisory Fees and other costs and expenses specified herein or in the Advisory Agreement or the Co-Advisory Agreement to be paid by the Company; fees and expenses of offering Interests or debt instruments and enhancing or assuring the credit quality thereof; fees and expenses relating to short-term investments of cash and investments in Portfolio Companies including the structuring, negotiation, acquisition,, syndication, holding, restructuring, recapitalization and disposition thereof or relating to proposed portfolio investments which are not consummated; reasonable premiums for insurance protecting the Company, the General Partner, the Investment Manager, the Co-Manager, any of their respective Affiliates and any of their respective employees and agents; legal, compliance, administrative, custodial and accounting expenses; auditing expenses; appraisal expenses; expenses relating to organizing companies through or in which investments in Portfolio Companies will be made; expenses incurred in maintaining the places of business of the Company; costs and expenses of preparing and maintaining the books and records of the Company and entities through which it invests; costs and expenses that are classified as extraordinary expenses under generally accepted accounting principles; taxes or other governmental charges payable by the Company; costs and expenses incurred in connection with any actual or threatened litigation, and any judgments or settlements paid in connection with litigation, involving the Company, a Portfolio Company or a Person entitled to indemnification from the Company; expenses (including legal fees and expenses) incurred in connection with the bankruptcy or reorganization of any Portfolio Company; costs of reporting to the Partners, creditors and regulatory authorities; costs of responding to regulatory inquiries; costs of Partner meetings and the solicitation of Partner consents; costs incurred in valuing assets; costs of winding up and liquidating the Company; and interest, distributions and fees under the Credit Agreement, other indebtedness incurred by the Company and the Interests.
(c) The Company shall pay, and shall reimburse the General Partner, the Investment Manager, the Co-Manager and each of their Affiliates for, all legal, tax, accounting and other expenses (including organizational expenses) incurred in connection with the Credit Agreement, the Preferred Interests and the formation of the Company and related entities, and all fees payable to any placement agents in connection with subscriptions for the Interests and to any other agents, lenders, arrangers or other Persons in connection with the Credit Agreement and the placement and sale of the Preferred Interests.
(d) The Company shall pay, and shall reimburse the Co-Manager for, any reasonable transportation and other travel costs and expenses incurred by the Co-Manager in connection with making any representative on any investment committee available for meetings with the other Partners of such investment committee.
9.4 Partners' Consent
To the fullest extent permitted by law, each Partner hereby consents to the exercise by the General Partner, the Board of Directors and the Investment Manager of the powers conferred on them by or pursuant to this Agreement.
9.5 Exculpation
No Partner (other than the General Partner) shall be
subject in such capacity to any personal liability whatsoever to any Person in
connection with the Assets or the acts, obligations or affairs of the Company.
Partners (other than the General Partner) shall have the same limitation of
personal liability as is extended to stockholders of a private corporation for
profit incorporated under the general corporation law of the State of Delaware.
Except as otherwise required by law, the General Partner, the Directors, the
Investment Manager, the Co-Manager, and their respective Affiliated Persons, or
any officer, director, Partner, manager, employee, stockholder, assign,
representative or agent (including the Placement Agents) of any such Person
(each an "Indemnified Person", and collectively, the "Indemnified Persons")
shall not be liable, responsible or accountable in damages or otherwise to the
Company, any Partner or any other Person for any loss, liability, damage,
settlement cost, or other expense (including reasonable attorneys' fees)
incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Partner, if applicable) in connection with
the establishment, management or operations of the Company or the management of
the Assets (including in connection with serving on any creditors' committee or
board of directors for any Portfolio Company ), except that an Indemnified
Person shall be liable to the Company or any Partner, as the case may be, if
such act or failure to act arises out of the bad faith, willful misfeasance,
gross negligence or reckless disregard of such Person's duty to the Company or
such Partner, as the case may be (such conduct, "Disabling Conduct"). Subject
to the foregoing and to the general liability of the General Partner for the
liabilities of the Company, all such Persons shall look solely to the Assets
for satisfaction of claims of any nature arising in connection with the affairs
of the Company. If any Indemnified Person is made a party to any suit or
proceeding to enforce any such liability, subject to the foregoing exception,
such Indemnified Person shall not, on account thereof, be held to any personal
liability.
9.6 Indemnification; No Duty of Investigation; Reliance on Experts
(a) To the fullest extent permitted by applicable law, each of the Indemnified Persons shall be held harmless and indemnified by the Company (out of the Assets and not out of the separate assets of any Partner) against any liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees reasonably incurred by such Indemnified Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which such Indemnified Person may be or may have been involved as a party or otherwise (other than as authorized by the Directors, as the plaintiff or complainant) or with which such Indemnified Person may be or may have been threatened, while acting in such Person's capacity as an Indemnified Person, except with respect to any matter as to which such Indemnified Person shall not have acted in good faith in the reasonable belief that such Person's action was in the best interest of the Company or, in the case of any criminal proceeding, as to which such Indemnified Person shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that an Indemnified Person shall only be indemnified hereunder if (i) such Indemnified Person's activities do not constitute Disabling Conduct and (ii) there has been a determination (a) by a final decision on the merits by a court or other
body of competent jurisdiction before whom the issue of entitlement to indemnification was brought that such Indemnified Person is entitled to indemnification or, (b) in the absence of such a decision, by (1) a majority vote of a quorum of those Directors who are neither "interested persons" of the Company (as defined in Section 2(a)(19) of the Investment Company Act) nor parties to the proceeding, that the Indemnified Person is entitled to indemnification (the "Disinterested Non-Party Directors"), or (2) if such quorum is not obtainable or even if obtainable, if such majority so directs, independent legal counsel in a written opinion that concludes that the Indemnified Person should be entitled to indemnification. Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any Indemnified Person as plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit or other proceeding by such Indemnified Person was authorized by a majority of the Directors. All determinations to make advance payments in connection with the expense of defending any proceeding shall be authorized and made in accordance with the immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Company receives a written affirmation by the Indemnified Person of the Indemnified Person's good faith belief that the standards of conduct necessary for indemnification have been met and a written undertaking to reimburse the Company unless it is subsequently determined that he is entitled to such indemnification and if a majority of the Directors determine that the applicable standards of conduct necessary for indemnification appear to have been met. In addition, at least one of the following conditions must be met: (1) the Indemnified Person shall provide adequate security for his undertaking, (2) the Company shall be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum of the Disinterested Non-Party Directors, or if a majority vote of such quorum so direct, independent legal counsel in a written opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the Indemnified Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under these provisions shall not exclude any other right to which he may be lawfully entitled.
(d) Notwithstanding the foregoing, subject to any limitations provided by the Investment Company Act and this Agreement, the Company shall have the power and authority to indemnify Persons providing services to the Company to the full extent provided by law as if the Company were a corporation organized under the Delaware General Corporation Law provided that such indemnification has been approved by a majority of the Directors or, with respect to agreements to which the General Partner and Investment Manager are not party, by the General Partner.
(e) No purchaser, lender, transfer agent or other person dealing with the Directors or with the General Partner or any officer, employee or agent of the Company shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Directors or by said officer, employee or agent or be liable for the application of money or property paid, loaned, or delivered to or on the order of the Directors or of said officer, employee or agent. Every obligation, contract, undertaking, instrument, certificate, Interest and security of the Company, and every other
act or thing whatsoever executed in connection with the Company shall be conclusively taken to have been executed or done by the executors thereof only in their capacity as Directors under this Agreement or in their capacity as the General Partner or officers, employees or agents of the Company. The Company may maintain insurance for the protection of the Assets, its Partners, Directors, officers, employees or agents in such amounts as the Directors shall deem adequate to cover possible liability, and such other insurance as the Directors in their sole judgment shall deem advisable or is required by the Investment Company Act.
(f) Each Indemnified Person shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Company, upon an opinion of counsel, or upon reports made to the Company by any of the Company's officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the Directors, General Partner officers or employees of the Company, regardless of whether such counsel or other person may also be a Director.
9.7 Director Limited Liability
Except as otherwise provided by law, the Directors shall not be obligated personally for any debt, obligation or liability of the Company solely by reason of being the manager of the Company, and the debt, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company.
9.8 Certain Other Activities
The General Partner, the Investment Manager, the Co-Manager and their respective Affiliated Persons, employees and associates (collectively, the "Manager Affiliates") may manage funds and accounts other than the Assets ("Other Accounts") that invest in assets eligible for purchase by the Company. Subject to the requirements of the Investment Company Act and the Advisers Act, the Manager Affiliates are in no way prohibited from spending, and may spend, substantial business time in connection with other businesses or activities, including, but not limited to, managing Other Accounts, managing investments, advising or managing entities whose investment objectives are the same as or overlap with those of the Company, participating in actual or potential investments of the Company or any Partner, providing consulting, merger and acquisition, structuring or financial advisory services, including with respect to actual, contemplated or potential investments of the Company, or acting as a director, officer, manager, Partner or creditors' committee Partner of, or adviser to, or participant in, any corporation, company, limited liability company, trust or other Person. Subject to the requirements of the Investment Company Act and the Advisers Act, the Manager Affiliates are in no way prohibited from receiving, and may receive, fees or other compensation from third parties for any of these activities, which fees will be for their own account and not for the account of the Company. Such fees may relate to actual, contemplated or potential
investments of the Company and may be payable by entities in which the Company
directly or indirectly has invested or contemplates investing. Neither the
Company nor any Partner shall, by virtue of this Agreement, have any right,
title or interest in or to the businesses or activities permitted by this
Section 9.8 or in or to any fees or consideration derived therefrom.
Allocation of investments or opportunities among the Company and Other
Accounts will be made as described in the Offering Memorandum or as otherwise
approved by the Board of Directors in accordance with the Investment Company
Act, the Advisers Act and any exemptive order obtained from the U.S.
Securities and Exchange Commission.
9.9 Tax Matters
(a) The General Partner is hereby designated the "tax matters partner" for purposes of Section 6231(a) of the Code and Treasury Regulations.
(b) The Tax Matters Partner shall have the right to file all
necessary reports relating to any withholding or payment in connection with
Section 8.2, as may be required by law or as the Tax Matters Partner deems
appropriate. Each Partner shall indemnify the Company and the Tax Matters
Partner and hold each of them harmless from any liability with respect to any
taxes, penalties or interest required to be withheld or paid to any taxing
authority by the Company or the Tax Matters Partner for or on behalf of such
Partner or with respect to such Partner's Interests.
(c) Any Partner that is a partnership (or that is treated as a partnership for federal income tax purposes) will promptly notify the Company in writing upon any of the following occurrences:
(i) any event, such as a sale or exchange of an interest in such Partner, that will result in an adjustment to the basis of the assets of such Partner under Section 743(b) of the Code pursuant to an election under Section 754 of the Code;
(ii) any event, such as a distribution of cash or other property by such Partner, that will result in an adjustment to the basis of such Partner's assets under Section 734(b) of the Code pursuant to an election under Section 754 of the Code; or
(iii) any event that will result in the termination of such Partner as a partnership pursuant to Section 708(b)(1)(B) of the Code.
(d) In the event that any interest in a Partner that is a partnership (or that is treated as a partnership for federal income tax purposes) is owned directly or indirectly by a tax exempt or foreign Person or entity, such Partner will promptly notify the Company in writing of such tax exempt or foreign Person or entity's proportionate share of such Partner's items of income and gain (determined as a percentage pursuant to Section 168(h)(6)(C) of the Code) and of any change in such proportionate share.
(e) The Tax Matters Partner shall have the right to make such elections under the tax laws of the United States, the several states and other relevant jurisdictions as to the treatment of items of Company income, gain, loss, deduction and credit and as to all other relevant matters as it believes necessary, appropriate and desirable.
(f) The Tax Matters Partner shall have the right to make or petition to revoke (as the case may be) the election referred to in Section 754 of the Code; it being understood that the Tax Matters Partner, as of the Closing Date, does not intend to make such election but may in the future choose to do so in its sole discretion. Each Partner agrees in the event of such an election to supply promptly to the Company the information necessary to give effect thereto.
(g) No Partner (other than the Tax Matters Partner) shall have the right to participate in the audit of any Company tax return, file any tax return, amended tax return or claim for refund inconsistent with any item of income, gain, loss or expense reflected on any Company tax return, participate in any administrative or judicial proceeding arising out of or in connection with any Company tax return, audit relating to a Company tax return, claim for refund by the Company or denial of such a claim, or appeal, challenge or otherwise protest any adverse findings in any such audit or with respect to any such tax return or in any such administrative or judicial proceedings.
SECTION 10.
PARTNERS
10.1 Identity and Contributions
The names and addresses of the Partners, the Interests owned by each Partner and the Capital Contributions of each will be set forth in the Company's records.
10.2 No Management Power or Liability
Subject to the requirements of the Investment Company Act, except as otherwise provided herein, the Partners (other than the General Partner) in their capacity as such shall have no right or power to, and shall not, take part in the management of or transact any business for the Company, including but not limited to, any acts or decisions relating to investment activities of the Company, and shall have no power to sign for or bind the Company. Except as otherwise required by law, no Partner (other than the General Partner), in its capacity as such, shall be personally liable for any debt, loss, obligation or liability of the Company. Except to the extent expressly provided in the preceding sentence, the Company shall indemnify and hold harmless each Partner (in its capacity as such), including the General Partner, in the event such Partner becomes liable for any debt, loss, obligation or liability of the Company unless such Partner has engaged in fraud, willful misconduct, gross negligence or criminal conduct constituting a felony with respect to such debt, loss, obligation or liability.
10.3 Amendments
(a) If a vote of the holders of Interests is required by applicable law or this Agreement to amend this Agreement, or if the General Partner or the Directors determine to submit an amendment to a vote of the holders of Interests, then, other than with respect to Sections of this
Agreement where a different affirmative vote is specifically required, this
Agreement may be amended, after a majority of the Directors then in office
have approved a resolution therefor, by the affirmative vote set forth in
Section 10.10. Section 10.10 may only be amended, after a majority of
Directors then in office have approved a resolution therefor, by the
affirmative vote of the holders of not less than 75% of the affected Interests
then outstanding. Section 16.7 may only be amended, after a majority of
Directors then in office have approved a resolution therefor, by the
affirmative vote of the holders of not less than 100% of the Series A
Preferred Interests then outstanding. Notwithstanding the foregoing, without
the unanimous approval of all of the Partners affected thereby, no such
amendment may:
(i) require any Common Partner to make Capital Contributions in excess of its Initial Capital Contribution as of the Closing Date, require any Partner that is not a Common Partner to make additional Capital Contributions in excess of its contractual commitment or otherwise increase the liability of any Partner hereunder; or
(ii) adversely affect distributions to such Partner; or
(iii) modify this Section 10.3(a).
(b) Subject to the requirements of the Investment Company
Act and other applicable law, notwithstanding the foregoing provisions of this
Section 10.3, the Board of Directors, or the General Partner with the approval
of the Board of Directors, may amend this Agreement, without the consent of
any Partner, (i) to change the name of the Company or any class or series of
Interests; (ii) to make any change that does not adversely affect the relative
rights or preferences of any class or series of Interests, (iii) to conform
this Agreement to the requirements of the Investment Company Act or any other
applicable law; (iv) in connection with qualifying the Company to permit
limited liability under the laws of any state; (v) to prevent any material and
adverse effect to any Partner or the Company arising from the application of
legal restrictions to any Partner, the Investment Manager, the Co-Manager or
the Company, subject to the requirement that the Partners not be materially
and adversely affected; (vi) to make any change that is necessary or desirable
to cure any ambiguity or inconsistency, subject to the requirement that the
Partners not be materially and adversely affected; (vii) to make any other
changes similar to the foregoing, subject to the requirement that the Partners
not be materially and adversely affected; or (viii) to make such conforming
changes as may be necessary to reflect the termination of the Company and the
assumption by the Parent of all of the assets and obligations of the Company
to the extent not prohibited by applicable law; provided that the General
Partner and the Board of Directors shall not be liable for failing to do so.
Prior to entering into any amendment pursuant to this Section 10.3(b), the
General Partner or the Board of Directors shall notify the Partners in writing
of the material terms of such amendment. The Company may reflect in its
records changes made in the composition of the Partners and their respective
Capital Contributions and Interests in accordance with the provisions of this
Agreement without the consent of the Partners.
(c) After any amendment to this Agreement becomes effective, the Company shall send to the Partners a copy of such amendment.
(d) Nothing contained in this Agreement shall permit the amendment of this Agreement to impair the exemption from personal liability of the Partners (other than the General Partner), Directors, officers, employees and agents of the Company and their respective Affiliates, to permit assessments upon such Partners or to permit the Company to be converted at any time from a "closed-end investment company" to an "open-end investment company" as those terms are defined by the Investment Company Act or a company obligated to repurchase shares under Rule 23c-3 of the Investment Company Act.
(e) An amendment duly adopted by the requisite vote of the Board of Directors and, if required, Partners as aforesaid, shall become effective at the time of such adoption or at such other time as may be designated by the Board of Directors or Partners, as the case may be. A certification signed by the General Partner or the Secretary setting forth an amendment and reciting that it was duly adopted by the Directors and, if required, Partners as aforesaid, or a copy of the Agreement, as amended, and executed by the General Partner or the Secretary, shall be conclusive evidence of such amendment when lodged among the records of the Company or at such other time designated by the Directors.
(f) Notwithstanding any other provision hereof, until such time as Interests are issued and outstanding, this Agreement may be terminated or amended in any respect by the affirmative vote of a majority of the Directors or by an instrument signed by a majority of the Directors then in office.
(g) Notwithstanding anything to the contrary contained herein, no holder of Interests of any class or series, other than to the extent expressly determined by the Directors with respect to Interests qualifying as preferred stock pursuant to Section 18(a) of the Investment Company Act, shall have any right to require the Company or any person controlled by the Company to purchase any of such holder's Interests.
10.4 Merger, Consolidation, Liquidation
Subject to the provisions of the Investment Company Act and other applicable law, the Company may merge or consolidate with any other entity, or sell, lease or exchange all or substantially all of the Assets upon approval by two-thirds of the Directors then in office and the affirmative vote of not less than two-thirds of the outstanding Interests. Notwithstanding the foregoing, the Company shall automatically be merged into the Parent and terminate its existence at such time as, pursuant to receipt of no-action or other appropriate relief from the Securities and Exchange Commission or its staff, the board of directors of the Parent is able to authorize the issuance of Series S Preferred Stock of the Parent to the General Partner. Each Partner, upon becoming a Partner, consents to such termination and merger, including the exchange by each Preferred Partner of its Preferred Interests for an equivalent amount of preferred shares of the Parent having substantially similar terms and the exchange of the General Partner's Interest for the share or shares of Series S Preferred Stock of the Parent, to the extent any consent of Partners would be required therefor. Such merger shall occur on the basis of the net asset value of the Common Interests, the liquidation preference of the Preferred Interests and the amount of indebtedness outstanding under the Credit Agreements and in accordance with the requirements of Rule 17a-8 under the Investment Company
Act. No Partner shall have any rights of redemption or appraisal in connection with any such merger.
10.5 List of Partners
A list of the names and addresses of all Partners (to the extent known to the Company) shall be made available to any Partner or its representative for inspection and, at the Partner's cost, copying upon written request and at reasonable times to the extent required by the Investment Company Act with respect to trusts for any purpose.
10.6 Limitations
No Partner shall have the right or power to (i) bring an action for partition against the Company; (ii) cause the termination or dissolution of the Company, except as set forth in this Agreement; or (iii) demand property other than cash with respect to any distribution and then only in accordance with the terms of this Agreement. For the avoidance of doubt, Partners shall not have the power provided for in Section 17-801 of the Delaware Act, and the Company may only be dissolved pursuant to the terms of this Agreement. Except to the extent required for a Delaware business corporation, the Partners shall have no power to vote as to whether or not a court action, legal proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Company or the Partners.
10.7 Meetings
(a) The Company may, but shall not be required to, hold annual meetings of the holders of any class or series of Interests. An annual or special meeting of Partners may be called at any time only by the Directors or by Partners in accordance with the requirements of the Investment Company Act applicable to trusts. Any meeting of Partners shall be held within or without the State of Delaware on such day and at such time as the Directors shall designate.
(b) Notice of all meetings of Partners, stating the time, place and purposes of the meeting, shall be given by the Directors by mail to each Partner of record entitled to vote thereat at its registered address, mailed at least 10 days before the meeting or otherwise in compliance with applicable law. Except with respect to an annual meeting, at which any business required by the Investment Company Act may be conducted, only the business stated in the notice of the meeting shall be considered at such meeting. Any adjourned meeting may be held as adjourned one or more times without further notice not later than 130 days after the record date. For the purposes of determining the Partners who are entitled to notice of and to vote at any meeting the Directors may, without closing the transfer books, fix a date not more than 100 days prior to the date of such meeting of Partners as a record date for the determination of the Persons to be treated as Partners of record for such purposes.
10.8 Action Without a Meeting
Any action that may be taken at a meeting of the Partners may be taken without a meeting if a consent in writing setting forth the action to be taken is signed by Partners owning not less than the minimum percentage of the Interests of the Partners that would be necessary to authorize or take such action at a meeting at which all the Partners were present and voted, and notice of the action taken is provided to each Partner. Any such written consent must be filed with the records of the meetings of the Partners.
10.9 Procedures
A Partner shall be entitled to cast votes: (a) at a meeting, in person, by written proxy or by a signed writing directing the manner in which its vote is to be cast, which writing must be received by the Company at or prior to the commencement of the meeting; or (b) without a meeting, by a signed writing directing the manner in which its vote is to be cast, which writing must be received by the Company at or prior to the time and date on which the votes are to be counted. Except as otherwise herein specifically provided, all procedural matters relating to the holding of meetings of Partners or taking action by written consent, whether noticed or solicited by the Company or others, including, without limitation, matters relating to the date for the meeting or the counting of votes by written consent, the time period during which written consents may be solicited, minimum or maximum notice periods, record dates, proxy requirements and rules relating to the conduct of meetings or the tabulation of votes, shall be as reasonably established by the Directors. To the extent not otherwise provided by the Board of Directors pursuant to Section 10.10 or otherwise, the laws of the State of Delaware pertaining to the validity and use of proxies regarding the shares of business corporations shall govern the validity and use of proxies given by Partners.
10.10 Voting
(a) Partners shall have no power to vote on any matter except matters on which a vote of Interests is required by or pursuant to the Investment Company Act, a Statement of Preferences, this Agreement, the By-Laws or any resolution of the Directors. Any matter required to be submitted for approval of any of the Interests and affecting one or more classes or series shall require approval by the required vote of Interests of the affected class or classes and series voting together as a single class and, if such matter affects one or more classes or series thereof differently from one or more other classes or series thereof or from one or more series of the same class, approval by the required vote of Interests of such other class or classes or series or series voting as a separate class shall be required in order to be approved with respect to such other class or classes or series or series; provided, however, that except to the extent required by the Investment Company Act and any Statement of Preferences, there shall be no separate class votes on the election or removal of Directors or the selection of auditors for the Company. Partners of a particular class or series thereof shall not be entitled to vote on any matter that affects the rights or interests of only one or more other classes or series of such other class or classes or only one or more other series of the same class. There shall be no cumulative voting in the election or removal of Directors.
(b) The holders of one-third of the outstanding Interests of the Company on the record date present in person or by proxy shall constitute a quorum at any meeting of the holders for purposes of conducting business on which a vote of all Partners of the Company is being taken. The holders of one-third of the outstanding Interests of a class or classes on the record date present in person or by proxy shall constitute a quorum at any meeting of the holders of such class or classes for purposes of conducting business on which a vote of holders of such class or classes is being taken. The holders of one-third of the outstanding Interests of a series or series on the record date present in person or by proxy shall constitute a quorum at any meeting of the holders of such series or series for purposes of conducting business on which a vote of holders of such series or series is being taken. Interests underlying a proxy as to which a broker or other intermediary states its absence of authority to vote with respect to one or more matters shall be treated as present for purposes of establishing a quorum for taking action on any such matter only to the extent so determined by the Directors at or prior to the meeting of holders of Interests at which such matter is to be considered and shall not be treated as present for purposes of voting or any other purpose except as determined by the Directors.
(c) Subject to any provision of the Investment Company Act, any Statement of Preferences or this Agreement specifying or requiring a greater or lesser vote requirement for the transaction of any matter of business at any meeting of Partners or, in the absence of any such provision of the Investment Company Act, any Statement of Preferences or this Agreement, subject to any provision of the By-Laws or resolution of the Directors specifying or requiring a greater or lesser vote requirement, (i) the affirmative vote of a plurality (or, if provided by the By-Laws, a majority) of the Interests present in person or represented by proxy and entitled to vote for the election of any Director or Directors shall be the act of such Partners with respect to the election of such Director or Directors; (ii) the affirmative vote of a majority of the Interests present in person or represented by proxy and entitled to vote on any other matter who vote on such matter shall be the act of the Partners with respect to such matter; and (iii) where a separate vote of one or more classes or series is required on any matter, the affirmative vote of a majority of the Interests of such class or classes or series or series present in person or represented by proxy and entitled to vote on such matter who vote on such matter shall be the act of the Partners of such class or classes or series or series with respect to such matter.
(d) At any meeting of Partners, any holder of Interests entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Secretary, or with such other officer or agent of the Company as the Secretary may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Directors, proxies may be solicited in the name of one or more Directors or one or more of the officers or employees of the Company. Only Partners of record shall be entitled to vote. Each .01% of the Net Asset Value of the Company shall entitle the Common Partner of record thereof to one vote and each fraction thereof shall entitle the Common Partner of record thereof to a vote equal to such fraction. Each $20,000 of the liquidation preference of a Preferred Interest shall entitle the Preferred Partner of record thereof to one vote and each fraction thereof shall entitle the Preferred Partner of record thereof to a vote equal to such fraction. When any Interest is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Interest, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such
Interest. A proxy purporting to be given by or on behalf of a Partner of record on the record date for a meeting shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Interest is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Interest, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. The Directors shall have the authority to make and modify from time to time regulations regarding the validity of proxies. In addition to signed proxies, such regulations may authorize facsimile, telephonic, Internet and other methods of appointing a proxy that are subject to such supervision by or under the direction of the Directors as the Directors shall determine.
10.11 Removal of the General Partner
The General Partner may be removed with or without cause at any time on not less than 60 days notice by vote of either (a) the Board of Directors at a meeting called for such purpose or (b) by a majority of the Interests at a meeting called for such purpose. Upon any such removal, for purposes of determining any allocations and distributions due to the General Partners pursuant to Section 7 or 8 hereof, the Company shall be deemed to have liquidated all of its Assets at fair value as determined pursuant to the Investment Management Agreement.
SECTION 11.
ADMISSION OF ADDITIONAL PARTNERS;
ASSIGNMENTS OR TRANSFERS OF INTERESTS
11.1 Admission of Additional Partners
No additional Partners will be admitted after the Closing Date, except as provided in Sections 5.2, 7.1 and 11.2.
11.2 Assignments or Transfers of Interests
(a) In no event shall all or any part of a Partner's Interests be Transferred if such Transfer would result in there being more than 95 Partners for purposes of Treasury Regulation ss.1.7704-1(h), and any such purported Transfer shall be void and shall not be recognized by the Company. In no event shall all or any part of a Partner's Preferred Interests be Transferred, and any such purported Transfer shall be void and shall not be recognized by the Company, unless all of the conditions set forth in the applicable Statement of Preferences with respect thereto have been satisfied. In no event shall all or any part of a Partner's Common Interests be Transferred, and any such purported Transfer shall be void and shall not be recognized by the Company or the Partners, unless all of the following conditions are satisfied:
(i) The Transferor, if requested by the Company in its sole discretion, has delivered to the Company an opinion of counsel reasonably acceptable to the Company that such Transfer (A) would not violate the Securities Act or any state blue sky laws (including any investor suitability standards) and, (B) would not result in the breach of any agreement to which the Company is a party or by which it or any of the Assets is bound;
(ii) The Transferor has demonstrated to the reasonable satisfaction of the Company that the Transferee is both an "accredited investor" as defined in Rule 501(a) under the Securities Act and a "qualified client" within the meaning of Rule 205-3 of the Advisers Act;
(iii) The Transferor has demonstrated to the reasonable satisfaction of the Company that (1) either (a) the Transferee is not (and, if it is disregarded as an entity separate from its owner within the meaning of Treasury Regulations Section 301.7701-3(a) (a "DRE"), its owner is not), for federal income tax purposes, a partnership, trust, estate or "S Corporation" (as such terms are defined in the Code) (in each case, a "Pass-through Entity") or (b) the Transferee (or, if the Transferee is a DRE, its owner) is, for federal income tax purposes, a Pass-through Entity but, after giving effect to such purchase of such Interest by such Transferee (or, if the Transferee is a DRE, its owner), less than 50 percent of the aggregate value of the beneficial ownership interests in the Pass-through Entity (or, if the Transferee is a DRE, its owner) is attributable to the Pass-through Entity's ownership of Interests, and (2) such Interests have not been, and will not be, marketed on or transferred through an "established securities market" within the meaning of Section 7704(b) of the Code and any Treasury Regulations thereunder, including, without limitation, an over the counter market or an interdealer quotation system that regularly disseminates firm buy or sell quotations;
(iv) The Company has received a notice of Transfer signed by both the Transferor and Transferee, such notice to be substantially in the form of Appendix B attached hereto (or such other document specified in the applicable Statement of Preferences); and
(v) the Company consents in writing to such Transfer (which consent may be withheld in the Company's reasonable discretion).
(b) Provided the foregoing conditions are met, the Transferee may become a Substituted Partner if and only if, with respect to Preferred Interests, any requirements set forth in the relevant Statement of Preferences are satisfied and, with respect to Common Interests, each of the following conditions is satisfied:
(i) The Company has consented in writing to the substitution (which consent may be withheld in the Company's reasonable discretion with respect to Transfers of Common Interests only if the transfer conditions described above have not been met or have not been waived);
(ii) The Transferor and Transferee execute, acknowledge and deliver such instruments as the Company deems necessary, appropriate or desirable to effect such substitution, including the written acceptance and adoption by the Transferee of this Agreement; and
(iii) The Transferee agrees to bear all of the Company's expenses and costs incurred in connection with the Transfer and substitution, including legal fees and filing fees.
Upon the satisfaction of the conditions set forth in this
Section 11.2(b), the Company shall record on the books and records of the
Company the Substituted Partner as a Partner of the Company.
(c) A Transferee, legal representative or successor in interest of a Partner shall be subject to all of the restrictions upon a Partner provided in this Agreement.
(d) A Transferee of Interests who desires to make a further Transfer shall be subject to all of the provisions of this Section 11 to the same extent and in the same manner as a Partner making the initial Transfer.
(e) Notwithstanding anything to the contrary in this Agreement, the Company may elect (in the Company's sole discretion) to treat a Transferee who has not become a Substituted Partner as a Partner in the place of the Transferor should it determine such treatment to be in the best interests of the Company.
(f) Upon the Incapacity of an individual Partner, such Partner's personal representative or other successor in interest shall have such rights as the Incapacitated Partner possessed to constitute a successor as a Transferee of its Interests and to join with such Transferee in making application to substitute such Transferee as a Partner, all as provided in Sections 11.2(a) and (b).
(g) Upon the Incapacity of a Partner other than an individual, the authorized representative of such entity shall have such rights as such entity possessed to constitute a successor as a Transferee of its Interests and to join with such Transferee in making application to substitute such Transferee as a Partner, all as provided in Sections 11.2(a) and (b).
(h) A Person who acquires Interests or an interest therein
but is not admitted to the Company as a Substituted Partner pursuant to
Section 11.2(b) shall (i) in the case of a Person acquiring Common Interests
or an interest therein who does not satisfy Section 11.2(a)(ii), obtain no
rights whatsoever in the Company, such Transfer shall be void as between such
Person and the Company and the Company shall have the absolute right in its
sole discretion to Transfer such Common Interests to any Person who does
satisfy Section 11.2(a)(ii) for such consideration as the Company deems
sufficient in the circumstances and to remit to such Person who acquired such
Common Interests in violation of this Agreement such portion of such
consideration not in excess of 75% thereof as the Company receives in complete
satisfaction of such Person's interest in the Company and (ii) in the case of
a Person acquiring Preferred Interests or an interest therein, be entitled
only to the allocations and distributions with respect to such Interests in accordance with this Agreement or relevant Statement of Preferences but shall have no right to any information or accounting of the affairs of the Company and shall not have any voting or other rights of a Partner under this Agreement or relevant Statement of Preferences; provided, however, that such Person described in this clause (ii) shall be entitled to receive such information and accountings as shall be consented to by the Company, which consent shall not be unreasonably withheld. A Substituted Partner shall succeed to all the rights and be subject to all the obligations of the Transferor Partner in respect of the Interests or other interest as to which it was substituted.
SECTION 12.
POWER OF ATTORNEY
12.1 Appointment of General Partner
Each Partner, by becoming a Partner, makes, constitutes and appoints the General Partner as its true and lawful attorney-in-fact, in its name, place and stead, with full power to do any of the following:
(a) Execute on its behalf, file and record this Agreement and all amendments to this Agreement made and otherwise approved in accordance with Section 10.3 or otherwise made in accordance with the terms of this Agreement;
(b) Prepare, execute on its behalf, verify, file and record
amendments to this Agreement made in accordance with the terms of this
Agreement or to the books and records of the Company reflecting (i) a change
of the name or location of the principal place of business of the Company,
(ii) a change of the name or address of any Partner, (iii) the addition of
Partners, (iv) the disposal by a Partner of its Interests in any manner, (v) a
Person becoming or ceasing to be a Partner of the Company, (vi) the exercise
by any Person of any right or rights hereunder, (vii) the correction of
typographical or similar errors, (viii) any amendments made in accordance with
Section 10.3, and (ix) any amendment and restatement of this Agreement
reflecting such amendments;
(c) Prepare, execute on its behalf and record any amendments to the Certificate that the Investment Manager may deem advisable or necessary;
(d) Prepare, execute on its behalf, file and record any other agreements, certificates, instruments and other documents required to continue the Company, to admit Substituted Partners, to liquidate and dissolve the Company in accordance with Section 16, to comply with applicable law, and to carry out the purposes of clauses (a) and (b) above, to the extent consistent with this Agreement; and
(e) Take any further action that the General Partner shall consider advisable in connection with the exercise of the authority granted in this Section 12.1.
12.2 Nature of Special Power
The power of attorney granted under this Section 12 is a special power of attorney coupled with an interest, is irrevocable and may be exercised by the General Partner by listing all of the Partners executing any agreement, certificate, instrument or document with a single signature of such attorney-in-fact acting as attorney-in-fact for all of them. The power of attorney shall survive and not be affected by the Incapacity of a Partner and shall survive and not be affected by the Transfer by a Partner of the whole or a portion of its Interests, except where the Transfer is of all of the Interests and the Transferee thereof with the consent of the Company is admitted as a Substituted Partner; provided, however, that this power of attorney shall survive such Transfer for the sole purpose of enabling any such attorney-in-fact to effect such substitution. This power of attorney does not supersede any part of this Agreement, nor is it to be used to deprive any Partner of its rights hereunder. It is intended only to facilitate the execution of documents and the carrying out of other procedural or ministerial functions.
SECTION 13.
BOOKS, RECORDS AND REPORTS
13.1 Books
(a) The Company shall maintain books and records required by law for the Company at its principal office, which shall be in the United States, and each Partner shall have the right to inspect, examine and copy such books and records at reasonable times and upon reasonable notice for the purposes required by the Investment Company Act relating to trusts or as authorized by the Directors or their delegate. All such books and records may be in electronic format, including the register of Partners and all capital account and accounting records. Upon the request of a Partner, the Company shall promptly deliver to the requesting Partner, at the expense of the Company, a copy of any information which the Company is required by law to so provide in paper or electronic format. Notwithstanding the foregoing inspection rights or any other provision of this Section 13, the Company shall be entitled, as and to the extent permitted by Section 17-305 of the Delaware Act, to keep confidential from the Partners all information such Partners do not have a right to obtain pursuant to the Investment Company Act.
(b) A register shall be kept at the Company or any transfer agent duly appointed by or under the direction of the Directors which shall contain the names and addresses of the Partners and the Interests held by them respectively and a record of all authorized transfers thereof. Separate registers shall be established and maintained for each class and each series of each class. Each such register shall be conclusive as to who are the holders of the Interests of the applicable class and series and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of Partners. No Partner shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein provided, until he has given his address to a transfer agent or such other officer or agent of the Directors as shall keep the register for entry thereon. Except as otherwise provided in any Statement of Preferences, it is not contemplated that certificates will be issued for the Interests; however,
the Company may authorize the issuance of certificates and promulgate appropriate fees therefor and rules and regulations as to their use.
(c) The Company shall have power to employ a transfer agent or transfer agents, and a registrar or registrars, with respect to the Interests. The transfer agent or transfer agents may keep the applicable register and record therein, the original issues and transfers, if any, of the said Interests.
(d) Interests shall be transferable on the records of the Company only by the record holder thereof or by its agent thereto duly authorized in writing, upon delivery to the Company or a transfer agent of the Company of a duly executed instrument of transfer, together with such evidence of the genuineness of each such execution and authorization and of other matters as may reasonably be required, including satisfaction of any or all of the requirements of Section 11.2(a) or (b) for the addition or substitution of the Transferee as a Partner. Upon such delivery and satisfaction of such requirements the transfer shall be recorded on the applicable register of the Company. Until such record is made, the Partner of record shall be deemed to be the holder of such Interests for all purposes hereof and none of the Company, the Directors, any transfer agent or registrar or any officer, employee or agent of the Company shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Interests in consequence of the death, bankruptcy, or incompetence of any Partner, or otherwise by operation of law, shall be recorded on the applicable register of Interests as the holder of such Interests upon production of the proper evidence thereof to the Directors or a transfer agent of the Company, but until such record is made, the Partner of record shall be deemed to be the holder of such for all purposes hereof, and neither the Directors nor any transfer agent or registrar nor any officer or agent of the Company shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law.
13.2 Reports
(a) The Company shall prepare and send to Partners to the extent and in the form required by the Investment Company Act and other applicable law or any exchange on which Interests are listed a report of operations containing financial statements of the Company prepared in conformity with generally accepted accounting principles and applicable law and a schedule setting forth the investments of the Company. Common Partners shall receive quarterly reports of operations.
(b) Within 60 days after the end of each Fiscal Year, the Company shall communicate in writing to each Partner (i) such information as is necessary to complete such Partner's United States federal and state income tax or information returns and (ii) annual financial statements audited by an accounting firm of national reputation.
(c) Further, the Directors may, in their sole and absolute discretion, cause to be prepared (i) such reports or other information as may be necessary with respect to any Partner's qualification for the benefit of any income tax treaty or provision of law reducing or eliminating any withholding or other tax or governmental charge with respect to any Assets and
(ii) such other reports and financial statements of the Company as the Directors deem appropriate for informing the Partners about the operations of the Company.
The Company shall promptly distribute to the Partners notice of the occurrence of any Default or Event of Default (as defined in the Credit Agreement) under the Credit Agreement.
(d) To the extent that the Company has access thereto and in recognition of the various Partners' obligations to comply with certain regulatory requirements, the Company will also provide to each Partner, with reasonable promptness, such other data and information concerning the Company or Company activities in response to a request by any applicable governmental or regulatory agency as from time to time a Partner may reasonably request. If the Company is bound by confidentiality obligations with respect to any information so requested, then the Company shall not be obligated to provide such information. A Partner shall, at the request of the Company, enter into a confidentiality agreement relating to such information.
SECTION 14.
VALUATION OF ASSETS AND INTERESTS
The value of the Assets of the Company, the amount of liabilities of the Company, the Net Asset Value, and the Net Asset Value of each outstanding Common Share of the Company shall be determined on each Valuation Date in accordance with generally accepted accounting principles and the Investment Company Act. The method of determination of Net Asset Value shall be determined by or under the supervision of the Board of Directors. The making of Net Asset Value determinations and calculations may be delegated by the Board of Directors.
SECTION 15.
BANK ACCOUNTS; CUSTODIAN
15.1 Bank Accounts Generally
Subject to the requirements of the Investment
Company Act, all funds received by the Company may be deposited in one or more
Custodial Accounts in the name of the Company at the Custodian. Subject to
Section 15.2, disbursements therefrom may be made by the Company in conformity
with the purposes of this Agreement and the requirements of the Investment
Company Act. The Company may designate from time to time those Persons
authorized to execute checks and other items on the Company bank accounts. The
funds of the Company shall not be commingled with the funds of any other
Person.
15.2 Custodian
(a) The Company shall appoint one or more Custodians to hold the Assets of the Company in one or more separately identified Custodial Accounts or multiparty arrangements in accordance with the Advisory Agreement, the Co-Advisory Agreement, the Credit Agreement, any Statement of Preferences, the Custodial Agreement and the Pledge and Intercreditor Agreement (each as defined in the Credit Agreement to the extent not defined herein) and in compliance with the requirements of the Investment Company Act and other applicable law. The Custodian shall at all times be responsible for the physical custody of the Assets of the Company and for the collection of interest, dividends and other income attributable to the Assets of the Company. The Company will direct the Custodian to accept settlement instructions issued by the General Partner the Investment Manager and authorized Persons in accordance with the requirements of the Investment Company Act.
(b) Nothing contained in this Agreement shall be construed to authorize or require the Board of Directors, the General Partner or the Investment Manager to take or receive physical possession of any Asset of the Company or to take any action in violation of law, it being understood that the Custodian shall solely be responsible for the safekeeping of the Assets and the consummation of all such purchases, sales and deliveries of the Assets in accordance with this Agreement and the Advisory Agreement, the Co-Advisory Agreement, the Credit Agreement, any Statement of Preferences, the Custodial Agreement and the Pledge and Intercreditor Agreement and in compliance with the requirements of the Investment Company Act and other applicable law.
SECTION 16.
DISSOLUTION AND TERMINATION OF THE COMPANY
16.1 Dissolution Generally
Except as provided in this Agreement, no Partner shall have the right to cause any dissolution of the Company before expiration of its term.
16.2 Continuation of Company
The Company shall not be dissolved or terminated by the Incapacity of any Partner as such, the Transfer by any Partner of its Interests or the admission of a new or substituted Director or Partner, and the existence and business of the Company shall be continued notwithstanding the occurrence of any such event.
16.3 Events Causing Dissolution
Subject to the restriction on liquidation set forth in Section 16.7, the Company may be dissolved prior to the time set
forth in Article 4 after two-thirds of the Directors then in office have approved a resolution therefor, upon approval by Interests having at least 75% of the votes of all of the Interests outstanding on the record date for such meeting, voting as a single class except to the extent required by the Investment Company Act. Notwithstanding the foregoing, the Company shall automatically be merged into the Parent and terminate its existence at such time as, pursuant to receipt of no-action or other appropriate relief from the Securities and Exchange Commission or its staff, the board of directors of the Parent is able to so authorize, the Parent issues Series S Preferred Stock of the Parent to the General Partner or its designee. Each Partner, upon becoming a Partner, consents to such termination and merger, including the exchange by each Preferred Partner of its Preferred Interests for an equivalent amount of preferred shares of the Parent having substantially similar terms and the exchange of the General Partner's Interest for the share or shares of Series S Preferred Stock of the Parent, to the extent any consent of Partners would be required therefor.
16.4 Distribution of Assets on Liquidation
(a) In liquidating the Company, the Company will make distributions in cash, in kind, or partly in cash and partly in kind as the General Partner, under the supervision of the Board of Directors, may, in its sole discretion, determine; provided, however, that any distribution made partly in cash and partly in kind shall be pro rata among the Partners in proportion to their interests to the extent reasonably practicable and if not reasonably practicable, in such non-pro rata manner as is determined by the Investment Manager, under the supervision of the Board of Directors, to be fair and equitable; provided, further, that the General Partner will use reasonable efforts to make all distributions in kind, if any, in the form of freely tradable securities. The General Partner need not distribute all of the Assets at once, but may make partial distributions and shall not be required to redeem the Preferred Interests prior to making any liquidating distribution in respect of the Common Interests so long as the Company has set aside liquid assets in excess of liabilities sufficient to pay the liquidation preference and all accumulated and unpaid distributions of the Preferred Interests.
(b) In connection with the liquidation of the Company, the
Assets (after paying or otherwise providing for the claims of creditors of the
Company, the Advisory Fees, claims by the Board of Directors, the General
Partner, the Investment Manager, the Co-Manager or their respective Affiliated
Persons for expenses of the Company paid by any of them, any other liabilities
of the Company and reasonable reserves for any anticipated or contingent
liabilities or obligations and all accumulated and unpaid distributions on
Preferred Interests) shall be distributed to the Partners in accordance with
Section 8.1.
16.5 Liquidation Statement
(a) Upon compliance by the Company with all applicable requirements for dissolution, the Partners shall cease to be such and the Company shall execute, acknowledge and cause to be filed a Certificate of Cancellation of the Company or other appropriate documents evidencing its dissolution and winding up.
(b) Notwithstanding anything to the contrary contained herein, if the Board of Directors has been removed or resigned and the Company has been dissolved, any Partner or other Person appointed by the Partners may
act as liquidating trustee for the Company during the winding up period, and receive reasonable compensation for such activity, all as approved by the Partners holding Interests that represent a majority of the outstanding Interests.
16.6 Director's Liability Upon Dissolution or Removal
None of the Directors shall be personally liable for the return of all or any part of the contributions of the Partners to the Company or for any other distributions to be made by the Company. Any such return or distributions shall be made solely from the Assets.
SECTION 17.
GENERAL PROVISIONS
17.1 Notices and Distributions
Except as otherwise provided herein, any notice, distribution, offer or other communication which may be given to any Partner in connection with the Company or this Agreement shall be duly given if reduced to writing and:
(a) if to any Partner, when personally delivered, or if sent
by mail, postage prepaid, overnight courier or facsimile transmission, when
actually received at the last address furnished by such Partner pursuant to
Section 2.3 for notice purposes at the time of such mailing, overnight courier
or facsimile transmission; and
(b) if to the Company, the General Partner or the Board of
Directors, sent to 2951 28th Street, Suite 1000, Santa Monica, California
90405, Attention: Howard M. Levkowitz with a copy to the Investment Manager,
2951 28th Street, Suite 1000, Santa Monica, California 90405, Attention:
Howard M. Levkowitz, personally delivered or if sent by mail, overnight
courier or facsimile transmission when actually received at the address set
forth above or at such other address as the Company, the General Partner or
the Board of Directors, respectively, may then have specified in writing to
the Company.
All distributions to the Partners shall be made to the extent practicable by wire transfer to the accounts specified by the Partners, which accounts may be changed from time to time by written notice to the Company.
17.2 Survival of Rights
This Agreement shall be binding upon and, as to permitted or accepted successors, Transferees and assigns, inure to the benefit of the Partners and the Company and their respective heirs, legatees, legal representatives, successors, Transferees and permitted assigns, in all cases whether by the laws of descent and distribution, merger, consolidation, sale of assets, operation of law, or otherwise.
17.3 Construction
The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against any Person.
17.4 Section Headings
The captions of the sections in this Agreement are for convenience only and shall not be used in construing or interpreting this Agreement.
17.5 Agreement in Counterparts
This Agreement and any amendments hereto may be executed and delivered by facsimile and in multiple counterparts, each of which shall be deemed an original agreement and all of which shall constitute one and the same agreement, notwithstanding the fact that all Partners are not signatories to the original or the same counterpart.
17.6 Governing Law
This Agreement has been executed by or on authority of a majority of the Directors and the rights of all parties and the validity and construction of every provision hereof shall be subject to and construed according to the internal laws, and not the laws pertaining to choice or conflict of laws, of the State of Delaware, and reference shall be specifically made to the general corporation law of the State of Delaware as to the construction of matters not specifically covered herein or as to which an ambiguity exists, although such law shall not be viewed as limiting the powers otherwise granted to the Directors hereunder and any ambiguity shall be viewed in favor of such powers.
17.7 Additional Documents
Each Partner, upon the request of the Company, agrees to perform all further acts and execute, acknowledge and deliver all further documents which may be reasonably necessary, appropriate or desirable to carry out the provisions of this Agreement, including but not limited to, acknowledging before a Notary Public any signature heretofore or hereafter made by a Partner.
17.8 Severability
Should any portion or provision of this Agreement be declared illegal, invalid or unenforceable in any jurisdiction, then such portion or provision shall be deemed to be severable from this Agreement to the extent practicable while preserving the economic intention of the parties and, in any event, such illegality, invalidity or unenforceability shall not affect the remainder hereof.
17.9 Pronouns
All pronouns and defined terms and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the Persons referred to may require.
17.10 Entire Agreement
This Agreement, the Statements of Preferences adopted pursuant hereto and the Subscription Agreements executed and delivered by the Partners (i) constitute the entire Agreement of the Partners with respect to the Company and (ii) supersede all prior or contemporaneous written or oral agreements, understandings or negotiations with respect to the Company. The parties hereto acknowledge that the ability of the Partners and of the Company to take certain of the actions contemplated hereby may be limited by the terms of the Credit Agreement and the Statements of Preferences to the extent provided therein.
17.11 Arbitration
To the extent permitted by law, any dispute relating to this Agreement or the Company which cannot be amicably resolved among the parties to such dispute shall be resolved by binding arbitration conducted in Los Angeles, California in accordance with the rules of the American Arbitration Association then prevailing, and the decisions of the arbitrators shall be final and binding on all the parties. The costs of the arbitration (other than fees and expenses of counsel, which shall be the responsibility of the parties retaining such counsel) shall be allocated among the parties as determined by the arbitrator.
17.12 Waiver of Partition
Each Partner hereby irrevocably waives and forfeits any and all rights that it may have, whether arising under contract or statute or by operation of law, to maintain an action for partition of the Company or any of the Assets.
17.13 Non-Petition Covenant
Each Partner hereby agrees not to cause the filing of a petition in bankruptcy against the Company for any reason until at least 367 days (or, if longer, the preference period then in effect under applicable federal and state law) after the termination of the Credit Agreement (without any replacement thereof).
17.14 Filing
This Agreement and any amendment (including any supplement) hereto shall be filed in such places as may be required or as the
Company deem appropriate. Each amendment shall be accompanied by a certificate signed and acknowledged by an authorized Person stating that such action was duly taken in a manner provided herein, and shall, upon insertion in the Company's minute book, be conclusive evidence of all amendments contained therein. A restated Agreement, containing the original Agreement as amended by all amendments theretofore made, may be executed from time to time by an authorized Person and shall, upon insertion in the Company's minute book, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Agreement and the various amendments thereto.
IN WITNESS WHEREOF, the Secretary of the Company has hereunto set his hands as of the date first written above.
SECRETARY:
COMMON PARTNERS:
Those Persons subscribing for Common Interests
and admitted as Partners by the General Partner:
By: SVOF/MM, LLC
Title:
PREFERRED PARTNERS:
Those Persons subscribing for Series A Preferred Interests and admitted as Partners by the General Partner:
By: SVOF/MM, LLC
Title:
APPENDIX A
Statement of Preferences of Series A Preferred Interests
APPENDIX B
Form of Notice of Transfer
[Date]
Special Value Continuation Partners, LP
c/o Tennenbaum Capital Partners, LLC
2951 28th St. Suite 1100,
Santa Monica, California 90405
Attention: Howard M. Levkowitz
Fax: (310) 566-1010
Tel: (310) 566-1004
Ladies and Gentlemen:
This is to advise you that [_______________] (the "Purchaser") will purchase
(contingent only upon the approval of such purchase by Special Value
Continuation Partners, LP, a Delaware limited partnership (the "Company")) in
a private resale (the "Purchase") from [___________________] (the "Seller")
[insert number or amount] of [Common Interests (the "Interests")] issued
pursuant to the Partnership Agreement of the Company dated as of [ ] (as
amended, modified or supplemented from time to time, the "Partnership
Agreement"). Capitalized terms used herein and not defined have the respective
meanings assigned to them in the Partnership Agreement, a copy of which has
been provided to the undersigned by the Seller. Seller has also provided to
the Purchaser the Confidential Private Placement Memorandum, dated [ ],
relating to the Interests of the Company, together with any supplements
thereto (the "Confidential Private Placement Memorandum").
The undersigned hereby irrevocably agrees, represents and warrants on behalf of the Purchaser that:
1. The Purchaser has been provided with and has truthfully and accurately completed and returned to the Investment Manager a subscription agreement, which is attached hereto, and the representations and warranties made by the Purchaser in such subscription agreement, including, without limitation, the representations and warranties relating to the Purchaser's status as an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act and as a "qualified client" within the meaning of Rule 205-3 under the Investment Advisers Act of 1940, accurately describe the status of the Purchaser. The Purchaser understands that the Company and the Investment Manager will rely on the representations and warranties made by the Purchaser in the subscription agreement in determining the eligibility of the Purchaser to purchase the Interests.
2. If the Purchaser resells or transfers all or any portion of the Interests, the Purchaser will obtain from each purchaser or transferee a letter containing the same representations and agreements as set forth herein and will have such purchaser or transferee complete a subscription agreement.
3. The Purchaser (i) hereby agrees that this Transfer Certificate may be attached to the Partnership Agreement and (ii) by executing and delivering this Transfer Certificate, with the consent of the Company, hereby becomes a Substituted Partner under the Partnership Agreement and agrees to be bound by all the terms thereof.
4. The Purchaser hereby constitutes and appoints the Investment Manager its true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for the Purchaser and in its name, place and stead, in any and all capacities, to take any and all actions as are authorized by the power of attorney contained in the Partnership Agreement.
The power of attorney granted hereby shall be deemed an irrevocable special power of attorney, coupled with an interest, which the Investment Manager may exercise for the Purchaser by the signature of the Company or by listing the Purchaser as a Partner, and executing any instrument with the signature of the Company as attorney-in-fact for the Purchaser.
5. The Purchaser agrees to bear all of the Company's expenses and costs incurred in connection with the Transfer and substitution, including all legal fees and filing fees.
Very truly yours,
[Name of Purchaser]
This Transfer Certificate shall constitute (i) the notice of Transfer required under subsection 11.2(a)(iv) of the Partnership Agreement and (ii) the instrument of transfer required under subsection 13.1(d) of the Partnership Agreement.
[Name of Seller]
The undersigned, on behalf of the Company, hereby acknowledges receipt of this Transfer Certificate and acknowledges and agrees that this Transfer Certificate shall constitute the notice of Transfer required under subsection 11.2(a)(iv) of the Partnership Agreement and the instrument of transfer required under subsection 13.1(d) of the Partnership Agreement. The undersigned, on behalf of the Company, hereby consents to the Transfer which is the subject of this notice of Transfer pursuant to subsections 11.2(a)(v) and 11.2(b)(i) of the Partnership Agreement and hereby acknowledges and agrees that the Purchaser shall become a Substituted Partner under the Partnership Agreement pursuant to subsection 11.2(b) of the Partnership Agreement. The proper authorized Person of the Company will record on the books and records of the Company the Purchaser as a Partner of the Company.
By: Tennenbaum Capital Partners, LLC,
Investment Manager of Special Value
Continuation Partners, LP
Appendix C
Schedule of Partners
Exhibit D
STATEMENT OF PREFERENCES
SPECIAL VALUE CONTINUATION PARTNERS, LP
STATEMENT OF PREFERENCES OF
PREFERRED INTERESTS
TABLE OF CONTENTS
Page
----
1. Number of Authorized Preferred Interests.............................9
2. Dividends............................................................9
3. Voting Rights.......................................................11
4. Investment Company Act Preferred Interests Asset Coverage...........15
5. Preferred Interests Basic Maintenance Amount........................15
6. Restrictions on Dividends and Other Distributions...................17
7. Rating Agency Restrictions..........................................19
8. Redemption..........................................................20
9. Liquidation Rights..................................................24
10. Transfer of Preferred Interests; Certificates.......................25
11. Preferred Limited Partner of the Fund...............................26
12. Miscellaneous.......................................................26
APPENDIX A..................................................................A-1
APPENDIX B..................................................................B-1
APPENDIX C..................................................................C-1
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SPECIAL VALUE CONTINUATION PARTNERS, LP, a Delaware limited
partnership (the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the General Partner
of the Fund by Section 5.2 of the Fund's Limited Partnership Agreement (which,
as hereafter restated or amended from time to time is, together with this
Statement, herein called the "Limited Partnership Agreement"), the General
Partner has, by resolution, authorized the issuance of the Fund's preferred
limited partnership interests, with a liquidation preference of $20,000 per
interest, plus an amount equal to accumulated but unpaid dividends (whether or
not earned or declared) thereon, having such designation as is set forth in
Section 1 of Appendix A hereto and such number of interests as is set forth in
Section 2 of Appendix A hereto (the "Preferred Interests").
Second: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the Preferred Interests are as follows:
DEFINITIONS
As used in this Statement (including the Appendices hereto), the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires. Terms used in this Statement that are not defined herein shall have the meanings given to such terms in the Credit Agreement, the Moody's Preferred Collateral Valuation Schedule and the S&P Preferred Collateral Valuation Schedule, as applicable:
"Affiliate" shall mean, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with, such former Person, it being understood and agreed that TCP, TCO, the General Partner, the Investment Manager and their respective Affiliates shall constitute Affiliates of the Fund. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
"Annual Valuation Date" shall mean the last Business Day of December of each year, commencing on the date set forth in Section 4 of Appendix A hereto.
"Applicable Margin" shall mean 0.75% per annum; provided, that in the event that the rating of the Preferred Interests has been withdrawn or downgraded to "A2" or lower by Moody's or "A" or lower by S&P, the Applicable Margin shall, five days after the date of such downgrade or withdrawal, increase to 0.85% per annum until such time as the rating of the Preferred Interests is higher than "A2" by Moody's and higher than "A" by S&P (at which time the Applicable Margin shall revert to 0.75% per annum).
"Applicable Rate" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of this Statement.
"Auditor's Confirmation" shall have the meaning specified in paragraph
(c) of Section 5 of this Statement.
"Base Rate" shall mean, for any period, the higher of (a) the Federal Funds Effective Rate for such period, plus 0.50% per annum, and (b) the Prime Lending Rate for such period, plus 0.75% per annum.
"Board of Directors" shall mean the Board of Directors of the Fund or any duly authorized committee thereof.
"Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day except a Saturday, Sunday or other day on which commercial banks are authorized or obligated by law, regulation or executive order to close in Charlotte, North Carolina, Columbia, Maryland, Minneapolis, Minnesota, New York City or Los Angeles, California, and (ii) with respect to all notices and determinations in connection with, and payments of dividends determined by, LIBOR, any day which is a Business Day described in clause (i)
and which is also a day on which dealings in U.S. dollar deposits are carried on in the London interbank market.
"Common Interests" shall mean the common limited partnership interests of the Fund.
"Cost of Funds Rate" shall mean the rate determined pursuant to subparagraph (e)(i) of Section 2 of this Statement (not to exceed LIBOR plus 0.20% per annum).
"CP Conduit" means a Holder which obtains a portion of its financing, either directly or indirectly, through the issuance of commercial paper notes.
"Credit Agreement" shall mean the Credit Agreement dated July 31, 2006, among the Fund, various financial institutions which are, or may become, parties to the Credit Agreement as lenders, and Wachovia Capital Markets, LLC, as administrative agent and arranger. If the Credit Agreement is no longer in effect, references to the Credit Agreement will be deemed to be references to the Credit Agreement in effect immediately prior to its termination.
"Cure Date" shall mean the date of the Preferred Interests Basic Maintenance Cure Date or the Investment Company Act Cure Date, as the case may be.
"Date of Original Issue" shall mean the date on which the Fund initially issued the Preferred Interests.
"Dividend Payment Date," with respect to the Preferred Interests, shall mean any date on which dividends are payable on such interests pursuant to the provisions of paragraph (d) of Section 2 of this Statement.
"Dividend Period," with respect to the Preferred Interests, shall mean the period from and including the Date of Original Issue to, and including, the last day of the calendar quarter in which such Date of Original Issue occurs, and each calendar quarter thereafter.
"Excess Amount" as of any Business Day shall mean the amount, if any, by which the sum of the Outstanding Principal Amount of the loans under the Credit Agreement and the aggregate liquidation preference of the outstanding Preferred Interests as of the close of business of such Business Day exceeds the Preferred Advance Amount as of such close of business.
"Facilities" shall have the meaning specified in subparagraph (c)(i) of Section 3 of this Statement.
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the FRB, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions received by the Paying Agent from three Federal Funds brokers of recognized standing selected by the Paying Agent.
"Final Redemption Date" means July 31, 2016.
"Fitch" means Fitch Ratings or any successor thereto.
"FRB" shall mean the Federal Reserve Bank of New York.
"Fund" shall mean the entity named on the first page of this statement, which is the issuer of the Preferred Interests.
"General Partner" shall mean SVCF/GP, LLC, a Delaware limited liability company.
"Holder," with respect to the Preferred Interests, shall mean the registered holder of such interests as the same appears on the register of the Fund.
"Independent Accountant" shall mean a nationally recognized accountant, or firm of accountants, that is, with respect to the Fund, an independent public accountant or firm of independent public accountants under the Securities Act.
"Initial Rate Period," with respect to the Preferred Interests, shall have the meaning specified in Section 3 of Appendix A hereto.
"Investment Company Act" shall mean the Investment Company Act of 1940, as amended from time to time.
"Investment Company Act Cure Date," with respect to the failure by the Fund to maintain the Investment Company Act Preferred Interests Asset Coverage (as required by Section 4 of this Statement) as of the last Business Day of each month, shall mean the last Business Day of the following month.
"Investment Company Act Preferred Interests Asset Coverage" shall mean asset coverage, as defined in Section 18(h) of the Investment Company Act, of at least 200% with respect to all outstanding senior securities of the Fund which are preferred limited partnership interests in the Fund including all outstanding Preferred Interests (or such other asset coverage as may in the future be specified in or under the Investment Company Act as the minimum asset coverage for senior securities which are shares of a closed-end investment company as a condition of declaring dividends on its common shares).
"LIBOR" shall mean, on any LIBOR Determination Date for any Rate Period, the rate determined by the Paying Agent in accordance with the following provisions:
(i) LIBOR shall equal the rate, as determined by the Paying Agent on each LIBOR Determination Date, for one-month U.S. dollar deposits which appears on the Telerate Page 3750 as of 11:00 a.m.
(London time) on such LIBOR Determination Date, as reported by Bloomberg Financial Markets Commodities News.
(ii) If, on any LIBOR Determination Date, such rate does not appear on the Telerate Page 3750, the Paying Agent shall determine the arithmetic mean of the offered quotations of the LIBOR Reference Banks to prime banks in the London interbank market for one-month U.S. dollar deposits by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date made by the Paying Agent to the LIBOR Reference Banks. If, on any LIBOR Determination Date, at least two of the LIBOR Reference Banks provide such quotations, LIBOR shall equal such arithmetic mean. If, on any LIBOR Determination Date, only one or none of the LIBOR Reference Banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that the leading banks in New York City selected by the Paying Agent (after consultation with the Fund) are quoting on such LIBOR Determination Date for one-month U.S. dollar deposits to the principal London offices of leading banks in the London interbank market.
(iii) If the Paying Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR shall be the Base Rate for each day during such Rate Period.
For the purposes of clause (ii) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one thirty second of a percentage point.
"LIBOR Determination Date" means the second London Banking Day prior to the first day of each Rate Period.
"LIBOR Reference Banks" means four major banks in the London interbank market selected by the Paying Agent.
"Limited Partnership Agreement" shall have the meaning specified in the First certification at the opening of this Statement.
"Liquidation Preference," with respect to a given number of Preferred Interests, shall mean $20,000 times that number.
"London Banking Day" means any Business Day on which dealings in U.S. dollar deposits are carried on in the London interbank market.
"Moody's" shall mean Moody's Investors Service, Inc., or any successor thereto.
"Moody's Preferred Advance Amount" shall have the meaning given to such term in the Moody's Preferred Collateral Valuation Schedule.
"Moody's Preferred Advance Rate" shall have the meaning given to such term in the Moody's Preferred Collateral Valuation Schedule.
"Moody's Preferred Collateral Valuation Schedule" shall mean the schedule attached hereto as Appendix B.
"Moody's Preferred Valuation Procedures" shall mean the procedures prescribed by Moody's for determining the Market Value of Fund Investments as set forth in the Moody's Preferred Collateral Valuation Schedule.
"Notice of Redemption" shall mean any notice with respect to the redemption of Preferred Interests pursuant to paragraph (c) of Section 8 of this Statement.
"Outstanding" shall mean, as of any date with respect to the Preferred Interests, the number of such interests theretofore issued by the Fund except, without duplication, (i) any such interests theretofore cancelled or delivered for cancellation or redeemed by the Fund, (ii) any such interests as to which the Fund or any Person under the control of the Fund shall be a beneficial owner and (iii) any such interests represented by any certificate in lieu of which a new certificate has been executed and delivered by the Fund.
"Paying Agent" shall mean Wachovia Capital Markets, LLC, or any successor thereto.
"Person" shall mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof.
"Preferred Advance Amount" shall mean, at any date of determination, the lower of (i) the Preferred Advance Amount calculated using the Moody's Preferred Valuation Procedures and (ii) the Preferred Advance Amount calculated using the S&P Preferred Valuation Procedures.
"Preferred Interests" shall have the meaning set forth in the First certification at the opening of this Statement.
"Preferred Interests Basic Maintenance Amount," as of any Valuation Date, shall mean the dollar amount equal to the sum of (A) the product of the number of Preferred Interests outstanding on such date multiplied by $20,000 (plus the product of the number of interests of any other preferred interests of the Fund outstanding on such date multiplied by the liquidation preference of such interests), plus any redemption premium applicable to the Preferred Interests (or other preferred interests) then subject to redemption; and (B) the Outstanding Principal Amount of any loans under the Credit Agreement.
"Preferred Interests Basic Maintenance Cure Date," with respect to the failure by the Fund to satisfy the test set forth in paragraph (a) of Section 5 of this Statement as of a given Valuation Date, shall mean, for so long as any amounts are outstanding under the Credit Agreement, the periods provided in
Section 6.1.18 of the Credit Agreement, and otherwise shall mean the seventh Business Day following such Valuation Date.
"Preferred Interests Basic Maintenance Report" shall mean a report signed by the President, Chief Financial Officer or Secretary of the Fund or such other Persons duly authorized by the General Partner of the Fund which sets forth, with respect to the Valuation Date coinciding with or next following the date of determination or calculation thereof, (i) substantially the information reported under Section 6.1.1 of the Credit Agreement, (ii) the Market Value of the assets of the Fund (seriatim and in the aggregate), as determined by reference to (A) the Moody's Preferred Collateral Valuation Schedule and (B) the S&P Preferred Collateral Valuation Schedule, (iii) the Net Asset Value of the Fund and (iv) the Preferred Interests Basic Maintenance Amount.
"Prime Lending Rate" shall mean the rate which Wachovia Bank, National Association announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes, or if such bank ceases to exist or is not quoting a prime lending rate, such other major money center commercial bank in New York City as is selected by the Paying Agent. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Wachovia Bank, National Association may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.
"Qualified Reorganization" shall have the meaning set forth in subparagraph (c)(i) of Section 3 of this Statement.
"Quarterly Date" shall mean the 20th calendar day of each January, April, July and October, commencing in October of 2006, or, if any such day is not a Business Day, the next succeeding day that is a Business Day.
"Rate Period," with respect to the Preferred Interests, shall mean the Initial Rate Period and any Subsequent Rate Period.
"Rating Agency" shall mean Moody's and S&P and their respective successor entities.
"Redemption Price" shall mean the applicable redemption price specified in paragraph (a) or (b) of Section 8 of this Statement.
"Required Lenders" shall have the meaning given to such term in the Credit Agreement.
"S&P" shall mean Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, or any successors thereto.
"S&P Preferred Advance Amount" shall have the meaning given to such term in the S&P Preferred Collateral Valuation Schedule.
"S&P Preferred Advance Rate" shall have the meaning given to such term in the S&P Preferred Collateral Valuation Schedule.
"S&P Preferred Collateral Valuation Schedule" shall mean the schedule attached hereto as Appendix C.
"S&P Preferred Valuation Procedures" shall mean the procedures prescribed by S&P for determining the Market Value of Fund Investments as set forth in the S&P Preferred Collateral Valuation Schedule.
"Securities Act" shall mean the Securities Act of 1933, as amended from time to time.
"Senior Facility" shall have the meaning specified in subparagraph
(c)(i) of Section 3 of this Statement
"Subsequent Rate Period," with respect to the Preferred Interests, shall mean the period from and including the first day following the Initial Rate Period to and including the last day of the calendar month in which such first day occurs, and each calendar month thereafter.
"TCO" shall mean Tennenbaum & Co., LLC.
"TCP" shall mean Tennenbaum Capital Partners, LLC.
"Telerate Page 3750" shall mean the display page currently so designated on the Bridge Telerate Market Report (or such other page as may replace such page on such service for the purpose of displaying comparable rates).
"Termination Date" shall mean July 31, 2016, or such other date, if any, given to such term in the Limited Partnership Agreement.
"United States" or "U.S." means the United States of America, its 50 States, the District of Columbia and the Commonwealth of Puerto Rico.
"Valuation Date" shall mean, for purposes of determining whether the Fund is maintaining a Moody's Preferred Advance Amount and an S&P Preferred Advance Amount at least equal to the Preferred Interests Basic Maintenance Amount, (i) each Friday that is a Business Day, or for any Friday that is not a Business Day, the immediately preceding Business Day, (ii) the third Business Day preceding each date on which any dividend is proposed to be paid on Common Interests, (iii) the Date of Original Issue and (iv) any other date for which a Preferred Interests Basic Maintenance Report must be prepared.
"Voting Period" shall have the meaning specified in paragraph (b)(i) of Section 3 of this Statement.
1. Number of Authorized Preferred Interests.
The number of authorized interests constituting the Preferred Interests shall be as set forth with respect to such series in Section 2 of Appendix A hereto.
2. Dividends.
(a) Ranking. The Preferred Interests shall rank on a parity with each other, and with interests of any other preferred interests permitted by this Statement, as to the payment of dividends by the Fund.
(b) Cash Dividends. The Holders of the Preferred Interests shall be
entitled to receive, when, as and if declared by the General Partner or by any
Person or Persons designated by the General Partner, out of funds legally
available therefor in accordance with the Limited Partnership Agreement and
applicable law, cumulative cash dividends at the Applicable Rate, determined as
set forth in paragraph (e) of this Section 2, and no more, payable on the
Dividend Payment Dates determined pursuant to paragraph (d) of this Section 2.
Holders of Preferred Interests shall not be entitled to any dividend, whether
payable in cash, property or interests, in excess of full cumulative dividends,
as herein provided, on Preferred Interests. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Interests which may be in arrears, and, except to the
extent set forth in subparagraph (e)(i) of this Section 2, no additional sum of
money shall be payable in respect of any such arrearage. Notwithstanding the
foregoing, the Holders of the Preferred Interests shall be entitled to the
benefit, mutatis mutandis, of the provisions of Sections 3.4.4, 3.4.5, 3.6 and
3.7 of the Credit Agreement (as in effect on the Date of Original Issue),
subject, however, to the limitations applicable thereto and the related rights
of the Fund with respect thereto as set forth in the Credit Agreement
(including the provisions of Section 3.4.6 of the Credit Agreement) (as in
effect on the Date of Original Issue). In the event that a Holder of Preferred
Interests invokes the benefit of any such provision in a manner which results
in such Holder charging to the Fund increased costs in excess of those being
generally charged by the other Holders or becoming incapable of maintaining its
ownership of such Preferred Interests, the Fund shall have the right, if no
mandatory redemption event then exists, to compel such Holder (the "Replaced
Holder") to transfer its Preferred Interests to one or more Persons meeting the
requirements of Section 10 and reasonably acceptable to the Paying Agent
(collectively, the "Replacement Holder"); provided, however, that (i) at the
time of any replacement pursuant to this provision, the Replacement Holder
shall purchase all of the Preferred Interests of the Replaced Holder and, in
connection therewith, shall pay to the Replaced Holder in respect thereof an
amount equal to the liquidation preference of, and all accumulated but unpaid
dividends on, all such Preferred Interests held by the Replaced Holder, and
(ii) all amounts owing to the Replaced Holder in respect of its Preferred
Interests (other than those specifically described in clause (i) above in
respect of which the purchase price has been, or is concurrently being, paid)
shall be paid in full by the Fund to such Replaced Holder concurrently with
such replacement. Upon the payment of amounts referred to in clauses (i) and
(ii) above, the recordation of the transfer on the record books of the Fund and
delivery to the Replacement Holder of a certificate representing the purchased Preferred Interests executed by the Fund, the Replacement Holder shall become a Holder and the Replaced Holder shall cease to constitute a Holder.
(c) Dividends Cumulative From Date of Original Issue. Dividends on the Preferred Interests shall accumulate at the Applicable Rate in effect from time to time from the Date of Original Issue thereof.
(d) Dividend Payment Dates. The Dividend Payment Dates with respect to the Preferred Interests shall be as set forth in Section 5 of Appendix A hereto.
(e) Dividend Rates and Calculation of Dividends.
(i) Dividend Rates. The dividend rate on the Preferred Interests during the period from and after the Date of Original Issue for each Rate Period shall be equal to (A) LIBOR plus the Applicable Margin, in the case of a Holder that is not a CP Conduit, and (B) the higher of (x) LIBOR plus the Applicable Margin and (y) the applicable Cost of Funds Rate plus the Applicable Margin, in the case of a Holder that is a CP Conduit; provided, that following any failure to declare and pay dividends on any Dividend Payment Date (and until such dividends are paid), any mandatory redemption date under Section 8 or the Final Redemption Date, such dividend rate shall be LIBOR plus 3.00% per annum, which shall also be applied to the amount of any unpaid dividend on any Dividend Payment Date until such dividend is paid (the rate per annum at which dividends are payable on the Preferred Interests for any Rate Period being herein referred to as the "Applicable Rate").
(ii) Each Holder that is a CP Conduit shall, no later than the fifth Business Day following the end of each calendar quarter, furnish to the Paying Agent such Holder's written determination, in excel format, of its Cost of Funds Rate (subject to the cap set forth in the definition thereof) plus the Applicable Margin, and the resulting dividend amount payable to such Holder, for such preceding calendar quarter, provided, that such Holder need only furnish such written determination of such Cost of Funds Rate plus the Applicable Margin and resulting dividend amount payable if the dividend amount payable to such Holder would exceed the dividend amount payable to such Holder if such dividend were calculated using LIBOR plus the Applicable Margin. The Paying Agent shall compile any such determinations timely received from the Holders and furnish them to the Fund no later than the 10th Business Day following the end of each calendar quarter. If any such written determination of dividends payable based on the Cost of Funds Rate is not received by the Fund from the Paying Agent in a timely manner, dividends payable on the affected Preferred Interests on the immediately succeeding Dividend Payment Date shall be calculated on the basis of LIBOR plus the Applicable Margin. Each Holder furnishing any such determination of its Cost of Funds Rate shall represent to the Fund that such determination constitutes such Holder's good faith calculation of its actual cost of funding, and such representation shall, absent demonstrable error, be final and conclusive and binding on all parties
(subject to timely receipt thereof by the Fund in accordance with the foregoing sentence).
(iii) Calculation of Dividends. The amount of dividends payable on the Preferred Interests on any date on which dividends shall be payable on such interests shall be computed by multiplying the Applicable Rate for such interests in effect for such Dividend Period or Dividend Periods or part thereof for which dividends have not been paid by a fraction, the numerator of which shall be the number of days in such Dividend Period or Dividend Periods or part thereof and the denominator of which shall be 360, and applying the rate obtained against the Liquidation Preference.
(f) Dividends Paid to Holders. Each dividend on Preferred Interests shall be paid in immediately available funds by 10:00 a.m. (Los Angeles time) on the Dividend Payment Date therefor to the Paying Agent (to the account identified to the Fund by the Paying Agent) for distribution to the Holders thereof as their names appear on the record books of the Fund on the Business Day next preceding such Dividend Payment Date. The Fund shall, on or before the Business Day preceding each Dividend Payment Date, provide the Paying Agent with the names of the then-current Holders appearing on the record books of the Fund.
(g) Dividends Credited Against Earliest Accumulated but Unpaid Dividends. Any dividend payment made on Preferred Interests shall first be credited against the earliest accumulated but unpaid dividends due with respect to such Preferred Interests. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as their names appear on the record books of the Fund on such date, not exceeding 15 days preceding the payment date thereof, as may be fixed by the General Partner or the Person or Persons designated by the General Partner.
3. Voting Rights.
(a) One Vote Per Preferred Interest. Except as otherwise provided in the Limited Partnership Agreement or as otherwise required by law, each Holder of Preferred Interests shall be entitled to one vote for each Preferred Interest held by such Holder on each matter affecting such Preferred Interests submitted to a vote of the partners of the Fund; provided, however, that, at any meeting of the partners of the Fund held for the election of directors, the holders of outstanding preferred interests, including the Preferred Interests, represented in person or by proxy at said meeting, shall be entitled, as a class, to the exclusion of the holders of all other securities and classes of limited partnership interest in the Fund, to elect two directors of the Fund, each of the Preferred Interests entitling the holder thereof to one vote. Subject to paragraph (b) of this Section 3, the holders of outstanding Common Interests and preferred interests voting together as a single class, shall elect the balance of the directors.
(b) Voting For Additional Directors.
(i) Voting Period. Except as otherwise provided in the Limited Partnership Agreement or as otherwise required by law, during any period in which any one or more of the conditions described in subparagraphs (A) or (B) of this subparagraph (b)(i) shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the two directors elected exclusively by the holders of preferred interests, including the Preferred Interests, would constitute a majority of the Board of Directors as so increased by such smallest number, and the holders of preferred interests, including the Preferred Interests, shall be entitled, voting their interests as a class on a one-vote-per-interest basis (to the exclusion of the holders of all other securities and classes of limited partnership interests in the Fund), to elect such smallest number of additional directors, together with the two directors that such holders are in any event entitled to elect. A Voting Period shall commence:
(A) if at the close of business on any Dividend Payment Date accumulated dividends (whether or not earned or declared) on any outstanding Preferred Interests, equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited for the payment of such accumulated dividends; or
(B) if at any time holders of preferred interests, including the Preferred Interests, are entitled under the Investment Company Act to elect a majority of the directors of the Fund.
Upon the termination of a Voting Period, the voting rights described in this subparagraph (b)(i) shall cease, subject always, however, to the reverting of such voting rights in the Holders upon the further occurrence of any of the events described in this subparagraph (b)(i).
(ii) Notice of Special Meeting. As soon as practicable after the accrual of any right of the holders of preferred interests, including the Preferred Interests, to elect additional directors as described in subparagraph (b)(i) of this Section 3, the Board of Directors of the Fund shall call a special meeting of such holders, by mailing a notice of such special meeting to such holders, such meeting to be held not less than seven nor more than 45 days after the date of mailing of such notice. If the Board of Directors does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of preferred interests, including the Preferred Interests, held during a Voting Period at which directors are to be elected, such holders, voting together as a class (to the exclusion of the holders of all other securities and classes of limited partnership interests in the
Fund), shall be entitled to elect the number of directors prescribed in subparagraph (b)(i) of this Section 3 on a one-vote-per-interest basis.
(iii) Terms of Office of Existing Directors. The terms of office of all persons who are directors of the Fund at the time of a special meeting of Holders and holders of other preferred interests to elect directors shall continue, notwithstanding the election at such meeting by the Holders and such other holders of the number of directors that they are entitled to elect, and the persons so elected by the Holders and such other holders, together with the two incumbent directors elected by the Holders and such other holders of preferred interests and the remaining incumbent directors elected by the holders of the Common Interests, shall constitute the duly elected directors of the Fund.
(iv) Terms of Office of Certain Directors to Terminate Upon
Termination of Voting Period. Simultaneously with the termination of a
Voting Period, the terms of office of the additional directors elected
by the Holders and holders of other preferred interests pursuant to
subparagraph (b)(i) of this Section 3 shall terminate, the remaining
directors shall constitute the directors of the Fund and the voting
rights of the Holders and such other holders to elect additional
directors pursuant to subparagraph (b)(i) of this Section 3 shall
cease, subject to the provisions of the last sentence of subparagraph
(b)(i) of this Section 3.
(c) Holders of Preferred Interests to Vote on Certain Other Matters.
(i) Changes in Capitalization Structure. So long as any Preferred Interests are outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least a majority (or in the case of clause (A) below, at least 66?%, or in the case of clause (D) below, 100%) of the Preferred Interests outstanding at the time and voting on such matter, in person or by proxy, either in writing or at a meeting, voting as a separate class: (A) authorize, create or issue any interests ranking on a parity with (or senior to) the Preferred Interests with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, provided that the Fund obtains confirmation from S&P (if S&P is then rating the Preferred Interests at the request of the Fund) and Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund) that the issuance of such interests would not cause such Rating Agency to reduce, at that time, the rating then assigned by such Rating Agency to the Fund's senior secured revolving credit facility (the "Senior Facility") or the Preferred Interests (collectively, the "Facilities") and the issuance of any such interests would not cause the Fund to violate or breach any provision of the Credit Agreement); (B) amend, supplement or otherwise modify the Credit Agreement except in a manner that does not result in any Rating Agency reducing or withdrawing its rating of the Preferred Interests; (C) amend, alter or repeal the provisions of the Limited Partnership Agreement or this Statement, whether by merger, consolidation or otherwise, so as to materially and adversely affect in the aggregate the preferences, rights or powers of such Preferred Interests or (D) reduce the Liquidation Preference of the Preferred Interests; reduce the Applicable Rate or Applicable Margin
or otherwise reduce the dividend rate payable on the Preferred Interests; change the scheduled Dividend Payment Dates on the Preferred Interests; or grant any extension of the Final Redemption Date or any other final payment date in respect of the Preferred Interests; provided, however, that (I) a division of Preferred Interests will not be deemed to affect such preferences, rights or powers, (II) the authorization, creation and issuance of classes or series of interests ranking junior to the Preferred Interests with respect to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund will not be deemed to affect such preferences, rights or powers unless such issuance would, at the time thereof, cause the Fund not to satisfy the Investment Company Act Preferred Interests Asset Coverage or any provision of the Credit Agreement and (III) a reorganization of the Fund so that all or substantially all of its business is conducted by Special Value Continuation Fund, LLC, will be deemed not to affect such preferences, rights or powers, provided that such reorganization does not adversely affect the ratings of the Preferred Interests at that time by any rating agency then rating the Preferred Interests at the request of the Fund (a "Qualified Reorganization"). So long as any of the Preferred Interests are outstanding, the Fund shall not, without the affirmative vote or consent of the Holders of at least 76% of the Preferred Interests outstanding at the time, in person or by proxy, either in writing or at a meeting, voting as a separate class, file a voluntary application for relief under Federal bankruptcy law or any similar application under state law for so long as the Fund is solvent and does not foresee becoming insolvent.
(ii) Investment Company Act Matters. Unless a higher percentage is provided for in the Limited Partnership Agreement, (A) the affirmative vote of the Holders of at least a "majority of the outstanding Preferred Interests" at the time, voting as a separate class, shall be required to approve any conversion of the Fund from a closed-end to an open-end investment company and (B) the affirmative vote of the Holders of a "majority of the outstanding Preferred Interests," voting as a separate class, shall be required to approve any plan of reorganization (as such term is used in the Investment Company Act) adversely affecting such interests, provided that a Qualified Reorganization will be deemed not to adversely affect any such interests. The affirmative vote of the holders of a "majority of the outstanding Preferred Interests," voting as a separate class, shall be required to approve any action not described in the first sentence of this Section 3(c)(ii) requiring a vote of security holders of the Fund under Section 13(a) of the Investment Company Act. For purposes of the foregoing, "majority of the outstanding Preferred Interests" means (C) 66?% or more of such interests present at a meeting, if the Holders of more than 50% of such interests are present or represented by proxy, or (D) more than 50% of such interests, whichever is less. In the event a vote of Holders of Preferred Interests is required pursuant to the provisions of Section 13(a) of the Investment Company Act, the Fund shall, not later than five Business Days prior to the date on which such vote is to be taken, notify Moody's (if Moody's is then rating the Preferred Interests at
the request of the Fund) and S&P (if S&P is then rating the Preferred Interests at the request of the Fund) that such vote is to be taken and the nature of the action with respect to which such vote is to be taken. The Fund shall, not later than five Business Days after the date on which such vote is taken, notify Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund) and S&P (if S&P is then rating the Preferred Interests at the request of the Fund) of the results of such vote.
(d) Voting Rights Set Forth Herein Are Sole Voting Rights. Unless otherwise required by law, the Holders of Preferred Interests shall not have any relative preferences, rights or powers or other special rights (including voting rights) other than those specifically set forth herein.
(e) No Preemptive Rights Or Cumulative Voting. The Holders of Preferred Interests shall have no preemptive rights or rights to cumulative voting.
(f) Voting For Directors Sole Remedy For Fund's Failure To Pay Dividends. In the event that the Fund fails to pay any dividends on the Preferred Interests, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this Section 3.
(g) Holders Entitled To Vote. For purposes of determining any rights of the Holders to vote on any matter, whether such right is created by this Statement, by the other provisions of the Limited Partnership Agreement, by statute or otherwise, no Holder shall be entitled to vote any Preferred Interest and no Preferred Interest shall be deemed to be "outstanding" for the purpose of voting or determining the number of interests required to constitute a quorum if, prior to or concurrently with the time of determination of interests entitled to vote or interests deemed outstanding for quorum purposes, as the case may be, the requisite Notice of Redemption with respect to such interests shall have been mailed as provided in paragraph (c) of Section 9 of this Statement and the Redemption Price for the redemption of such interests shall have been deposited in trust with the Paying Agent for that purpose. No Preferred Interest held by the Fund shall have any voting rights or be deemed to be outstanding for voting or other purposes.
4. Investment Company Act Preferred Interests Asset Coverage.
The Fund shall maintain, as of the last Business Day of each month in which any Preferred Interests are outstanding, the Investment Company Act Preferred Interests Asset Coverage.
5. Preferred Interests Basic Maintenance Amount.
(a) So long as Preferred Interests are outstanding, the Fund shall determine on each Valuation Date whether each of (i) the Moody's Preferred Advance Amount calculated using the Moody's Preferred Advance Rate as of such Valuation Date (if Moody's is then rating the Preferred Interests at the request of the Fund) and (ii) the S&P Preferred Advance Amount calculated using the S&P Preferred Advance Rate as of such Business Day (if S&P is then rating
the Preferred Interests at the request of the Fund) is at least equal to the Preferred Interests Basic Maintenance Amount as of such Valuation Date. In addition, the Fund shall within 10 Business Days of each Valuation Date deliver a Preferred Interests Basic Maintenance Report to the Paying Agent, who shall forward such report to each Holder.
(b) On or before 5:00 P.M., New York City time, on the third Business Day after a Valuation Date on which the Fund fails to maintain the Moody's Preferred Advance Amount or the S&P Preferred Advance Amount, as determined in accordance with paragraph (a) of this Section 5, at least equal to the Preferred Interests Basic Maintenance Amount, and on the third Business Day after the Preferred Interests Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall complete and deliver to Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund), S&P (if S&P is then rating the Preferred Interests at the request of the Fund) and the Paying Agent (who shall forward such report to each Holder) a Preferred Interests Basic Maintenance Report as of the date of such failure or such Preferred Interests Basic Maintenance Cure Date, as the case may be. The Fund shall also deliver a Preferred Interests Basic Maintenance Report to Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund), S&P (if S&P is then rating the Preferred Interests at the request of the Fund) and the Paying Agent (who shall forward such report to each Holder) as of any Annual Valuation Date, in each case on or before the third Business Day after such day. A failure by the Fund to deliver a Preferred Interests Basic Maintenance Report pursuant to the preceding sentence shall be deemed to be delivery of a Preferred Interests Basic Maintenance Report indicating non-compliance by the Fund with the test set forth in paragraph (a) of this Section 5.
(c) Within ten Business Days after the date of delivery of a Preferred Interests Basic Maintenance Report relating to an Annual Valuation Date, the Fund shall cause the Independent Accountant to confirm in writing to Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund and does not waive such confirmation) and the Paying Agent, who shall forward such confirmation to each Holder, (i) the mathematical accuracy of the calculations reflected in such Report (and in any other Preferred Interests Basic Maintenance Report, randomly selected by the Independent Accountant, that was prepared by the Fund during the quarter ending on such Annual Valuation Date), (ii) that, in such Report (and in such randomly selected Report), the Fund determined in accordance with this Statement whether the Fund had, at such Annual Valuation Date (and at the Valuation Date addressed in such randomly selected Report), a Moody's Preferred Advance Amount calculated using the Moody's Preferred Advance Rate (if Moody's is then rating the Preferred Interests at the request of the Fund) at least equal to the Preferred Interests Basic Maintenance Amount and (iii) the Market Value of the Fund's portfolio has been determined in accordance with the Fund's valuation procedures, as amended from time to time, and to the extent prices for Fund assets are obtained from third parties or market prices the Independent Accountant shall verify such prices, and in the event such information does not agree, the Independent Accountant will provide a listing in its letter of such differences that the Fund has (such information is herein called the "Auditor's Confirmation").
Within 60 days after the end of each fiscal year of the Fund, the Fund shall deliver to Moody's and S&P and the Paying Agent (who shall forward such financial statements to each Holder) financial statements of the Fund as at the end of and for such fiscal year together with the independent registered public accounting firm's report thereon.
(d) Within ten Business Days after the date of delivery of a Preferred
Interests Basic Maintenance Report in accordance with paragraph (b) of this
Section 5 relating to any Valuation Date on which the Fund failed to satisfy
the test set forth in paragraph (a) of this Section 5, and relating to the
Preferred Interests Basic Maintenance Cure Date with respect to such failure to
satisfy the test set forth in paragraph (a) of this Section 5, the Fund shall
cause the Independent Accountant to provide to Moody's (if Moody's is then
rating the Preferred Interests at the request of the Fund and does not waive
such confirmation) and the Paying Agent, who shall forward such confirmation to
each Holder, an Auditor's Confirmation as to such Preferred Interests Basic
Maintenance Report.
(e) If any Auditor's Confirmation delivered pursuant to paragraph (c) or (d) of this Section 5 shows that an error was made in the Preferred Interests Basic Maintenance Report for a particular Valuation Date for which such Auditor's Confirmation was required to be delivered, or shows that a different Moody's Preferred Advance Amount was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Fund, and the Fund shall accordingly amend and deliver the Preferred Interests Basic Maintenance Report to Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund) and the Paying Agent (who shall forward such amended report to each Holder) promptly following receipt by the Fund of such Auditor's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the third Business
Day after any of (i) the Fund shall have repurchased Common Interests, (ii) the
ratio of the S&P Preferred Advance Amount to the Preferred Interests Basic
Maintenance Amount is less than 110%, or (iii) whenever requested by Moody's
(if Moody's is then rating the Preferred Interests at the request of the Fund)
or S&P (if S&P is then rating the Preferred Interests at the request of the
Fund), the Fund shall complete and deliver to the Moody's (if Moody's is then
rating the Preferred Interests at the request of the Fund), S&P (if S&P is then
rating the Preferred Interests at the request of the Fund), as the case may be,
and the Paying Agent (who shall forward such report to each Holder) a Preferred
Interests Basic Maintenance Report as of the date of such event or as of the
date requested, as the case may be.
6. Restrictions on Dividends and Other Distributions.
(a) Dividends on Interests Other than the Preferred Interests. Except as set forth in the next sentence, no dividends shall be declared or paid or set apart for payment on any limited partnership interests in the Fund ranking, as to the payment of dividends, on a parity with the Preferred Interests for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the interests of each series of the Preferred Interests through its most recent Dividend Payment Date. When dividends are not paid in full upon the Preferred Interests through its most recent Dividend Payment Date
or upon any other interests in the Fund ranking on a parity as to the payment of dividends with the Preferred Interests through their most recent respective dividend payment dates, all dividends declared upon the Preferred Interests and any other such interests ranking on a parity as to the payment of dividends with Preferred Interests shall be declared pro rata so that the amount of dividends declared per interest on Preferred Interests and such other interests shall in all cases bear to each other the same ratio that accumulated dividends per interest on the Preferred Interests and such other interests bear to each other (for purposes of this sentence, the amount of dividends declared per interest of Preferred Interests shall be based on the Applicable Rate for the Dividend Periods during which dividends were not paid in full).
(b) Dividends and Other Distributions with Respect to Common Interests Under the Investment Company Act. The Fund shall not declare any dividend (except a dividend payable in Common Interests), or declare any other distribution, upon the Common Interests, or purchase Common Interests, unless in every such case the Preferred Interests have, at the time of any such declaration or purchase, an asset coverage (as defined in and determined pursuant to the Investment Company Act) of at least 200% (or such other asset coverage as may in the future be specified in or under the Investment Company Act as the minimum asset coverage for senior securities which are shares or stock of a closed-end investment company as a condition of declaring dividends on its common shares or stock) after deducting the amount of such dividend, distribution or purchase price, as the case may be.
(c) Other Restrictions on Dividends and Other Distributions. For so long as any Preferred Interests are outstanding, and except as set forth in paragraph (a) of this Section 7 and paragraph (c) of Section 9 of this Statement, (i) the Fund shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in interests of, or in options, warrants or rights to subscribe for or purchase, Common Interests or other interests, if any, ranking junior to the Preferred Interests as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up) in respect of the Common Interests or any other interests of the Fund ranking junior to the Preferred Interests as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up, or call for redemption, redeem, purchase or otherwise acquire for consideration any Common Interests or any other such junior interests (except by conversion into or exchange for interests of the Fund ranking junior to the Preferred Interests as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up), unless (A) full cumulative dividends on the Preferred Interests through the most recently ended Dividend Period shall have been paid or shall have been declared and sufficient funds for the payment thereof deposited with the Paying Agent, and (B) the Fund has redeemed the full number of Preferred Interests required to be redeemed by any provision for mandatory redemption pertaining thereto, and (ii) the Fund shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in interests of, or in options, warrants or rights to subscribe for or purchase, Common Interests or other interests, if any, ranking junior to the Preferred Interests as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up) in respect of Common Interests or any
other interests of the Fund ranking junior to the Preferred Interests as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or
otherwise acquire for consideration any Common Interests or any other such
junior interests (except by conversion into or exchange for interests of the
Fund ranking junior to Preferred Interests as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up), unless
immediately after such transaction (i) the Moody's Preferred Advance Amount
calculated using the Moody's Preferred Advance Rate as of such Business Day (if
Moody's is then rating the Preferred Interests at the request of the Fund) and
(ii) the S&P Preferred Advance Amount calculated using the S&P Preferred
Advance Rate as of such Business Day (if S&P is then rating the Preferred
Interests at the request of the Fund) is at least equal to the Preferred
Interests Basic Maintenance Amount.
7. Rating Agency Restrictions.
Except as otherwise permitted by the then-current guidelines of Moody's (if Moody's is then rating the Preferred Interests at the request of the Fund) and S&P (if S&P is then rating the Preferred Interests at the request of the Fund) as set forth herein and in the Credit Agreement with respect to the Senior Facility or other pertinent written guidelines published by the applicable Rating Agency, for so long as any Preferred Interests are outstanding and Moody's or S&P, or both, is rating such interests at the request of the Fund, the Fund will not, unless it has received the prior written confirmation from Moody's or S&P, or both, as applicable, that any such action would not at that time impair the rating then assigned by such Rating Agency to the Preferred Interests, engage in any one or more of the following transactions:
(a) borrow money, except that the Fund may, without obtaining the written confirmation described above, borrow money if (i) the test set forth in paragraph (a) of Section 5 of this Statement would continue to be satisfied after giving effect to such borrowing; (ii) such borrowing (A) is privately arranged with a bank or other person and is evidenced by a promissory note or other evidence of indebtedness that is not intended to be publicly distributed or (B) is for "temporary purposes," is evidenced by a promissory note or other evidence of indebtedness and is in an amount not exceeding five percent (5%) of the value of the total assets of the Fund at the time of the borrowing; for purposes of the foregoing, "temporary purpose" means that the borrowing is to be repaid within sixty days and is not to be extended or renewed; and (iii) such borrowing is permitted under the Credit Agreement;
(b) permit more than 6,700 Preferred Interests to be outstanding at any one time or issue any interests ranking prior to or on a parity with Preferred Interests with respect to the payment of dividends or the distribution of assets upon dissolutions, liquidation or winding up of the Fund;
(c) merge or consolidate into or with any other entity;
(d) enter into reverse repurchase agreements; or
(e) if the Preferred Interests are rated by S&P at the request of the Fund, engage in interest rate swaps, caps and floors, except that the Fund may, without obtaining the written consent of S&P described above, engage in swaps, caps and floors if: (i) the counterparty to the swap transaction has a short-term rating of "A-1" or better from S&P or, if the counterparty does not have a short-term rating, the counterparty's senior unsecured long-term debt rating from S&P is "A-" or higher, and (ii) the interest rate swap transaction will be marked-to-market weekly.
8. Redemption.
(a) Optional Redemption.
(i) Subject to the provisions of subparagraph (iii) of this paragraph (a) and the terms of Section 6.2.5 of the Credit Agreement, the Preferred Interests may be redeemed, at the option of the Fund, as a whole or from time to time in part, on any Dividend Payment Date, out of funds legally available therefor, at a redemption price per interest equal to the sum of $20,000 plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed for redemption; provided, however, that Preferred Interests may not be redeemed in part if after such partial redemption fewer than 200 interests remain outstanding. If such redemption occurs on or prior to the second anniversary of the Date of Original Issue, the Holders of the Preferred Interests redeemed shall be entitled to receive a redemption premium in an amount equal to a percentage of the redemption amount, which percentage shall be determined by linear interpolation (and rounded to the nearest 0.0001%) during the period from the Date of Original Issue, as to which the percentage shall be 0.5%, through the second anniversary of the Date of Original Issue, as to which the percentage shall be 0.1%. For the avoidance of doubt, no redemption premium shall be payable after the second anniversary of such Date of Original Issue.
(ii) If fewer than all of the outstanding Preferred Interests are to be redeemed pursuant to subparagraph (i) of this paragraph (a), the number of interests to be redeemed shall be determined by the General Partner or its designee, and such interests shall be redeemed pro rata from the Holders of the Preferred Interests in proportion to the number of interests held by such Holders.
(iii) The Fund may not on any date mail a Notice of Redemption pursuant to paragraph (c) of this Section 8 in respect of a redemption contemplated to be effected pursuant to this paragraph (a) unless on such date the Fund has available liquid securities having a value not less than the amount (including any applicable premium) due to Holders of Preferred Interests by reason of redemption of such interests or such redemption date, and (b) (i) the Moody's Preferred Advance Amount calculated using the Moody's Preferred Advance Rate as of such Business Day (if Moody's is then rating the Preferred Interests at the request of the Fund) and (ii) the S&P Preferred Advance Amount calculated using the S&P Preferred Advance Rate as of such Business Day (if S&P is then rating the Preferred Interests at
the request of the Fund) is at least equal to the Preferred Interests Basic Maintenance Amount, and would at least equal the Preferred Interests Basic Maintenance Amount immediately subsequent to such redemption if such redemption were to occur on such date and any Preferred Interests remained outstanding after such redemption.
(b) Mandatory Redemption. The Fund shall redeem, at a redemption price equal to $20,000 per interest plus accumulated but unpaid dividends thereon (whether or not earned or declared) to (but not including) the date fixed by the General Partner for redemption, certain of the Preferred Interests, subject to compliance with the provisions of the Credit Agreement, including Section 6.1.18 thereof, and the Pledge and Intercreditor Agreement, if the Fund (i) fails to have (A) a Moody's Preferred Advance Amount calculated using the Moody's Preferred Advance Rate as of such Business Day (if Moody's is then rating the Preferred Interests at the request of the Fund) and (B) an S&P Preferred Advance Amount calculated using the S&P Preferred Advance Rate as of such Business Day (if S&P is then rating the Preferred Interests at the request of the Fund) at least equal to the Preferred Interests Basic Maintenance Amount, or (ii) fails to maintain the Investment Company Act Preferred Interests Asset Coverage, or (iii) experiences an event that would constitute an Event of Default (as defined in the Credit Agreement), whether or not the Credit Agreement is then in effect, and such failure is not, as applicable, (x) cured on or before the Preferred Interests Basic Maintenance Cure Date, (y) cured on or before the Investment Company Act Cure Date, or (z) cured in accordance with the terms of the Credit Agreement. The number of Preferred Interests to be redeemed shall be equal to the lesser of (i) the minimum number of Preferred Interests the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, would have resulted in the Fund's having (A) a Moody's Preferred Advance Amount calculated using the Moody's Preferred Advance Rate as of such Valuation Date (if Moody's is then rating the Preferred Interests at the request of the Fund) and (B) an S&P Preferred Advance Amount calculated using the S&P Preferred Advance Rate as of such Business Day (if S&P is then rating the Preferred Interests at the request of the Fund) at least equal to the Preferred Interests Basic Maintenance Amount, or maintaining the Investment Company Act Preferred Interests Asset Coverage, as the case may be, on such Cure Date (provided, however, that if there is no such minimum number of Preferred Interests the redemption or retirement of which would have had such result, all Preferred Interests then outstanding shall be redeemed), and (ii) the maximum number of Preferred Interests that can be redeemed out of funds expected to be legally available therefor in accordance with the Limited Partnership Agreement and permitted to be paid under the Credit Agreement, as applicable, and applicable law, provided, however, that under no circumstances shall the Preferred Interests be redeemed in part if fewer than 200 interests of such series would remain outstanding after such redemption. In determining the Preferred Interests required to be redeemed in accordance with the foregoing, the Fund shall allocate the number required to be redeemed to satisfy the Preferred Interests Basic Maintenance Amount, the Investment Company Act Preferred Interests Asset Coverage or the requirements of the Credit Agreement, as the case may be, pro rata among Preferred Interests. The Fund shall effect such redemption on the date fixed by the Fund therefor, which date shall not be
earlier than 10 days nor later than 30 days after such Cure Date, except that if the Fund does not have funds legally available for the redemption of all of the required number of the Preferred Interests which are subject to redemption or retirement or the Fund otherwise is unable to effect such redemption on or prior to 30 days after such Cure Date, the Fund shall redeem those Preferred Interests which it was unable to redeem on the earliest practicable date on which it is able to effect such redemption. Notwithstanding anything to the contrary contained in this Statement, all of the Preferred Interests will be redeemed on the Final Redemption Date pursuant to procedures established by the General Partner.
(c) Notice of Redemption. If the Fund shall determine or be required
to redeem Preferred Interests pursuant to paragraph (a) or (b) of this Section
8, it shall send a Notice of Redemption with respect to such redemption by
nationally recognized overnight delivery service, postage prepaid, to (i) each
Holder of the Preferred Interests to be redeemed, at such Holder's address as
the same appears on the record books of the Fund on the record date established
by the General Partner and (ii) to S&P, if S&P is then rating the Preferred
Interests at the request of the Fund, and to Moody's if Moody's is then rating
the Preferred Interests at the request of the Fund. Such Notice of Redemption
shall be so mailed not less than five nor more than 45 calendar days prior to
the date fixed for redemption. Each such Notice of Redemption shall state: (i)
the redemption date; (ii) the number of Preferred Interests to be redeemed;
(iii) the Redemption Price; (iv) the place or places where the certificate(s)
for such interests (properly endorsed or assigned for transfer, if the General
Partner or its designee shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (v) that
dividends on the interests to be redeemed will cease to accumulate on such
redemption date; and (vi) the provisions of this Section 8 under which such
redemption is made. If fewer than all the Preferred Interests held by any
Holder are to be redeemed, the Notice of Redemption mailed to such Holder shall
also specify the number of interests to be redeemed from such Holder. The Fund
may provide in any Notice of Redemption relating to a redemption contemplated
to be effected pursuant to paragraph (a) of this Section 8 that such redemption
is subject to one or more conditions precedent and that the Fund shall not be
required to effect such redemption unless each such condition shall have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(d) No Redemption Under Certain Circumstances. Notwithstanding the provisions of paragraph (a) or (b) of this Section 8, if any dividends on the Preferred Interests (whether or not earned or declared) are in arrears, no Preferred Interests shall be redeemed unless all outstanding Preferred Interests are simultaneously redeemed, and the Fund shall not purchase or otherwise acquire any Preferred Interests; provided, however, that the foregoing shall not prevent the purchase or acquisition of all outstanding Preferred Interests pursuant to the successful completion of an otherwise lawful purchase or exchange offer made on the same terms to Holders of all outstanding Preferred Interests.
(e) Absence of Funds Available for Redemption. To the extent that any redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the Limited Partnership Agreement and applicable law or not being permitted to be paid under the Credit Agreement, such redemption shall be made as soon as practicable to the extent such funds become available and/or are then permitted to be paid under the Credit Agreement. Failure to redeem Preferred Interests shall be deemed to exist at any time after the date specified for redemption in a Notice of Redemption when the Fund shall have failed, for any reason whatsoever, to pay the Redemption Price with respect to any interests for which such Notice of Redemption has been mailed; provided, however, that the foregoing shall not apply in the case of the Fund's failure to pay the Redemption Price with respect to any interests where (1) the Notice of Redemption relating to such redemption provided that such redemption was subject to one or more conditions precedent and (2) any such condition precedent shall not have been satisfied at the time or times and in the manner specified in such Notice of Redemption. Notwithstanding the fact that the Fund may not have redeemed Preferred Interests for which a Notice of Redemption has been mailed, dividends may be declared and paid on Preferred Interests and shall include those Preferred Interests for which a Notice of Redemption has been mailed.
(f) Interests for Which Notice of Redemption Has Been Given Are no Longer Outstanding. Provided a Notice of Redemption has been mailed pursuant to paragraph (c) of this Section 8, upon the deposit with the Paying Agent (by 10:00 a.m. (Los Angeles time) on the date fixed for redemption thereby, in immediately available funds) of funds sufficient to redeem the Preferred Interests that are the subject of such notice, dividends on such interests shall cease to accumulate and such interests shall no longer be deemed to be outstanding for any purpose, and all rights of the Holders of the interests so called for redemption shall cease and terminate, except the right of such Holders to receive the Redemption Price, but without any interest or other additional amount. Upon surrender in accordance with the Notice of Redemption of the certificates for any interests so redeemed (properly endorsed or assigned for transfer, if the General Partner shall so require and the Notice of Redemption shall so state), the Redemption Price shall be paid by the Paying Agent, upon receipt of such amount in immediately available funds from the Fund, to the Holders of Preferred Interests subject to redemption. In the case that fewer than all of the interests represented by any such certificate are redeemed, a new certificate shall be issued, representing the unredeemed interests, without cost to the Holder thereof. The Fund shall be entitled to receive from the Paying Agent, promptly after the date fixed for redemption, any cash deposited with the Paying Agent in excess of (i) the aggregate Redemption Price of the Preferred Interests called for redemption on such date and (ii) all other amounts to which Holders of Preferred Interests called for redemption may be entitled. Any funds so deposited that are not distributed by the Paying Agent and are unclaimed at the end of 90 days from such redemption date shall, to the extent permitted by law, be repaid to the Fund, after which time the Holders of Preferred Interests so called for redemption may look only to the Fund for payment of the Redemption Price and all other amounts to which they may be entitled.
(g) Compliance with Applicable Law. In effecting any redemption pursuant to this Section 8, the Fund shall use its best efforts to comply with all applicable conditions precedent to effecting such redemption under the
Investment Company Act and applicable law, but shall effect no redemption except in accordance with the Investment Company Act and applicable law.
(h) Only Whole Preferred Interests May Be Redeemed. In the case of any redemption pursuant to this Section 8, only whole Preferred Interests shall be redeemed, and in the event that any provision of the Limited Partnership Agreement would require redemption of a fractional interest, the Fund shall be authorized to round up so that only whole interests are redeemed.
9. Liquidation Rights.
(a) Ranking. The Preferred Interests shall rank senior to the Common Interests as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund, shall rank on a parity with each other and with interests of any other preferred interests permitted hereby as to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund and shall rank junior to any borrowings by the Fund including borrowings under the Credit Agreement to the extent set forth therein.
(b) Distributions Upon Liquidation. Upon the dissolution, liquidation or winding up of the affairs of the Fund, whether voluntary or involuntary, the Holders of Preferred Interests then outstanding shall be entitled to receive and to be paid (or have set aside for payment) out of the assets of the Fund available for distribution to its limited partners, before any payment or distribution shall be made on the Common Interests or on any other class of interests of the Fund ranking junior to the Preferred Interests upon dissolution, liquidation or winding up, an amount equal to the Liquidation Preference with respect to such interests plus an amount equal to all dividends thereon (whether or not earned or declared) accumulated but unpaid to (but not including) the date of final distribution in same day funds in connection with the liquidation of the Fund. After the payment to the Holders of the Preferred Interests of the full preferential amounts provided for in this paragraph (b), the Holders of Preferred Interests as such shall have no right or claim to any of the remaining assets of the Fund.
(c) Pro Rata Distributions. In the event the assets of the Fund available for distribution to the Holders of Preferred Interests upon any dissolution, liquidation, or winding up of the affairs of the Fund, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such Holders are entitled pursuant to paragraph (b) of this Section 9, no such distribution shall be made on account of any other preferred interests ranking on a parity with the Preferred Interests with respect to the distribution of assets upon such dissolution, liquidation or winding up, unless proportionate distributive amounts shall be paid on account of the Preferred Interests, ratably, in proportion to the full distributable amounts for which holders of all such parity interests are respectively entitled upon such dissolution, liquidation or winding up.
(d) Rights of Junior Interests. Subject to the rights of the holders of any interests ranking on a parity with the Preferred Interests with respect to the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Fund, after payment shall have been made in full to the Holders of the Preferred Interests as provided in paragraph (b) of this Section 9, but not prior thereto, any other classes of interests ranking junior to the Preferred Interests with respect to the distribution of assets upon dissolution, liquidation or winding up of the affairs of the Fund shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Holders of the Preferred Interests shall not be entitled to share therein.
(e) Certain Events Not Constituting Liquidation. Neither the sale of all or substantially all the property or business of the Fund, nor the merger or consolidation of the Fund into or with any legal entity or corporation nor the merger or consolidation of any legal entity into or with the Fund shall be a dissolution, liquidation or winding up, whether voluntary or involuntary, for the purposes of this Section 9.
10. Transfer of Preferred Interests; Certificates.
The Preferred Interests may be sold only in reliance on an exemption from the registration requirements of the Securities Act and only to Persons who are institutional accredited investors for purposes of Regulation D under the Securities Act, subject to the prior written consent of the Fund and the Paying Agent, such consent in each case not to be unreasonably withheld or delayed; provided, however, that subject to compliance with the legend set forth below, the Preferred Interests may be transferred to a Holder's Affiliates, liquidity providers or committed lenders without such consent. The Preferred Interests shall be transferable only in minimum denominations of $20,000,000 (based on liquidation preference) (or, if lower, the Holder's entire remaining interest in the Preferred Interests) unless being transferred to a Holder's Affiliates, liquidity providers or committed lenders; provided, however, that in no event shall (i) any of the Holder's Affiliates, liquidity providers or committed lenders be permitted to transfer to any Person that is not an Affiliate, liquidity provider or committed lender of the Holder unless in minimum denominations of $20,000,000 or such lower amount that is the sum of the Holder's and its Affiliates', liquidity providers' and committed lenders' total aggregate holdings of Preferred Interests and (ii) there be more than 90 Holders of Preferred Interests at any time, with such 90 slots being allocated on a pro rata basis to the Holders of the Preferred Interests issued on the Date of Original Issue. Except as otherwise determined by the Fund, any certificate representing the Preferred Interests shall include the following legend:
"THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT") OR ANY STATE SECURITIES OR "BLUE SKY" LAWS. THE HOLDER HEREOF, BY PURCHASING THE INTERESTS REPRESENTED BY THIS CERTIFICATE, AGREES FOR THE BENEFIT OF SPECIAL VALUE CONTINUATION PARTNERS, LP (THE "FUND") THAT THE INTERESTS REPRESENTED BY THIS CERTIFICATE ARE BEING ACQUIRED FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO DISTRIBUTION AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH THE
STATEMENT OF PREFERENCES RELATING TO THE INTERESTS AND ALL APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION AND ONLY TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT. EACH PURCHASER OF THE INTERESTS REPRESENTED BY THIS CERTIFICATE
WILL BE REQUIRED TO EXECUTE A PURCHASER'S LETTER RELATING TO THE
INTERESTS CERTIFYING, AMONG OTHER THINGS, THAT SUCH PURCHASER IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT.
11. Preferred Limited Partner of the Fund.
Each registered holder of the Preferred Interests shall be automatically admitted as a limited partner of the Fund.
12. Miscellaneous.
(a) Conditions Precedent. The conditions set forth in Section 4.1 of the Credit Agreement shall be satisfied as of the Date of Original Issue.
(b) Appendices A, B and C. Appendices A, B and C hereto are incorporated in and made a part of this Statement by reference thereto.
(c) No Fractional Interests. No fractional number of Preferred Interests shall be issued.
(d) Status of Preferred Interests Redeemed, Exchanged or Otherwise Acquired by the Fund. Preferred Interests which are redeemed, exchanged or otherwise acquired by the Fund shall be cancelled.
(e) Resignation by the Paying Agent. The Paying Agent may resign from the performance of all its functions and duties hereunder at any time by giving thirty (30) Business Days' prior written notice to the Fund, Moody's, S&P and the Holders. Such resignation shall take effect upon the appointment of a successor Paying Agent as provided below. Upon any such notice of resignation, the Holders of a majority of the Preferred Interests shall appoint a successor Paying Agent hereunder (with notice of such appointment provided to the Fund, Moody's and S&P), who shall be a commercial bank, investment bank, financial institution or trust company that is, unless a mandatory redemption event has occurred and is continuing, reasonably acceptable to the Fund. If a successor Paying Agent shall not have been so appointed within such thirty (30) Business Day period, the Paying Agent, with (unless a mandatory redemption event has
occurred and is continuing) the consent of the Fund (which consent shall not be unreasonably withheld), shall then appoint a successor Paying Agent who shall serve as Paying Agent hereunder until such time, if any, as the Holders of a majority of the Preferred Interests appoint a successor Paying Agent as provided above. If no successor Paying Agent has been so appointed by the thirtieth (30th) Business Day after the date such notice of resignation was given by the Paying Agent, the Paying Agent's resignation shall become effective and the Holders of a majority of the Preferred Interests shall thereafter perform all the duties of the Paying Agent hereunder until such time, if any, as the Holders of a majority of the Preferred Interests appoint a successor Paying Agent as provided above.
(f) Payment of Expenses, etc. The Fund agrees to: (i) pay all
reasonable out-of-pocket costs and expenses (A) of the Paying Agent in
connection with the negotiation, preparation, execution and delivery of the
Preferred Interests and the documents and instruments referred to therein and
any amendment, waiver or consent relating thereto, (B) of the Paying Agent in
connection with third party contractors hired by the Paying Agent to deliver
reports, notices and other documents to the Holders and (C) of the Paying Agent
and each of the Holders in connection with any enforcement of the Preferred
Interests (including the reasonable fees and disbursements of (1) one counsel
for the Paying Agent (which counsel shall be selected by the Paying Agent) and
(2) upon prior written notice to the Fund, one counsel for all of the other
Holders); (ii) pay and hold each of the Holders and the Paying Agent harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and hold each of the Holders harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Holder) to pay
such taxes; and (iii) indemnify each Holder and the Paying Agent, their
respective officers, directors, employees, representatives and agents from and
hold each of them harmless against any and all losses, liabilities,
obligations, penalties, actions, judgments, claims, damages, costs or expenses
incurred by any of them as a result of, or arising out of, or in any way
related to, or by reason of, (a) any investigation, litigation or other
proceeding (whether or not any Holder is a party thereto) related to the Fund,
including the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified) or (b) the actual or alleged presence of Hazardous
Materials in the air, surface water, groundwater, surface or subsurface of any
real property owned or at any time operated by the Fund, the generation,
storage, transportation or disposal of Hazardous Materials at any location
whether or not owned or operated by the Fund, the noncompliance of any real
property owned or at any time operated by the Fund with Federal, state and
local laws, regulations, and ordinances (including applicable permits
hereunder) applicable to any such real property, or any Environmental Claim
asserted against the Fund, or any such real property, including, in each case,
the reasonable disbursements of counsel and other consultants incurred in
connection with any such investigation, litigation or other proceeding (but
excluding in all cases any losses, liabilities, claims, damages or expenses to
the extent incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified). To the extent that the undertaking to indemnify,
pay or hold harmless the Paying Agent or any Holder set forth in the preceding
sentence may be unenforceable because it violates any law or public policy, the Fund shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. Neither the Fund nor any indemnified Person shall be liable for any indirect or consequential damages in connection with its activities related to the Preferred Interests. The agreements in this paragraph (f) shall survive the payment of all other amounts payable hereunder.
(g) Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier or e-mail) and mailed, e-mailed, telecopied or delivered, if to the Fund, Moody's, S&P and the Paying Agent, at its address specified on Schedule 1 hereto or, if to any Holder, at its address appearing in the record books of the Fund (provided, that any notice provided for hereunder to a Person that is not in the United States shall be by facsimile or e-mail transmission if such Person has provided current facsimile or e-mail contact information); or, at such other address as shall be designated by any such Person in a written notice to the Fund and the Paying Agent. Any such notice or communication shall be deemed to have been given or made as of: the date so delivered, if delivered personally or by overnight courier; when receipt is acknowledged, if telecopied or e-mailed; and five (5) calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). The Fund and the Paying Agent hereby acknowledge that each CP Conduit has appointed a Funding Agent to act as its agent with respect to the Preferred Interests and, if applicable, the Loan Purchase Agreement or the Liquidity Agreement to which it is a party. Unless otherwise instructed by a CP Conduit, copies of all notices, requests, demands and other documents to be delivered to such CP Conduit pursuant to the terms hereof shall be delivered to the Funding Agent with respect to such CP Conduit at such address as has been notified in writing by such CP Conduit to the Fund and the Paying Agent.
(h) Confidentiality. Each Holder shall (and shall cause its employees, directors, agents, attorneys, accountants and other professional advisors to) hold all non-public information obtained pursuant to its holding of Preferred Interests, in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices, and in any event may make disclosure (i) reasonably required by any bona fide actual or potential transferee or participant in connection with the contemplated transfer of such Holder's Preferred Interests or by any Affiliate, Designated CP Conduit Committed Lender or Liquidity Provider of such Holder (including attorneys, legal advisors, accountants and consultants of any such Holder, Affiliate, Liquidity Provider or Designated CP Conduit Committed Lender or any rating agency then rating the commercial paper notes of such Holder if it is a CP Conduit) (so long as such transferee, participant or Affiliate, Liquidity Provider or Designated CP Conduit Committed Lender agrees to be bound by the provisions of this paragraph (h)), (ii) to such Holder's employees who have a need to know such information, directors, agents, attorneys, accountants and other professional advisors; provided that the confidential information
shall be used solely for the purpose of administrating the holding of the Preferred Interests, including the evaluation of the Fund and its Affiliates, and such confidential information shall be used in compliance with the legal and internal control requirements of such Holder, (iii) which has been publicly disclosed other than in breach of this provision, (iv) as required or requested by any governmental agency or representative thereof or pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative, or regulatory authority, provided that unless prohibited by applicable law or court order, such Holder shall make reasonable efforts to inform the Fund reasonably in advance of any such disclosure, (v) pursuant to legal process or in any suit, action, proceeding or investigation (whether in law or in equity or pursuant to arbitration) involving the Preferred Interests for the purpose of defending itself, reducing its liability, or protecting or exercising any of its claims, rights, remedies, or interests under or in connection with the Preferred Interests, provided that unless prohibited by applicable law or court order, such Holder shall make reasonable efforts to inform the Fund reasonably in advance of any such disclosure, or (vi) in connection with the exercise of any right or remedy hereunder; provided, that, in no event shall any Holder, any Affiliate thereof or any Liquidity Provider be obligated or required to return any materials furnished by the Fund. A Person that ceases to be a Holder shall continue to abide by the provisions of this paragraph (h). Anything herein to the contrary notwithstanding, the Fund hereby consents to the disclosure of any nonpublic information with respect to it to any rating agency, commercial paper dealer, administrator or provider of a surety, guaranty or credit or liquidity enhancement to a Holder and to any officers, directors, employees, outside accountants, advisors, and attorneys of any of the foregoing, provided each such Person has a reasonable need to know such information, uses such information solely for purposes of providing the aforementioned services or functions to such Holder and is informed of the confidential nature of such information.
(i) Headings Not Determinative. The headings contained in this Statement are for convenience of reference only and shall not affect the meaning or interpretation of this statement.
IN WITNESS WHEREOF, SPECIAL VALUE CONTINUATION PARTNERS, LP, has caused these presents to be signed as of July 31, 2006 in its name and on its behalf by its President and attested by its Secretary. Said officers of the Fund have executed this Statement as officers and not individually, and the obligations and rights set forth in this Statement are not binding upon any such officers, or the directors or interestholders of the Fund, individually, but are binding only upon the assets and property of the Fund.
SPECIAL VALUE CONTINUATION PARTNERS, LP
By: SVCF/GP, LLC,
its general partner
By: /s/ Howard M. Levkowitz
-----------------------------------
Name: Howard M. Levkowitz
Title: President
ATTEST:
/s/ David Hollander
-----------------------------
Name: David Hollander
Title: Secretary
July 31, 2006
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Acknowledged and agreed to as to
the provisions herein relating to
its obligations as Paying Agent
WACHOVIA CAPITAL MARKETS, LLC
SPECIAL VALUE CONTINUATION PARTNERS, LP
APPENDIX A
SECTION 1
Designation as to Series.
SERIES A: A series of 6,700 Preferred Interests, liquidation preference $20,000 per interest, is hereby designated "Series A Cumulative Preferred Interests." Each of the 6,700 interests of Series A Cumulative Preferred Interests issued on July 31, 2006 shall, for purposes hereof, be deemed to have a Date of Original Issue of July 31, 2006; have an initial Dividend Payment Date of October 20, 2006; and have such other preferences, limitations and relative voting rights, in addition to those required by applicable law or set forth in the Limited Partnership Agreement of the Fund applicable to Preferred Interests of the Fund, as set forth in this Statement. Each Series A Cumulative Preferred Interest shall be identical.
SECTION 2
Number of Authorized Interests Per Series.
The number of authorized interests constituting Series A Cumulative Preferred Interests is 6,700.
SECTION 3
Initial Rate Periods.
The Initial Rate Period for interests of Series A Cumulative Preferred Interests shall be the period from and including the Date of Original Issue thereof to and including August 31, 2006.
SECTION 4
Date for Purposes of the Definition of "Annual Valuation Date" Contained Under the Heading "Definitions" in this Statement.
December 31, 2006
SECTION 5
Dividend Payment Dates.
Dividends shall be payable on the Series A Cumulative Preferred Interests on each Quarterly Date.
Special Value Continuation Fund, L.P.
Attention: Mark K. Holdsworth
2951 28th St., Suite 1000
Santa Monica, CA 90405
Phone: (310) 566-1004
Fax: (310) 566-1010
Email: mark@tenneco.com
With a copy to the Investment Manager:
Tennenbaum Capital Partners, LLC
c/o Tennenbaum & Co., LLC
Attention: Howard M. Levkowitz
2951 28th St., Suite 1000
Santa Monica, CA 90405
Phone: (310) 566-1004
Fax: (310) 566-1010
Email: howard@tennenco.com
Wachovia Capital Markets, LLC
201 South College Street, NC0680
Charlotte, North Carolina 28244
Attention: Paul Burkart
Phone: (704) 383-3766 Fax: (704) 383-7979 Email: paul.burkhart@wachovia.com |
Moody's Investors Service, Inc.
99 Church Street
New York, NY 10007
Attention: CBO/CLO Monitoring
Phone: (212) 553-4173
Fax: (212) 553-0355
With a copy to:
Moody's Investors Service
99 Church Street
New York, New York 10007
Attention: Asset Backed Commercial Paper Group
Fax: 212-553-0881
Standard & Poor's Ratings Services
CDO Surveillance
55 Water Street, 42nd Floor
New York, NY 10041-0003
Phone: (212) 438-1000
Exhibit G-1
INVESTMENT MANAGEMENT AGREEMENT
dated as of July 31, 2006
BY AND BETWEEN
SPECIAL VALUE CONTINUATION FUND, LLC,
a Delaware limited liability company
AND
TENNENBAUM CAPITAL PARTNERS, LLC,
a Delaware limited liability company
Page
----
1. General Duties of the Investment Manager..............................1
2. Duties and Obligations of the Investment Manager with Respect
to the Administration of the Company................................3
3. Authority to Bind the Company; No Joint Venture.......................4
4. Limitations Relating to Investments...................................5
5. Brokerage.............................................................7
6. Compensation..........................................................7
7. Expenses..............................................................9
8. Services to Other Companies or Accounts..............................10
9. Duty of Care and Loyalty.............................................10
10. Indemnification......................................................11
11. Term of Agreement; Events Affecting the Investment Manager;
Survival of Certain Terms..........................................12
12. Power of Attorney; Further Assurances................................14
13. Amendment of this Agreement..........................................15
14. Notices..............................................................15
15. Binding Nature of Agreement; Successors and Assigns..................16
16. Entire Agreement.....................................................16
17. Costs and Expenses...................................................16
18. Books and Records....................................................16
19. Titles Not to Affect Interpretation..................................16
20. Provisions Separable.................................................16
21. Governing Law........................................................16
22. Execution in Counterparts............................................17
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INVESTMENT MANAGEMENT AGREEMENT
This Investment Management Agreement (the "Agreement"), dated as of July 31, 2006, is made by and between Special Value Continuation Fund, LLC (the "Company"), a Delaware limited liability company which will be registered as a nondiversified closed-end management investment company act under the Investment Company Act of 1940 (the "1940 Act"), and Tennenbaum Capital Partners, LLC (the "Investment Manager"), a Delaware limited liability company registered as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act"). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Operating Agreement of the Company dated as of July 31, 2006 (as the same may be amended from time to time, the "Operating Agreement").
1. General Duties of the Investment Manager.
Subject to the direction and control of the Company's Board of Directors (the "Board") and subject to and in accordance with the terms of the Credit Agreement, the Operating Agreement, the Pledge and Intercreditor Agreement (as defined in the Credit Agreement), the Custodial Agreement (as defined in the Credit Agreement), the Co-Management Agreement (as defined in the Credit Agreement), the policies adopted or approved by the Board, the conditions of any exemptive order obtained by or for the benefit of the Company from the Securities and Exchange Commission (the "SEC") and this Agreement, the Investment Manager agrees to supervise and direct the investment and reinvestment of the Assets and perform the duties set forth herein or in the Operating Agreement (subject to the approval of the Investment Committee (as defined in Section 4(a) hereof) to the extent provided in Section 4 hereof), and shall perform on behalf of the Company those investment and leverage related duties and functions assigned to the Company or the Investment Manager in the Credit Agreement, the Pledge and Intercreditor Agreement, the Statements of Preferences for any Preferred Shares and the Custodial Agreement (collectively, the "Transaction Documents"), and shall have such other powers with respect to the investment and leverage related functions of the Company as shall be delegated from time to time to the Investment Manager by the Board. The Company has executed the Transaction Documents and the Co-Management Agreement, and the Investment Manager is hereby granted, and shall have, full power to take all actions and execute and deliver all necessary and appropriate documents and instruments on behalf of the Company in accordance with the Transaction Documents, the Operating Agreement, the policies adopted or approved by the Board, the conditions of any exemptive order obtained by or for the benefit of the Company or the Investment Manager from the SEC and this Agreement. The Investment Manager shall endeavor to comply in all material respects with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations and the applicable provisions of the Transaction Documents in performing its duties under this Agreement. Subject to the foregoing and the other provisions of this Agreement, and subject to the decisions of the Investment Committee and the direction and control of the Board, the Investment Manager is hereby appointed as the Company's agent and attorney-in-fact with authority to negotiate, execute and deliver all documents and agreements on behalf of the Company and to do or take all related acts, with the power of substitution, to acquire, dispose of or otherwise take action with respect to or affecting the Investments (as defined in Section 4(b) hereof), including, without limitation:
(a) identifying and originating Investments (defined below) to be purchased by the Company, selecting the dates for such purchases, and purchasing or directing the purchase of such Investments on behalf of the Company;
(b) identifying Investments owned by the Company to be sold by the Company, selecting the dates for such sales, and selling such Investments on behalf of the Company;
(c) negotiating and entering into, on behalf of the Company, documentation providing for the purchase and sale of Investments, including without limitation, confidentiality agreements and commitment letters;
(d) structuring the terms of, and negotiating, entering into and/or consenting to, on behalf of the Company, documentation relating to Investments to be purchased, held, exchanged or sold by the Company, including any amendments, modifications or supplements with respect to such documentation;
(e) exercising, on behalf of the Company, rights and remedies associated with Investments, including without limitation, rights to petition to place an obligor or issuer in bankruptcy proceedings, to vote to accelerate the maturity of an Investment, to waive any default, including a payment default, with respect to an Investment and to take any other action which the Investment Manager deems necessary or appropriate in its discretion in connection with any restructuring, reorganization or other similar transaction involving an obligor or issuer with respect to an Investment, including without limitation, initiating and pursuing litigation;
(f) responding to any offer in respect of Investments by tendering the affected Investments, declining the offer, or taking such other actions as the Investment Manager may determine;
(g) exercising all voting, consent and similar rights of the Company on its behalf and advising the Company with respect to matters concerning the Investments;
(h) advising and assisting the Company with respect to the valuation of the Assets;
(i) retaining legal counsel and other professionals (such as financial advisers) to assist in the structuring, negotiation, documentation, administration and modification and restructuring of Investments;
(j) providing the Company with such assistance as the Board may request in processing subscription and/or transfer applications for the Membership Interests, including assistance in determining whether such applications and prospective or existing Members of the Company satisfy applicable requirements under the Operating Agreement; and
(k) if the Portfolio Partnership exists, the Investment Manager will invest substantially all of the Company's assets for a common limited partner interest in the Portfolio Partnership.
2. Duties and Obligations of the Investment Manager with Respect to the Administration of the Company.
The Investment Manager also agrees to furnish office facilities and equipment and clerical, bookkeeping and administrative services (other than such services, if any, provided by the Company's custodian and other service providers) to the Company. To the extent requested by the Company, the Investment Manager agrees to provide the following administrative services:
(a) oversee the determination and publication of the Company's net asset value in accordance with the Company's policy as adopted from time to time by the Board and communicated to the Investment Manager in writing;
(b) maintain or oversee the maintenance of the books and records of the Company as required under the 1940 Act and maintain (or oversee maintenance by other persons) such other books and records required by law or for the proper operation of the Company;
(c) oversee the preparation and filing of the Company's federal, state and local income tax returns and any other required tax returns or reports;
(d) review the appropriateness of and arrange for payment of the Company's expenses;
(e) prepare for review and approval by officers and other Authorized Signatories of the Company (collectively, the "Authorized Signatories") financial information for the Company's semi-annual and annual reports and other communications with shareholders required or otherwise to be sent to Company shareholders, and arrange for the printing and dissemination of such reports and communications to shareholders;
(f) prepare for review by the Authorized Signatories and Board of the Company the Company's periodic financial reports required to be filed with the SEC on Form N-SAR, Form N-CSR, Form N-PX, Form N-Q and such other reports, forms and filings, as may be mutually agreed upon or as may be required by law, the Credit Agreement or any Statement of Preferences;
(g) prepare reports relating to the business and affairs of the Company as may be mutually agreed upon and not otherwise prepared by others;
(h) make such reports and recommendations to the Board concerning the performance and fees of any of the Company's service providers as the Board may reasonably request or deem appropriate;
(i) oversee and review calculations of fees paid to the Company's service providers;
(j) oversee the Company's portfolio and perform necessary calculations as required under Section 18 of the 1940 Act;
(k) consult with the Audit Committee of the Board, the Authorized Signatories, and the Company's independent accountants, legal counsel, custodian and other service providers in establishing the accounting policies of the Company and monitor financial and shareholder accounting services;
(l) review implementation of any share purchase programs authorized by the Board;
(m) determine the amounts available for distribution as dividends and distributions to be paid by the Company to its shareholders;
(n) prepare and arrange for the printing of dividend notices to shareholders;
(o) provide the Company's dividend disbursing agent and custodian with such information as is required for such parties to effect the payment of dividends and distributions;
(p) prepare such information and reports as may be required under the Credit Agreement and by any other banks, if any, from which the Company borrows funds;
(q) provide such assistance to the Company's custodian, counsel, auditors and other service providers as generally may be required to properly carry on the business and operations of the Company;
(r) assist in the preparation and filing of Forms 3, 4, and 5 pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, and Section 30(h) of the 1940 Act for the officers, Authorized Signatories and directors of the Company, such filings to be based on information provided by those persons;
(s) respond to or refer to the Company's officers or Authorized Signatories shareholder (including any potential shareholder) inquiries relating to the Company; and
(t) supervise any other aspects of the Company's administration as may be agreed to by the Company and the Investment Manager.
All services are to be furnished through the medium of any directors, officers, Authorized Signatories or employees of the Investment Manager or its affiliates as the Investment Manager deems appropriate in order to fulfill its obligations hereunder.
The Company will reimburse the Advisor or its affiliates for all out-of-pocket expenses incurred by them in connection with the performance of the administrative services described in this paragraph 2.
3. Authority to Bind the Company; No Joint Venture.
(a) Except as provided in or pursuant to Sections 1 and 12 hereof, the Investment Manager shall have no authority to bind or obligate the Company. The Board shall retain the sole authority to act on behalf of the Company, and all acts of the Investment Manager (other than as provided in the Transaction
Documents, the Operating Agreement or in Section 1 or Section 12 hereof with respect to any Approved Investment) shall require the Board's consent and approval to bind the Company. Nothing in this Agreement shall be deemed to create a joint venture or partnership between the parties with respect to the arrangements set forth in this Agreement. For all purposes hereof, the Investment Manager shall be deemed to be an independent contractor and, unless otherwise provided herein or specifically authorized by the Board from time to time, shall have no authority to act for or represent the Company.
(b) The Investment Manager shall act in conformity with the written instructions and directions of the Board, except to the extent that authority has been delegated to the Investment Manager pursuant to the terms of this Agreement, the Operating Agreement and the Transaction Documents. The Investment Manager will not be bound to follow any amendment to any Transaction Document or the Operating Agreement until it has received written notice thereof and until it has received a copy of the amendment from the Company or the Administrative Agent (as defined in the Credit Agreement); provided that if any such amendment materially and adversely affects the rights or duties of the Investment Manager, the Investment Manager shall not be obligated to respect or comply with the terms of such amendment unless it consents thereto. Subject to the fiduciary duty of the Board, the Company agrees that it shall not permit any amendment to any Transaction Document or the Operating Agreement that materially and adversely affects the rights or duties of the Investment Manager to become effective unless the Investment Manager has been given prior written notice of such amendment and has consented thereto in writing.
(c) The Investment Manager may, with respect to the affairs of the Company, consult with Babson Capital Management, LLC (the "Co-Manager") and its Affiliated Persons (collectively, "Babson"), as co-investment manager, and with such legal counsel, accountants and other advisors as may be selected by the Investment Manager. The Investment Manager shall be fully protected, to the extent permitted by applicable law, in acting or failing to act hereunder if such action or inaction is taken or not taken in good faith by the Investment Manager in accordance with the advice or opinion of Babson or such counsel, accountants or other advisors. The Investment Manager shall be fully protected in relying upon any writing signed in the appropriate manner with respect to any instruction, direction or approval of any of the Board or Babson and may also rely on opinions of the Investment Manager's counsel with respect to such instructions, directions and approvals. The Investment Manager shall also be fully protected when acting upon any instrument, certificate or other writing the Investment Manager believes in good faith to be genuine and to be signed or presented by the proper person or persons. The Investment Manager shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing and may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained if the Investment Manager in good faith believes the same to be genuine.
4. Limitations Relating to Investments.
(a) Investments Requiring the Investment Committee's Approval. The Investment Manager will establish an Investment Committee (the "Investment Committee") comprised initially of 11 persons (such number of members being subject to increase or decrease at any time in the sole discretion of the Investment Manager). Six of the persons on the Investment Committee will be
voting members (such number of voting members being subject to increase or decrease at any time in the sole discretion of the Investment Manager). Subject to the following sentence and Section 11(b), all of the voting members of the Investment Committee will be appointed by the Investment Manager, and initially such voting members will be Michael E. Tennenbaum, Mark K. Holdsworth Howard M. Levkowitz, Steven C. Chang and Jose Feliciano or such other persons as may be appointed by the Investment Manager. Except as provided by Section 11(b), one voting member of the Investment Committee will be appointed by Babson, with the approval of the Investment Manager. Richard E. Spencer II shall be Babson's representative on the Investment Committee until removed or until replaced by Babson with the approval of the Investment Manager for such replacement. Additionally, the Investment Manager shall have the right to appoint any number of non-voting members to the Investment Committee. The Investment Committee will review and discuss the purchase and sale of all Investments other than short-term Investments in high quality debt, securities maturing in less than 367 days or investment funds whose portfolios at all times have an effective duration of less than 367 days and other than hedging and risk management transactions, and approval by a majority vote of the voting members of the Investment Committee will be required prior to the purchase or sale of any Investment required to be reviewed by the Investment Committee. The Company shall not be bound by any Investment made by the Investment Manager on behalf of the Company for which the necessary approval has not been obtained.
(b) Investments. Except as otherwise provided in this Section 4 and subject to the requirements of the Transaction Documents, the Operating Agreement and applicable law, the Investment Manager may advise the Company from time to time to purchase:
(i) debt securities or debt obligations, including bank loans or interests therein ("Debt Obligations");
(ii) stock, warrants or other equity securities ("Securities"); and
(iii) any other investments of any type of asset the Company is permitted to make (together with Securities and Debt Obligations, "Investments").
(c) Company is not a Bank. The Investment Manager may not purchase any Debt Obligation if the related credit agreement, note, indenture or other documentation by its terms requires any such purchase to be made only by a bank, savings and loan, thrift, trust company or other similar deposit-taking institution.
(d) Origination Fees. The Company shall, except to the extent the Investment Manager determines such sharing could cause the Company to fail to satisfy any requirement for qualification as a regulated investment company under Subchapter M of the Code, receive its pro-rata share, measured by the amount invested or proposed to be invested by the investors in any Investment, of any origination, structuring, or similar fees normally payable to lenders or structurers as compensation for services ("Origination or Similar Fees") payable with respect to any Investment, whether or not any other investment funds or accounts for which the Investment Manager or its Affiliated Persons acts as investment adviser (the "Tennenbaum Accounts") share in such fees. Notwithstanding anything herein, in the Operating Agreement or in any Transaction Document to the contrary, to the extent that any Origination or Similar Fees with respect to the Company's share of such Investment are paid to
the Investment Manager, Babson or any of their respective Affiliated Persons as additional compensation, such amount shall be reimbursed to the Company unless the exception to the preceding sentence is in effect, in which case such amount shall be paid to the other accounts participating in such Investment or returned to the party paying such Origination or Similar Fees.
(e) Co-Investments. The Company may not co-invest with any account
managed by the Investment Manager or its Affiliated Persons in any Investment
subject to any exemptive order obtained by or on behalf of the Company, except
(i) to the extent permitted by such exemptive relief, including conditions to
such relief, and (ii) pursuant to any policies and procedures adopted by the
Board with respect to such co-investments and any other applicable provisions
of any Transaction Document, the Operating Agreement and this Agreement.
5. Brokerage.
The Investment Manager shall effect all purchases and sales of securities in a manner consistent with the principles of best execution, taking into account net price (including commissions) and execution capability and other services which the broker or other intermediary may provide. In this regard, the Investment Manager may effect transactions which cause the Company to pay a commission in excess of a commission which another broker or other intermediary would have charged; provided, however, that the Investment Manager shall have first determined that such commission is reasonable in relation to the value of the brokerage or research services performed by that broker or other intermediary or that the Company is the sole beneficiary of the services paid for by such broker or other intermediary.
6. Compensation.
(a) Subject to the last sentence of this Section 6(a), the Company agrees to pay to the Investment Manager and the Investment Manager agrees to accept as partial compensation for all services rendered by the Investment Manager as such, a fee (the "Management Fee"), payable monthly in arrears at an annual rate equal to 1.00% of the sum of (i) Net Asset Value of the Company as of the Closing Date, (ii) the maximum amount available to be borrowed by the Company and/or the Portfolio Partnership under the Credit Agreement, regardless of whether the Company and/or the Portfolio Partnership has borrowed any amounts under the Credit Agreement and (iii) the maximum aggregate liquidation preference of preferred securities the Company and/or the Portfolio Partnership would be authorized to issue under the 1940 Act based upon the total Net Asset Value of the Company as of the Closing Date and assuming that the Company and/or the Portfolio Partnership has borrowed the maximum amount available to be borrowed under the Credit Agreement, regardless of whether the Company and/or the Portfolio Partnership has issued such preferred securities (the sum of (i) through (iii), as adjusted pursuant to this Section 6(a), being referred to as the "Management Fee Capital"). At such time as all borrowings under the Credit Agreement have been repaid and no further borrowings are permitted thereunder, Management Fee Capital shall be equal to the sum of the Net Asset Value of the Company as of the Closing Date, plus the aggregate liquidation preference of preferred securities then outstanding, thereby reducing the amounts on which the Management Fee is paid. At such time as all borrowings under the Credit Agreement have been repaid and no further borrowings are permitted thereunder, and no more than $1,000,000 in liquidation preference of
preferred securities remains outstanding, Management Fee Capital shall be equal to the Net Asset Value of the Company as of the Closing Date, thereby further reducing the amounts on which the Management Fee is paid. The Management Fee shall be prorated for any partial payment period. The Management Fee payable pursuant to this Section 6(a) shall be reduced by the amount of management fees paid to the Investment Manager by the Portfolio Partnership pursuant to Section 6(a) of the Investment Management Agreement dated as of July 1, 2006 between the Portfolio Partnership and the Investment Manager.
(b) If the Company sells and issues to SVOF/MM, LLC, a company wholly-owned by the Investment Manager, its affiliates and the Co-Manager, one or more shares of Series S Preferred Stock (the "Special Share") at a price equal to its liquidation preference of $1,000 per share, the Company shall not be obligated to conduct its investment operations through the Portfolio Partnership or pay the incentive fee determined in accordance with the last sentence of this Section 6(b). As set forth in the Statement of Preferences for such Special Share, the Special Share will pay dividends at a rate equal to the greater of (i) 4% per year of the liquidation preference of such Special Share, but in no event greater than $40 per year, or (ii) (A) 100% of the amount by which the cumulative distributions and amounts distributable in respect of the Common Shares exceed an 8% annual weighted average return on undistributed capital attributable to the aggregate cost basis of the membership interests in Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC redeemed on the Closing Date in exchange for the Common Shares (the "Hurdle") until the total of (1) the cumulative distributions that had been made in respect of the Special Share for the time it was outstanding or held by the Investment Manager or an Affiliated Person thereof and (2) any amounts paid to the Investment Manager or an Affiliated Person pursuant to the Partnership Agreement of the Portfolio Partnership equals 25% of the aggregate cumulative distributions for federal income tax purposes of net income and gain in respect of the Common Shares (such amounts, the "Catch-up Amount"), and thereafter (B) an amount (payable at the same time as, and not in advance of, any distributions in respect of the Common Shares) such that, after payment thereof, the total of (y) the cumulative distributions that have been made in respect of the Special Share or an Affiliated Person for the time it was outstanding or held by the Investment Manager or an Affiliated Person thereof and (z) any amounts paid to the Investment Manager or an Affiliated Person thereof pursuant to the Partnership Agreement of the Portfolio Partnership equals 20% of the aggregate incremental distributions of net income and gain in respect of the Common Shares and the Special Share. For purposes of calculating whether the Hurdle has been exceeded and whether the Catch-up Amount has been paid, the Company's performance will include the performance of SVARF for the period preceding the Closing Date and the distributions of the Company will include an amount equal to (x) the portion of SVARF's distributions for the period preceding the Closing Date attributable to SVARF's investors who are investors in the Company multiplied by (y) the ratio of the Net Asset Value of the Company immediately after giving effect to the Closing transactions to such Net Asset Value attributable to the Common Shares of the Company acquired by such investors. If the Investment Manager or the Company determines on the advice of counsel that the sale and issuance of the Special Share or its Statement of Preferences is inconsistent with the requirements of the 1940 Act in any material respect and that such inconsistency is unlikely to be able to be remedied without fundamental alteration of such Statement of Preferences, the Company and the Investment Manager agree that the Company will repurchase such share at liquidation preference plus accumulated and unpaid distributions. If for any reason the Investment Manager or the Company makes the determination
set forth in the preceding sentence and determines on the advice of counsel
that the profit allocation set forth in the Partnership Agreement of the
Portfolio Partnership would be inconsistent with the requirements of the 1940
Act in any material respect and that such inconsistency would be unlikely to be
able to be remedied without fundamental alteration of such profit allocation
and without having a material adverse effect on any shareholder of the Company,
the Company will pay to the Investment Manager as a fee the amounts computed in
accordance with the second and third sentences of this paragraph; provided,
however, that the amount paid pursuant to this sentence shall be reduced by the
amount paid by the Portfolio Partnership pursuant to the paralleled sentence in
Section 6(b) of the Investment Management Agreement dated as of July 31, 2006
between the Portfolio Partnership and the Investment Manager.
(c) If this Agreement is terminated for any reason prior to the end of the Investment Period, the Company will engage at its own expense a firm acceptable to the Company and the Investment Manager to determine the maximum reasonable fair value as of the termination date of the Company's consolidated assets (assuming each asset is readily marketable among institutional investors without minority discount and with an appropriate control premium for any control positions and ascribing a net present value (discounted at AA borrowing rates) to any unamortized portion of the Company's organizational, offering and issuance expenses and to any going concern value identified by such firm). After review of such firm's work papers by the Investment Manager and the Company and resolution of any comments therefrom, such firm shall render its report as to valuation, and the Company shall pay to the Investment Manager any Management Fees or other dividends or fees due under this Agreement (which, for the avoidance of doubt, includes any amount pursuant to Section 6(b) hereof), as the case may be, payable pursuant to the terms of this Agreement as if all of the consolidated assets of the Company had been sold or realized at the values indicated in such report and any net income and gain distributed. Such report shall be completed within 90 days after notice of termination of the relevant agreement.
7. Expenses.
The Company will be responsible for paying the compensation of the Investment Manager and any placement agent of any of its securities, due diligence and negotiation expenses, fees and expenses of custodians, administrators, transfer and distribution agents, counsel and directors, insurance, filings and registrations, proxy expenses, expenses of communications to investors, interest, taxes, portfolio transaction expenses, indemnification, litigation and other extraordinary expenses and such other expenses as the Investment Manager is not obligated to provide (such as services the Investment Manager is required to supervise) and as are approved by the directors as being reasonably related to the organization, offering, capitalization, operation, regulatory compliance or administration of the Company and any portfolio investments. Expenses associated with the general overhead of the Investment Manager or Co-Manager will not be covered by the Company. Notwithstanding the foregoing, and subject to review by the Board, the Company will bear the costs and expenses of the Investment Manager as set forth in Section 9 of the Operating Agreement, which may not be amended without the Investment Manager's written consent. On behalf of the Company, the Investment Manager may advance payment of any such fees and expenses of the Company, and the Company shall reimburse the Investment Manager therefor within 30 days following written request from the Investment Manager. Nothing in this Section 7 shall limit the ability of the Investment Manager to be reimbursed by any
Person (including issuers or obligors of securities, instruments or obligations owned by the Company) for out-of-pocket expenses incurred by the Investment Manager in connection with the performance of services hereunder. The Investment Manager shall maintain complete and accurate records with respect to costs and expenses and shall furnish the Board with receipts or other written vouchers with respect thereto upon request of the Board. The Investment Manager will be responsible for paying the Co-Manager the amounts set forth in the Co-Management Agreement.
8. Services to Other Companies or Accounts.
(a) The Investment Manager and its Affiliated Persons, employees or associates are in no way prohibited from, and intend to, spend substantial business time in connection with other businesses or activities, including, but not limited to, managing investments, advising or managing entities whose investment objectives are the same as or overlap with those of the Company, participating in actual or potential investments of the Company or any Member, providing consulting, merger and acquisition, structuring or financial advisory services, including with respect to actual, contemplated or potential investments of the Company, or acting as a director, officer or creditors' committee member of, adviser to, or participant in, any corporation, partnership, trust or other business entity. The Investment Manager and its Affiliated Persons may, and expect to, receive fees or other compensation from third parties for any of these activities, which fees will be for the benefit of their own account and not the Company.
(b) In addition, the Investment Manager and its Affiliated Persons may manage Tennenbaum Accounts other than the Company that invest in assets eligible for purchase by the Company.
(c) The Company may have the ability, under certain circumstances, to take certain actions that would have an adverse effect on Tennenbaum Accounts other than the Company. In these circumstances, the Investment Manager and its Affiliated Persons will act in a manner believed to be equitable to the Company and such other Tennenbaum Accounts, including co-investment in accordance with the conditions of any exemptive relief obtained by the company and the Investment Manager.
9. Duty of Care and Loyalty. Except as otherwise required by law, none
of the Investment Manager, or any its Affiliated Persons, directors, officers,
employees, shareholders, managers, members, assigns, representatives or agents
(each, an "Indemnified Person" and, collectively, the "Indemnified Persons")
shall be liable, responsible or accountable in damages or otherwise to the
Company, any Member or any other Person for any loss, liability, damage,
settlement cost, or other expense (including reasonable attorneys' fees)
incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Member, if applicable) in connection with
the establishment, management or operations of the Company or the management of
its Assets (including those in connection with serving on boards of directors
of, or creditors' committees for, any Portfolio Company) except that the
Investment Manager shall be liable to the Company or any Member, as the case
may be, if such act or failure to act arises out of the bad faith, willful
misfeasance, gross negligence or reckless disregard of an Indemnified Person's
duty to the Company or such Member, as the case may be (such conduct, "Disabling Conduct"). Subject to the foregoing, all such Indemnified Persons shall look solely to the Assets for satisfaction of claims of any nature arising in connection with the affairs of the Company. If any Indemnified Person is made a party to any suit or proceeding to enforce any such liability, subject to the foregoing exception, such Indemnified Person shall not, on account thereof, be held to any personal liability.
10. Indemnification.
(a) To the fullest extent permitted by applicable law, each of the Indemnified Persons shall be held harmless and indemnified by the Company (out of the Assets (including, without limitation, the Unfunded Commitments) and not out of the separate assets of any Member) against any liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees reasonably incurred by such Indemnified Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which such Indemnified Person may be or may have been involved as a party or otherwise (other than as authorized by the Directors, as the plaintiff or complainant) or with which such Indemnified Person may be or may have been threatened, while acting in such Person's capacity as an Indemnified Person, except with respect to any matter as to which such Indemnified Person shall not have acted in good faith in the reasonable belief that such Person's action was in the best interest of the Company or, in the case of any criminal proceeding, as to which such Indemnified Person shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that an Indemnified Person shall only be indemnified hereunder if (i) such Indemnified Person's activities do not constitute Disabling Conduct and (ii) there has been a determination (a) by a final decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification was brought that such Indemnified Person is entitled to indemnification or, (b) in the absence of such a decision, by (1) a majority vote of a quorum of those Directors who are neither "interested persons" of the Company (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding (the "Disinterested Non-Party Directors") that the Indemnified Person is entitled to indemnification, or (2) if such quorum is not obtainable or even if obtainable, if a majority so directs, independent legal counsel in a written opinion that concludes that the Indemnified Person should be entitled to indemnification. Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any Indemnified Person as plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit or other proceeding by such Indemnified Person was authorized by a majority of the Directors. All determinations to make advance payments in connection with the expense of defending any proceeding shall be authorized and made in accordance with the immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Company receives a written affirmation by the Indemnified Person of the Indemnified Person's good faith belief that the standards of conduct necessary for indemnification have been met and a written undertaking to reimburse the Company unless it is subsequently determined that he is entitled to such indemnification and if a majority of the Directors determine that the applicable standards of conduct necessary for indemnification appear to have been met. In addition, at least one of the
following conditions must be met: (i) the Indemnified Person shall provide adequate security for his undertaking, (ii) the Company shall be insured against losses arising by reason of any lawful advances, or (iii) a majority of a quorum of the Disinterested Non-Party Directors, or if a majority vote of such quorum so direct, independent legal counsel in a written opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the Indemnified Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under these provisions shall not exclude any other right to which he may be lawfully entitled.
(d) Each Indemnified Person shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Company, upon an opinion of counsel, or upon reports made to the Company by any of the Company's officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the Directors, officers or employees of the Company, regardless of whether such counsel or other person may also be a Director.
11. Term of Agreement; Events Affecting the Investment Manager; Survival of Certain Terms.
(a) This Agreement shall become effective as of the time at which the Company registers as an investment company with the SEC and, unless sooner terminated by the Company or Investment Manager as provided herein, shall continue in effect for a period of two years. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Company for successive periods of 12 months, provided such continuance is specifically approved at least annually by both (i) the vote of a majority of the Board or the vote of a majority of the outstanding voting securities of the Company at the time outstanding and entitled to vote, and (ii) by the vote of a majority of the Directors who are not parties to this Agreement or interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval. Notwithstanding the foregoing, this Agreement may be terminated by the Company at any time, without the payment of any penalty, upon giving the Investment Manager 60 days' notice (which notice may be waived by the Investment Manager), provided that such termination by the Company shall be directed or approved by the vote of a majority of the Directors of the Company in office at the time or by the vote of the holders of a majority of the voting securities of the Company at the time outstanding and entitled to vote, or by the Investment Manager on 60 days' written notice (which notice may be waived by the Company). This Agreement will also immediately terminate in the event of its assignment. As used in this Agreement, the terms "majority of the outstanding voting securities," "interested person" and "assignment" shall have the same meanings as such terms are given in the 1940 Act.
(b) If Michael E. Tennenbaum dies, becomes incapacitated or departs from the Investment Manager, the Investment Manager will promptly notify Babson, the credit agent for the Company's senior credit facility, the credit enhancer, if any, and the Members of such event, will increase the number of voting Babson representatives on the Investment Committee to a number that is
equivalent at all times to the number of voting Investment Manager representatives on such committee and will promptly replace Mr. Tennenbaum with another individual with skills reasonably comparable to those which Mr. Tennenbaum employed on behalf of the Investment Manager for the benefit of the Company (a person having such skills being a "Replacement Principal"), as determined in good faith by Babson over a four-month period, beginning on the date on which such Replacement Principal is appointed to the Investment Committee. Babson will, within such four-month period, inform the Investment Manager if Babson disapproves of such Replacement Principal, which disapproval must be made in good faith and be based upon such Replacement Principal's performance, including investment performance, investment strategy and working relationship with the other voting members of the Investment Committee. If Babson fails to disapprove of such Replacement Principal within such four-month period, the number of Babson representatives on the Investment Committee shall be reduced to one. In the event Babson disapproves of such Replacement Principal, Babson will retain its increased representation on the Investment Committee and will periodically reassess in good faith whether it is willing to approve such Replacement Principal or any successor Replacement Principal (based upon the criteria set forth above), and if it does so approve in the future, its representation on the Investment Committee will be reduced to one at the time of such future approval.
(c) If both (i) either Howard Levkowitz or Mark Holdsworth dies, becomes incapacitated or departs from the Investment Manager and ceases to be actively involved in the management of the Company and (ii) the Investment Manager fails to notify the credit agent for the Company's senior credit facility and the credit enhancer, if any, promptly and identify a replacement with reasonably comparable skills within 180 days, the credit agent for the Company's senior credit facility and the credit enhancer, if any, for so long as it is enhancing the creditworthiness of outstanding borrowings under the senior credit facility and any outstanding amount of Preferred Shares or Preferred Interests and is not in default on its obligations under the arrangements governing such credit enhancement, may call a default under the senior credit facility. If both Howard Levkowitz and Mark Holdsworth die, become incapacitated or depart from the Investment Manager and cease to be actively involved in the management of the Company, the credit agent for the Company's senior credit facility and/or the credit enhancer, if any, for so long as it is enhancing the creditworthiness of outstanding borrowings under the Credit Facility and any outstanding amount of Preferred Shares or Preferred Interests and is not in default on its obligations under the arrangements governing such credit enhancement, may veto a proposed replacement for one of such individuals and may veto portfolio transactions in excess of 15% of the total assets of the Company until a replacement has been appointed to fill one of such positions.
(d) Notwithstanding anything herein to the contrary, Sections 6(c), 7, 9 and 10 of this Agreement shall survive any termination hereof.
(e) From and after the effective date of termination of this Agreement, the Investment Manager and its Affiliated Persons shall not be entitled to compensation for further services hereunder, but shall be paid all compensation and reimbursement of expenses accrued to the date of termination. Upon such termination, and upon receipt of payment of all compensation and reimbursement of expenses owed, the Investment Manager shall as soon as practicable (and in any event within 90 days after such termination) deliver to the Company all property (to the extent, if any, that the Investment Manager
has custody thereof) and documents of the Company or otherwise relating to the Assets of the Company then in the custody of the Investment Manager (although the Investment Manager may keep copies of such documents for its records). The Investment Manager agrees to use reasonable efforts to cooperate with any successor investment manager in the transfer of its responsibilities hereunder, and will, among other things, provide upon receipt of a written request by such successor investment manager any information available to it regarding any Assets of the Company. The Investment Manager agrees that, notwithstanding any termination, it will reasonably cooperate in any proceeding arising in connection with this Agreement, any of the Transaction Documents or any Investment (excluding any such proceeding in which claims are asserted against the Investment Manager or any Affiliated Person of the Investment Manager) upon receipt of appropriate indemnification and expense reimbursement.
12. Power of Attorney; Further Assurances.
In addition to the power of attorney granted to the Investment Manager in Section 1 of this Agreement, the Company hereby makes, constitutes and appoints the Investment Manager, with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead, in accordance with the terms of this Agreement (a) to sign, execute, certify, swear to, acknowledge, deliver, file, receive and record any and all documents which the Investment Manager reasonably deems necessary or appropriate in connection with its investment management duties under this Agreement and as required by the 1940 Act and (b) to (i) subject to any policies adopted by the Board with respect thereto, exercise in its discretion any voting or consent rights associated with any securities, instruments or obligations included in the Company's Assets, (ii) execute proxies, waivers, consents and other instruments with respect to such securities, instruments or obligations, (iii) endorse, transfer or deliver such securities, instruments and obligations and (iv) participate in or consent (or decline to consent) to any modification, work-out, restructuring, bankruptcy proceeding, class action, plan of reorganization, merger, combination, consolidation, liquidation or similar plan or transaction with regard to such securities, instruments and obligations. To the extent permitted by applicable law, this grant of power of attorney is irrevocable and coupled with an interest, and it shall survive and not be affected by the subsequent dissolution or bankruptcy of the Company; provided that this grant of power of attorney will expire, and the Investment Manager will cease to have any power to act as the Company's attorney-in-fact, upon termination of this Agreement in accordance with its terms. The Company shall execute and deliver to the Investment Manager all such other powers of attorney, proxies, dividend and other orders, and all such instruments, as the Investment Manager may reasonably request for the purpose of enabling the Investment Manager to exercise the rights and powers which it is entitled to exercise pursuant to this Agreement. Each of the Investment Manager and the Company shall take such other actions, and furnish such certificates, opinions and other documents, as may be reasonably requested by the other party hereto in order to effectuate the purposes of this Agreement and to facilitate compliance with applicable laws and regulations and the terms of this Agreement.
13. Amendment of this Agreement.
No provision of this Agreement may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought. Any amendment of this Agreement shall be subject to the 1940 Act. The Company shall promptly provide a copy of any such amendment or waiver to S&P and Moody's.
14. Notices.
Unless expressly provided otherwise herein, any notice, request, direction, demand or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received if sent by hand or by overnight courier, when personally delivered, if sent by telecopier, when receipt is confirmed by telephone, or if sent by registered or certified mail, postage prepaid, return receipt requested, when actually received if addressed as set forth below:
(a) If to the Company:
Special Value Continuation Fund, LLC
Attn: Mark K. Holdsworth
2951 28th St., Suite 1000
Santa Monica Blvd., CA 90405
Tel: (310) 566-1005
Fax: (310) 566-1010
(b) If to the Investment Manager:
Tennenbaum Capital Partners, LLC
Attn: Howard M. Levkowitz
2951 28th St., Suite 1000
Santa Monica, CA 90405
Tel: (310) 566-1004
Fax: (310) 566-1010
(c) If to any of the Members, as provided in the Operating Agreement, and if to the Administrative Agent or any Lender under the Credit Agreement, as provided in the applicable Transaction Document.
Either party to this Agreement may alter the address to which communications or copies are to be sent to it by giving notice of such change of address in conformity with the provisions of this Section 14. Other addresses set forth in this Section 14 shall be changed only with the consent of the relevant addressee.
15. Binding Nature of Agreement; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns as provided herein.
16. Entire Agreement.
This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof.
17. Costs and Expenses.
The costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiation, preparation and execution of this Agreement, and all matters incident thereto, shall be borne by the Company.
18. Books and Records. In compliance with the requirements of Rule 31a-3 under the Investment Company Act, the Investment Manager hereby agrees that all records which it maintains for the Company are the property of the Company and further agrees to surrender promptly to the Company any such records upon the Company's request. The Investment Manager further agrees to preserve for the periods prescribed by Rule 31a-2 under the Investment Company Act the records required to be maintained by Rule 31a-1 under the Investment Company Act.
19. Titles Not to Affect Interpretation.
The titles of sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
20. Provisions Separable.
The provisions of this Agreement are independent of and separable from each other, and, to the extent permitted by applicable law, no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
21. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York and, to the extent inconsistent therewith, the 1940 Act.
22. Execution in Counterparts.
This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
TENNENBAUM CAPITAL PARTNERS, LLC
By: TENNENBAUM & CO., LLC, its
Managing Member
By: /s/ Michael E. Tennenbaum
--------------------------------
Michael E. Tennenbaum
Member
|
SPECIAL VALUE CONTINUATION FUND, LLC
By: /s/ Howard M. Levkowitz --------------------------------- Howard M. Levkowitz Chief Executive Officer |
Exhibit G-2
CO-MANAGEMENT AGREEMENT
dated as of August 1, 2006
BY AND AMONG
SPECIAL VALUE CONTINUATION FUND, LLC,
a Delaware limited liability company
TENNENBAUM CAPITAL PARTNERS, LLC,
a Delaware limited liability company
AND
BABSON CAPITAL MANAGEMENT LLC
a Delaware limited liability company
TABLE OF CONTENTS
1. General Duties of the Co-Manager.....................................1
2. Compensation of the Co-Manager.......................................3
3. Duty of Care and Loyalty.............................................3
4. Indemnification......................................................4
5. Duration and Termination.............................................5
6. Amendment of this Agreement; Assignment..............................6
7. Notices..............................................................7
8. Binding Nature of Agreement: Successors and Assigns..................7
9. Entire Agreement.....................................................7
10. Costs and Expenses...................................................8
11. Titles Not to Affect Interpretation..................................8
12. Provisions Separable.................................................8
13. Books and Records....................................................8
14. Governing Law........................................................8
15. Execution in Counterparts............................................8
CO-MANAGEMENT AGREEMENT
CO-MANAGEMENT AGREEMENT (this "Agreement"), dated as of August 1, 2006, among Special Value Continuation Fund, LLC (the "Company"), a Delaware limited liability company, Tennenbaum Capital Partners, LLC (the "Investment Manager"), a Delaware limited liability company, SVCF/GP, LLC, a Delaware limited liability company registered as an investment adviser under the Investment Advisers Act of 1940, and Babson Capital Management LLC (the "Co-Manager" or "Babson"), a Delaware limited liability company registered as an investment adviser under the Investment Advisers Act of 1940. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Operating Agreement of the Company, dated as of --, 2006 (as the same may be amended from time to time, the "Operating Agreement").
1. General Duties of the Co-Manager.
(a) The Co-Manager agrees, for the compensation set forth in Section 2 below and to the extent reasonably requested by the Investment Manager, to assist the Investment Manager in performing its duties under the Investment Management Agreement, dated as of the date hereof (the "Investment Management Agreement"), between the Company and the Investment Manager and to act as Co-Manager to the Company with respect to the Investments (as defined in the Investment Management Agreement) and to perform any other duties and functions contemplated by this Agreement to be performed by the Co-Manager, in each case, in the manner contemplated by this Agreement. The Co-Manager will provide advice to the Investment Manager, but will not exercise investment discretion with respect to the Assets of, or otherwise manage, the Company.
(b) The Co-Manager shall make available to the Investment Manager one
(1) investment professional selected by the Co-Manager and reasonably
acceptable to the Investment Manager to serve as a voting member of the
Investment Manager's Investment Committee (as defined in the Investment
Management Agreement) which shall be principally responsible for advising the
Company with respect to the Investments. The Co-Manager and the Investment
Manager agree that the Investment Committee shall consist initially of eighteen
(18) persons (such number being subject to increase or decrease at any time in
the sole discretion of the Investment Manager) and that any approval by the
Investment Manager of the acquisition or sale by the Company of any Investment
(other than short-term Investments in high quality debt, securities maturing in
less than 367 days or investment funds whose portfolios at all times have an
effective duration of less than 367 days and other than hedging and risk
management transactions) shall require a majority vote of the voting members of
the Investment Committee, the number of voting members being subject to
increase or decrease at any time in the sole discretion of the Investment
Manager. The Co-Manager's initial member of the Investment Committee shall be
Richard E. Spencer II. So long as such individual serves on the Investment
Committee, such individual shall receive assistance from other of the
Co-Manager's investment professionals reasonably acceptable to the Investment
Manager. Additional employees of the Co-Manager who are reasonably acceptable
to the Investment Manager may serve from time to time as substitutes for the
Co-Manager's member of the Investment Committee. Notwithstanding the foregoing,
the Co-Manager agrees to make available to the Investment Manager additional
investment professionals to serve on the Investment Committee to the extent
required by the terms of the Investment Management Agreement and to have such
additional investment professionals subsequently removed from the Investment Committee as provided for in the Investment Management Agreement. The Co-Manager and the Investment Manager agree that (i) such additional investment professionals shall be experienced employees of Babson or an Affiliate of Babson who are reasonably acceptable to the Investment Manager and (ii) in no event shall Babson be obligated to provide more than a total of three (3) investment professionals to serve on the Investment Committee at any time.
(c) The Co-Manager will bear certain expenses in connection with the
performance of its duties as the Co-Manager to the Company, including, without
limitation, compensation of, and office space for, the Co-Manager's officers
and employees involved in investment and economic research, trading and
investment advice for the Company, and legal, tax and accounting expenses and
filing fees which are not related to the performance of its duties under this
Agreement. Notwithstanding the foregoing, and subject to review by the Board,
the Company will bear costs and expenses of the Co-Manager as set forth in
Section 9 of the Operating Agreement, which may not be amended without the
Co-Manager's written consent. The Co-Manager shall maintain complete and
accurate records with respect to costs and expenses and shall furnish the Board
with receipts or other written vouchers with respect thereto upon request of
the Board; provided, however, that any expenses incurred by the Co-Manager
pursuant to Section 9 of the Operating Agreement shall be approved in advance
by the Investment Manager.
(d) The Co-Manager shall give the Company and the Investment Manager the benefit of its best judgment and effort in rendering the services required hereunder, but neither the Co-Manager nor any of its Affiliated Persons shall be liable for any act or omission or for any loss sustained by the Company in connection with the matters to which this Agreement relates except to the extent provided in Section 3 hereof.
(e) Nothing in this Agreement shall prevent the Co-Manager or any director, officer, employee or other Affiliated Person of the Co-Manager from acting as an investment adviser, investment manager or in any similar capacity for any other Person, or from engaging in any other lawful activity, and shall not in any way limit or restrict the Co-Manager or any of its directors, officers, employees or other Affiliate Persons from buying, selling or trading any securities or other property for its or their own accounts or for the accounts of others for whom it or they may be acting.
(f) It is expressly understood by the Company and the Investment Manager that the Co-Manager presently serves, and will in the future serve, as investment adviser to other investment entities with investment objectives similar to those of the Company. Investment opportunities made available to the Co-Manager that would be appropriate for both the Company and such other entities may be offered by the Co-Manager to such other entities to the exclusion of, or in addition to, the Company. The Co-Manager is an indirect, wholly-owned subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual"). The Co-Manager and MassMutual are parties to an order of the United States Securities and Exchange Commission (the "SEC") granting exemptions from the limitations of Section 17(d) of the Investment Company Act and Rule 17d-1 thereunder (the "MassMutual 17(d) Order") to the extent necessary to permit MassMutual and two registered investment companies (the "Registered Funds") and private investment funds for which the Co-Manager or
MassMutual serves as investment advisor to co-invest in securities acquired in private placements. In accordance with the terms of the MassMutual 17(d) Order, MassMutual and its Affiliates, including the Co-Manager, are required to offer to each of the Registered Funds an opportunity to co-invest in certain private placements that MassMutual or its Affiliates intend to make, up to an amount equal to the aggregate amount of any such private placement to be purchased directly or indirectly by MassMutual. If any co-investor with the Registered Funds proposes to dispose of some or all of its investment, each Registered Fund must be offered an opportunity to dispose of its own investment, proportionately, on the same terms. Unless the MassMutual 17(d) Order and the similar exemptive order for which the Company has applied are appropriately amended, the Company will be unable to invest in such private placements and, even thereafter, in certain circumstances, may also be unable to purchase other securities of the same issuer or its Affiliates. Although the Company may be permitted to co-invest with the Registered Funds in compliance with its own exemptive order and the MassMutual 17(d) Order, if so amended, any additional purchases, dispositions, exercises of rights and other actions in respect of such private placements and such other securities would also be subject to the Company's exemptive order and the MassMutual 17(d) Order, and, as such, may be constrained or otherwise affected by the Company's exemptive order and the MassMutual 17(d) Order. The Company intends to comply fully with its own exemptive order and the MassMutual 17(d) Order.
(g) For all purposes of this Agreement, the Co-Manager shall be deemed to be an independent contractor and, unless otherwise provided herein or specifically authorized by the Company from time to time, shall have no authority to act for or represent the Company.
2. Compensation of the Co-Manager. As compensation for its services hereunder, the Co-Manager shall be entitled to receive:
(a) From the Investment Manager, an amount equal to 10% of
the compensation actually paid to the Investment Manager pursuant to
Section 6 of the Investment Management Agreement (the "Co-Manager
Fee").
(b) From SVCF/GP, LLC, a company wholly-owned by the Investment Manager, affiliates thereof and the Co-Manager, the Co-Manager's percentage interest in the profits of SVCF/GP, LLC actually received by SVCF/GP, LLC from any Series S Preferred Stock of the Company held by SVCF/GP, LLC.
3. Duty of Care and Loyalty. Except as otherwise required by law,
neither the Co-Manager nor any of its Affiliated Persons, directors, officers,
employees, shareholders, managers, members, assigns, representatives or agents
(each, an "Indemnified Person" and, collectively, the "Indemnified Persons")
shall be liable, responsible or accountable in damages or otherwise to the
Investment Manager, the Company, any Member or any other Person for any loss,
liability, damage, settlement cost, or other expense (including attorneys'
fees) incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Member, if applicable) in connection with
the establishment, management or operations of the Company or the management of
its Assets (including those in connection with serving on boards of directors
of, or creditors' committees for, any Portfolio Company) except that the
Co-Manager shall be liable to the Company or any Member, as the case may be, if
such act or failure to act arises out of the bad faith, willful misfeasance, gross negligence or reckless disregard of an Indemnified Person's duty to the Company or such Member, as the case may be (such conduct, "Disabling Conduct"). Subject to the foregoing, all such Persons shall look solely to the Assets (including, without limitation, the Unfunded Commitments) for satisfaction of claims of any nature arising in connection with the affairs of the Company. If any Indemnified Person is made a party to any suit or proceeding to enforce any such liability, subject to the foregoing exception, such Indemnified Person shall not, on account thereof, be held to any personal liability.
4. Indemnification.
(a) To the fullest extent permitted by applicable law, each of the Indemnified Persons shall be held harmless and indemnified by the Company (out of the Assets and not out of the separate assets of any Member) against any liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and reasonable counsel fees reasonably incurred by such Indemnified Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or investigative body in which such Indemnified Person may be or may have been involved as a party or otherwise (other than as authorized by the Directors, as the plaintiff or complainant) or with which such Indemnified Person may be or may have been threatened, while acting in such Person's capacity as an Indemnified Person, except with respect to any matter as to which such Indemnified Person shall not have acted in good faith in the reasonable belief that such Person's action was in the best interest of the Company or, in the case of any criminal proceeding, as to which such Indemnified Person shall have had reasonable cause to believe that the conduct was unlawful, provided, however, that an Indemnified Person shall only be indemnified hereunder if (i) such Indemnified Person's activities do not constitute Disabling Conduct and (ii) there has been a determination (a) by a final decision on the merits by a court or other body of competent jurisdiction before whom the issue of entitlement to indemnification was brought that such Indemnified Person is entitled to indemnification or, (b) in the absence of such a decision, by (1) a majority vote of a quorum of those Directors who are neither "interested persons" of the Company (as defined in Section 2(a)(19) of the 1940 Act) nor parties to the proceeding, that the Indemnified Person is entitled to indemnification (the "Disinterested Non-Party Directors"), or (2) if such quorum is not obtainable or even if obtainable, if such majority so directs, independent legal counsel in a written opinion that concludes that the Indemnified Person should be entitled to indemnification. Notwithstanding the foregoing, with respect to any action, suit or other proceeding voluntarily prosecuted by any Indemnified Person as plaintiff, indemnification shall be mandatory only if the prosecution of such action, suit or other proceeding by such Indemnified Person was authorized by a majority of the Directors. All determinations to make advance payments in connection with the expense of defending any proceeding shall be authorized and made in accordance with the immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection with the expenses of defending any action with respect to which indemnification might be sought hereunder if the Company receives a written affirmation by the Indemnified Person of the Indemnified Person's good faith belief that the standards of conduct necessary for indemnification have been met and a written undertaking to reimburse the Company unless it is subsequently determined that
he is entitled to such indemnification and if a majority of the Directors determine that the applicable standards of conduct necessary for indemnification appear to have been met. In addition, at least one of the following conditions must be met: (i) the Indemnified Person shall provide adequate security for his undertaking, (ii) the Company shall be insured against losses arising by reason of any lawful advances, or (iii) a majority of a quorum of the Disinterested Non-Party Directors, or if a majority vote of such quorum so direct, independent legal counsel in a written opinion, shall conclude, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is substantial reason to believe that the Indemnified Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under these provisions shall not exclude any other right to which he may be lawfully entitled.
(d) Each Indemnified Person shall, in the performance of its duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Company, upon an opinion of counsel, or upon reports made to the Company by any of the Company's officers or employees or by any advisor, administrator, manager, distributor, selected dealer, accountant, appraiser or other expert or consultant selected with reasonable care by the Directors, officers or employees of the Company, regardless of whether such counsel or other person may also be a Director.
5. Duration and Termination.
(a) This Agreement shall become effective as of the time at which the
Company registers as an investment company with the Securities and Exchange
Commission and, unless sooner terminated by the Company, the Co-Manager or
Investment Manager as provided herein, shall continue in effect for a period of
two years. Thereafter, if not terminated, this Agreement shall continue in
effect with respect to the Company for successive periods of 12 months,
provided such continuance is specifically approved at least annually by both
(i) the vote of a majority of the Board or the vote of the holders of a
majority of the outstanding voting securities of the Company at the time
outstanding and entitled to vote, and (ii) by the vote of a majority of the
Directors who are not parties to this Agreement or interested persons of any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated by the Company at any time, without the payment of any penalty, upon
giving the Co-Manager 60 days' notice (which notice may be waived by the
Co-Manager), provided that such termination by the Company shall be directed or
approved by the vote of a majority of the Directors of the Company in office at
the time or by the vote of the holders of a majority of the voting securities
of the Company at the time outstanding and entitled to vote, or by the
Co-Manager on 60 days' written notice (which notice may be waived by the
Company). This Agreement will also immediately terminate in the event of its
assignment. As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meanings of such terms in the Investment Company Act.
(b) This Agreement may be terminated by the Investment Manager without penalty or liability on the part of the Investment Manager or the Company upon thirty (30) days' prior written notice to the Co-Manager (which notice may be waived by the Co-Manager), if it is determined by a final adjudication (after all appeals and the expiration of the time to appeal) of a court of competent jurisdiction that the Co-Manager has committed fraud, willful misconduct, gross negligence or criminal conduct constituting a felony in the performance of its obligations under this Agreement.
(c) This Agreement may be terminated by the Co-Manager without penalty or liability on the part of the Co-Manager upon thirty (30) days' prior written notice to the Company and the Investment Manager in the event that the Company or the Investment Manager fails to pay, reimburse for or satisfy a material portion of the compensation payable to the Co-Manager as provided herein or any material indemnification obligation of the Company as provided herein. The Investment Manager shall give prompt written notice of any such notice of termination to Moody's and S&P.
(d) Upon any termination of this Agreement pursuant to this Section 5:
(i) The Co-Manager shall have the right, no sooner than thirty (30) days prior to the effective date of such termination, to inform investors who hold either the debt or equity of the Company and any rating agencies rating such debt and other interested parties of such termination.
(ii) The Co-Manager shall be entitled to receive the Co-Manager Fee through the effective date of such termination.
(iii) The members of SVCF/GP, LLC (other than the Co-Manager) shall have the right to purchase, on a pro rata or such other basis as they may determine, or to arrange for the purchase of, the Co-Manager's interest in SVCF/GP, LLC at the fair market value of such interest, as determined by good faith negotiations between the Co-Manager and the other members of the SVCF/GP, LLC. If such Persons cannot in good faith agree on the fair market value of the Co-Manager's interest in the SVCF/GP, LLC within thirty (30) days of termination of this Agreement, the members of the SVCF/GP, LLC (other than the Co-Manager), on the one hand, and the Co-Manager, on the other hand, shall each select an arbitrator, and the arbitrators, as so selected, shall attempt to agree upon such fair market value. If the two arbitrators so selected cannot agree within thirty (30) days of their selection on such fair market value, they shall jointly select a third arbitrator who shall within thirty (30) days after his or her selection make such determination which shall be binding on all parties.
6. Amendment of this Agreement; Assignment. No provision of this Agreement may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought.
7. Notices. Unless expressly provided otherwise herein, any notice, request, direction, demand or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received if sent by hand or by overnight courier, when personally delivered, if sent by telecopier, when receipt is confirmed by telephone, or if sent by registered or certified mail, postage prepaid, return receipt requested, when actually received if addressed as set forth below:
(a) If to the Company:
Special Value Continuation Fund, LLC
Attn: Mark K. Holdsworth
2951 28th St., Suite 1000
Santa Monica, CA 90405
Tel: (310) 566-1005
Fax: (310) 566-1010
(b) If to the Investment Manager:
Tennenbaum Capital Partners, LLC
Attn: Howard M. Levkowitz
2951 28th St., Suite 1000
Santa Monica, CA 90405
Tel: (310) 566-1004
Fax: (310) 566-1010
(c) If to the Co-Manager:
Babson Capital Management LLC
Attn: Richard E. Spencer II
1500 Main Street, Suite 2800
Springfield, MA 01115
Tel: (413) 226-1649
Fax: (413) 226-1698
Any party to this Agreement may alter the address to which communications or copies are to be sent to it by giving notice of such change of address in conformity with the provisions of this Section 7.
8. Binding Nature of Agreement: Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
9. Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof. No provision of this Agreement may be amended, waived, discharged or terminated orally, but only by an instrument signed by the party against which the enforcement of the amendment, waiver or discharge is sought. Any amendment of this Agreement shall be subject to the 1940 Act. The Company shall promptly provide a copy of any such amendment or waiver to S&P and Moody's.
10. Costs and Expenses. The costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiation, preparation and execution of this Agreement, and all matters incident thereto, shall be borne by the Company.
11. Titles Not to Affect Interpretation. The titles of sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
12. Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and, to the extent permitted by applicable law, no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other provision may be invalid or unenforceable in whole or in part.
13. Books and Records. In compliance with the requirements of Rule 31a-3 under the Investment Company Act, the Co-Manager hereby agrees that all records which it maintains for the Company are the property of the Company and further agrees to surrender promptly to the Company or the Investment Manager any such records upon the Company's or Investment Manager's request. The Co-Manager further agrees to preserve for the periods prescribed by Rule 31a-2 under the Investment Company Act the records required to be maintained by Rule 31a-1 under the Investment Company Act.
14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York and, to the extent inconsistent therewith, the 1940 Act.
15. Execution in Counterparts. This Agreement may be executed in separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
SPECIAL VALUE CONTINUATION FUND, LLC
By: /s/ Howard M. Levkowitz ----------------------------------- Howard M. Levkowitz Chief Executive Officer |
TENNENBAUM CAPITAL PARTNERS, LLC
By: TENNENBAUM & CO., LLC, its Managing
Member
By: /s/ Mark K. Holdsworth ----------------------------------- Mark K. Holdsworth Member |
BABSON CAPITAL MANAGEMENT LLC
Title:
Exhibit J
CUSTODIAL AGREEMENT
Dated as of July 31, 2006
Among
SPECIAL VALUE CONTINUATION PARTNERS, LP,
as Borrower,
WACHOVIA CAPITAL MARKETS, LLC,
as Administrative Agent and as Secured Parties Representative,
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Custodian
CUSTODIAL AGREEMENT (as amended, supplemented or otherwise modified
from time to time, this "Agreement"), dated as of July 31, 2006, by and among
(a) Special Value Continuation Partners, LP, a Delaware limited partnership
(the "Fund"), (b) Wells Fargo Bank, National Association, as agent, bailee,
custodian and securities intermediary for the Fund, the Secured Parties
Representative (as defined below) and the Administrative Agent (as defined
below) (in such capacity and together with any successor thereto, the
"Custodian"), (c) Wachovia Capital Markets, LLC, as Administrative Agent (in
such capacity and together with any successor thereto, the "Administrative
Agent") under the Credit Agreement, dated as of July 31, 2006, by and among the
Fund, the Lenders party thereto (the "Lenders"), the Administrative Agent and
Wachovia Capital Markets, LLC, as Arranger (the "Arranger") (as the same may be
amended, extended, restated, supplemented, modified, refinanced, refunded or
replaced (in whole or in part) (including with lenders other than the initial
lenders) from time to time, together with any agreements or instruments in
respect of any amendment, extension, restatement, supplement, modification,
refinancing, refunding or replacement thereof, the "Credit Agreement") and (d)
Wachovia Capital Markets, LLC, as Secured Parties Representative (in such
capacity and together with any successor thereto, the "Secured Parties
Representative") under the Pledge and Intercreditor Agreement, dated as of July
31, 2006, by and among the Fund, the Custodian, the Administrative Agent and
the Secured Parties Representative (as amended, supplemented or otherwise
modified from time to time, the "Pledge and Intercreditor Agreement").
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words shall have the meanings set forth below:
1.1 "Acceleration Notice" shall have the meaning assigned thereto under the Pledge and Intercreditor Agreement.
1.2 "Account Property" shall have the meaning set forth in Section 2.1.
1.3 "Assignment Agreement" shall mean the definitive agreement pursuant to which a bank, fund, or other financial institution either assigns or obtains an assignment of all or any portion of any of its rights and obligations under a Bank Loan.
1.4 "Authorized Person" shall mean, with respect to each Customer, any person, whether or not an officer or employee thereof, duly authorized thereby (in the case of the Fund, by the Fund's general partner), to give Written Instructions on behalf thereof, such person to be designated in a Certificate of Authorized Persons which contains a specimen signature of such person.
1.5 "Bank Loan" shall mean each item of Other Account Property which, in accordance with Section 3.8, is marked as a "Bank Loan."
1.6 [Reserved]
1.7 "Business Day" shall mean any day upon which the Custodian shall be conducting its normal custody business in the State of Minnesota or the State of California.
1.8 "Certificate of Authorized Persons" shall mean a certificate signed on behalf of a Customer and delivered to the Custodian hereunder.
1.9 "Certificated Security" shall have the meaning assigned thereto in
Section 8-102(a)(4) of the NYUCC, but shall in no event include Foreign
Securities, Bank Loans or Trade Payables.
1.10 "Chattel Paper" shall have the meaning assigned thereto in
Section 9-102(a)(11) of the NYUCC, but shall in no event include Bank Loans.
1.11 "Country Risk" shall mean all factors reasonably related to the systemic risk of a holder of Foreign Securities in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any foreign depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Securities held in custody in that country.
1.12 "Custodial Account" shall have the meaning set forth in Section 2.1.
1.13 "Customer" shall mean the Fund, the Secured Parties Representative or the Administrative Agent, as the case may be, and "Customers" shall mean the Fund, the Secured Parties Representative and the Administrative Agent, collectively.
1.14 "Disposition Letter" shall have the meaning set forth in Section 4.1.
1.15 "Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5 under the Investment Company Act, including a
majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule
17f-5), a bank holding company meeting the requirements of an Eligible Foreign
Custodian (as set forth in Rule 17f-5 or by other appropriate action of the
Securities and Exchange Commission), or foreign branch of a Bank (as defined in
Section 2(a)(5) of the Investment Company Act) meeting the requirements of a
custodian under Section 17(f) of the Investment Company Act; the term does not
include Eligible Securities Depository.
1.16 "Eligible Securities Depository" shall have the meaning set forth in section (b)(1) of Rule 17f-7 under the Investment Company Act.
1.17 "Escrow Account" shall have the meaning set forth in Section 2.1.
1.18 "Final Maturity Payment Default Notice" shall have the meaning assigned thereto in the Pledge and Intercreditor Agreement.
1.19 "Foreign Custody Manager" has the meaning set forth in section
(a)(3) of Rule 17f-5 under the Investment Company Act.
1.20 "Foreign Securities" shall include (i) securities issued by a
government other than the United States government or by a corporation or other
entity organized under the laws of any country other than the United States and
(ii) securities issued by the United States government or by any state or any
political subdivision thereof or by any agency thereof or by any entity
organized under the laws of the United States or of any state thereof which
have been issued and sold primarily outside the United States; provided,
however, in no event shall "Foreign Securities" include Bank Loans or Trade
Payables.
1.21 "Foreign Subcustodian" shall have the meaning set forth in
Section 2.3.
1.22 "Fund Account Property" shall have the meaning set forth in
Section 2.5(a).
1.23 "Fund Custodial Account" shall have the meaning set forth in
Section 2.5(a).
1.24 "Institutional Account Property" shall mean Account Property which has been delivered to the Custodian through usual and customary banking, clearing and settlement channels in accordance with the Custodian's ordinary course custody business, and shall in no event include any Account Property delivered to the Custodian directly by the Fund.
1.25 "Instructing Party" shall mean (I) with respect to the Custodial Account and the Account Property, (x) at any time prior to the receipt by the Custodian of a Payoff Notice from the Administrative Agent, (a) at any time other than during a Suspension Period, the Fund, and, after the receipt by the Custodian of an election by the Secured Parties Representative to act as Instructing Party, the Fund and the Secured Parties Representative, jointly (it being understood that this provision shall not confer on the Secured Parties Representative any rights with respect to the Custodial Account not granted to it under the Pledge and Intercreditor Agreement), (b) at any time during any Suspension Period (other than any Suspension Period occurring as a result of the delivery of a Liquidation Notice), the Secured Parties Representative and, to the extent permitted by Section 6.14(b) hereof (and by Section 3.5 of the Pledge and Intercreditor Agreement), the Fund and (c) at any time during any Suspension Period commenced as a result of the delivery of a Liquidation Notice, the Secured Parties Representative, and (y) at any time after the receipt by the Custodian of a Payoff Notice from the Administrative Agent, the Fund and (II) with respect to the Fund Custodial Account and the Fund Account Property, the Fund as sole Instructing Party. In the event of any contrary or conflicting instruction with respect to the Custodial Account or the Account Property from the Fund and the Secured Parties Representative when each is an Instructing Party, the instruction of the Secured Parties Representative shall govern.
1.26 "Instrument" shall have the meaning assigned thereto in Section 9-105 of the NYUCC, but shall in no event include Foreign Securities, Bank Loans or Trade Payables.
1.27 "Investment Company Act" shall mean the Investment Company Act of 1940, as amended.
1.28 "Liquidation Direction" shall have the meaning assigned thereto in the Pledge and Intercreditor Agreement.
1.29 "Liquidation Notice" shall have the meaning assigned thereto in the Pledge and Intercreditor Agreement.
1.30 "Loan Documents" shall mean with respect to any Bank Loan the definitive credit agreement executed and delivered in connection therewith, and each other agreement, instrument or other document executed or delivered in connection therewith, in each case as amended or supplemented.
1.31 "Money" shall have the meaning assigned thereto in Section 1-201 of the NYUCC.
1.32 "Negotiable Document" shall mean a "Document" as defined in
Section 9-102(a)(30) of the NYUCC, but shall in no event include Bank Loans or
Trade Payables.
1.33 "NYUCC" shall mean the UCC as in effect from time to time in the State of New York.
1.34 "Notice of Suspension" shall have the meaning assigned thereto in the Pledge and Intercreditor Agreement.
1.35 "Ordinary Document" shall mean (a) a Bank Loan, (b) a Trade Payable, and (c) each other contract, agreement or instrument, in each case under this clause (c) which is in writing and which is not an Instrument, Chattel Paper or a Negotiable Document.
1.36 "Other Account Property" shall mean all Account Property other than Institutional Account Property.
1.37 "Participation Agreement" shall mean the definitive agreement pursuant to which a bank, fund, or other financial institution either acquires or sells all of any portion of any of its rights and obligations under a Bank Loan.
1.38 "Party In Interest" shall mean (a) prior to receipt by the Custodian of a Payoff Notice from the Administrative Agent, the Secured Parties Representative, and (b) at all other times, the Fund; provided, however, that with respect to the Fund Custodial Account and the Fund Account Property, the Fund shall at all times be the sole Party In Interest.
1.39 "Payoff Notice" shall mean a written notice, in the form of Exhibit A hereto, duly completed and dated, signed on behalf of an Authorized Person of the Administrative Agent, and given in accordance with Article VIII.
1.40 "Secured Parties" shall have the meaning assigned thereto in the Pledge and Intercreditor Agreement.
1.41 "Security" shall have the meaning assigned thereto in Section 8-102 of the NYUCC, but shall in no event include Foreign Securities, Bank Loans or Trade Payables.
1.42 "Suspension Period" shall mean each period of time commencing on the date of the delivery of a Notice of Suspension, which Notice of Suspension shall be deemed automatically delivered upon the delivery of any Acceleration
Notice, Final Maturity Payment Default Notice or Liquidation Notice, and ending upon the date of delivery of a Withdrawal Notice with respect to each Notice of Suspension previously delivered.
1.43 "Trade Payables" shall mean all items of Other Account Property which, in accordance with Section 3.9, are clearly marked as "Trade Payables."
1.44 "Transmittal Letter" shall have the meaning set forth in Section 3.7.
1.45 "Type" shall mean, with respect to each item of Other Account Property, such item constituting one of the following types of Account Property: a Certificated Security, Chattel Paper, an Instrument (other than a Certificated Security), a Negotiable Document, an Ordinary Document, a Bank Loan, or Trade Payables.
1.46 "UCC" shall mean, with respect to any jurisdiction, Articles 1, 8 and 9 of the Uniform Commercial Code as from time to time in effect in such jurisdiction.
1.47 "Withdrawal Notice" shall mean a written notice, in the form of Exhibit B hereto, duly completed and dated, signed on behalf of an Authorized Person of the Secured Parties Representative or the Administrative Agent, as applicable, and given in accordance with Article VIII.
1.48 "Written Instructions" shall mean, with respect to each Customer, any notices, instructions or other instruments in writing received by the Custodian from an Authorized Person of such Customer, or from a person reasonably believed by the Custodian to be an Authorized Person of such Customer, by letter, telex, telecopy, facsimile, the Custodian's on-line communication system, or any other method whereby the Custodian is able to verify with a commercially reasonable degree of certainty the identity of the sender of such communications or the sender is required to provide a password or other identification code.
Capitalized terms used but not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.
ARTICLE II
APPOINTMENT OF CUSTODIAN; CUSTODIAL ACCOUNT;
REPRESENTATIONS AND WARRANTIES;
FUND CUSTODIAL ACCOUNT
2.1 (a) The Administrative Agent and the Secured Parties Representative hereby jointly and severally appoint the Custodian as agent, bailee, securities intermediary and custodian of all Money, Foreign Securities, Chattel Paper, Instruments, Negotiable Documents, Ordinary Documents, Securities and other identified tangible or intangible property at any time delivered to the Custodian and identified for deposit in the Custodial Account by or on behalf of the Fund during the term of this Agreement, including all distributions from and proceeds of the foregoing received by the Custodian during such term, but not including any Fund Account Property (collectively, together with such property, if any, that may be transferred to the Custodial Account from the Fund Custodial Account from time to time at the instruction of the Fund, the "Account Property") and authorize the Custodian to hold or credit to the Custodial Account the Account Property as herein provided. The Custodian
hereby accepts such appointment and agrees to hold and physically segregate for the account of the Fund, in accordance with the requirements of the Section 17(f) of the Investment Company Act and Rule 17f-1 thereunder, a securities account, designated as Account Nos. 50934901 and 50934902 (the "Custodial Account"), which may include one or more sub-accounts for record-keeping purposes, in which it will hold the Account Property as provided herein, and a securities account, designated as Account No. 50934900 (the "Escrow Account"), which may include one or more sub-accounts for record-keeping purposes, in which it will hold payments or distributions made by the Fund for the purpose of maintaining its income tax status as a regulated investment company or to avoid the imposition of the excise tax under Section 4882 of the Internal Revenue Code of 1986, as amended. Common Interest Holders of the Fund shall retain a claim against the Fund to the extent of any amounts paid to the Secured Parties (or any other creditors of the Fund) from the Escrow Account. The name of the Custodial Account shall be "Special Value Continuation Partners, LP, Pledged to Wachovia Capital Markets, LLC, as Secured Parties Representative, as secured party."
(b) The Custodian shall hold in the Custodial Account, subject to the provisions hereof, all cash received by it from or for the account of the Fund, including cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act. Funds held by the Custodian for the Fund may be deposited by it to its credit as Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the board of directors of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.
(c) Within the Custodial Account, the Custodian shall establish two sub-accounts to be designated the "Equity Sub-Account" and the "Debt Sub-Account". The Equity Sub-Account and the Debt Sub-Account are each referred to herein as a "Sub-Account" and collectively as the "Sub-Accounts". All proceeds from the sale or contribution of partnership interests or other equity securities of the Fund, including any common interests and preferred interests, whenever received, shall be deposited in the Custodial Account and credited to the Equity Sub-Account, and all proceeds from draws under the Credit Agreement and from the issuance or sale of any other debt obligations of the Fund, whenever received, shall be deposited in the Custodial Account and credited to the Debt Sub-Account pursuant to Written Instructions from the Fund. Account Property purchased with amounts credited to the Equity Sub-Account shall, subject to transfers permitted by this Agreement, be held in the Equity Sub-Account, and Account Property purchased with amounts credited to the Debt Sub-Account shall, subject to transfers permitted by this Agreement, be held in the Debt Sub-Account. All payments and distributions on, and all proceeds with respect to the sale, conversion or exchange of, any item of Account Property, whether in the form of cash, securities or other property ("Proceeds"), shall be deposited in the Custodial Account and credited to the Sub-Account in which the Account Property giving rise to such Proceeds is held pursuant to Written Instructions from the Fund. Amounts on deposit in the Equity Sub-Account and
any Proceeds of Account Property held in the Equity Sub-Account may be disbursed to purchase or acquire any type of Account Property. Amounts on deposit in the Debt Sub-Account which constitute the proceeds of draws under the Credit Agreement or the proceeds from the sale or issuance of any other debt obligations of the Fund and all Proceeds of Account Property originally acquired with the proceeds of draws under the Credit Agreement or any such other debt obligations may be used to purchase or acquire any type of Account Property which does not constitute Margin Stock. Account Property in the Debt Sub-Account that becomes Margin Stock shall, pursuant to Written Instructions from the Fund, be transferred to the Equity Sub-Account.
(d) Each party hereto agrees that each item constituting "Account Property" (other than cash or Money) is to be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the NYUCC. Any cash or Money constituting Account Property shall be maintained by the Custodian in a demand deposit account constituting a component of the Custodial Account or the Fund Custodial Account. The Custodian agrees that if at any time it shall receive any order from the Secured Party (i) directing disposition of funds in the Custodial Account or the Escrow Account or (ii) directing transfer or redemption of the financial assets relating to the Custodial Account or the Escrow Account, the Custodian shall comply with such entitlement order or instruction without further consent by the Fund or any other person. However, each party hereto agrees that the Custodian does not have, directly or indirectly, an entitlement permitting it to grant an entitlement until such time as it actually receives the relevant and necessary documents. In the event of a conflict between an entitlement order or instruction, as the case may be, of the Fund and an entitlement order or instruction, as the case may be, of the Secured Parties Representative, the entitlement order or instruction of the Secured Parties Representative shall prevail. It is the intent of the parties that the Secured Parties Representative shall have "control," within the meaning of Sections 8-106(d)(2), 9-104 and 9-106 of the NYUCC, of the Custodial Account and the Escrow Account. Without limiting the effect of the foregoing, the Administrative Agent authorizes the Fund and the Secured Parties Representative to give, and the Custodian to accept, the instructions contemplated herein to be given by the Fund or the Secured Parties Representative, as applicable, in accordance with the Pledge and Intercreditor Agreement.
(e) All actions that the Fund is permitted or required to take in accordance with the terms hereof (including, without limitations, providing any notices to any Person or giving instructions to the Custodian in accordance with the terms hereof) may be taken by the Investment Manager on the behalf of the Fund.
(f) All of the provisions of this Agreement applicable to the Custodial Account (including Sub-Accounts) and Account Property shall, mutatis mutandis, be applicable to the Escrow Account.
2.2 Each Customer hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon Written Instruction given by it or on its behalf, that:
(a) It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to enter into this Agreement and to perform its obligations hereunder;
(b) This Agreement has been duly authorized, executed and delivered by it, constitutes its valid and legally binding obligation, enforceable against it in accordance with the terms hereof, and no statute, regulation, rule, order or judgment binding on it prohibits its execution or performance of this Agreement; and
(c) All Written Instructions given by it are consistent with its rights as from time to time in effect under the Credit Documents and the Financing Documents.
(d) Except to the extent that the Custodian acts as the Fund's foreign custody manager, its general partner or its foreign custody manager, as defined in the Rule 17f-5 under the Investment Company Act, has determined that use of each Foreign Subcustodian (as defined below in Section 2.3(a)) satisfies the applicable requirements of the Investment Company Act and the Rule 17f-5 thereunder.
(e) The Fund or its investment adviser has determined that the custody arrangements of each Eligible Foreign Custodian provide reasonable safeguards against the custody risks associated with maintaining assets with such Eligible Foreign Custodian within the meaning of Rule 17f-7 under the Investment Company Act.
(f) The Fund shall manage its borrowings, including, without limitation, any advance or overdraft (including any day-light overdraft) in the Custodial Account, so that the aggregate of its total borrowings does not exceed the amount the Fund is permitted to borrow under the Investment Company Act; provided, however, that the Fund shall have 90 calendar days from each date on which the Fund first fails to comply with this representation to cure any violation of this representation.
(g) Its transmission or giving of, and Custodian acting upon and in reliance on, Certificates of Authorized Persons or Written Instructions pursuant to this Agreement shall at all times comply with the Investment Company Act.
2.3 (a) The Fund hereby delegates to the Custodian, subject to Section
(b) of Rule 17f-5 under the Investment Company Act, the responsibilities set
forth in this Section 2.3 with respect to Foreign Securities held outside the
United States, and the Custodian hereby accepts such delegation as Foreign
Custody Manager of the Fund. The Foreign Custody Manager shall be responsible
for performing the responsibilities as described in this Section 2.3 only with
respect to the countries and custody arrangements for each such country listed
on Schedule I to this Agreement, which list of countries may be amended from
time to time by the Fund with the agreement of the Foreign Custody Manager.
(b) Each Customer hereby authorizes the Custodian to appoint one or more banking institutions located outside of the United States (other than a Foreign Depository) (each, a "Foreign Subcustodian") in connection with the purchase, sale or custody of Foreign Securities. Each agreement pursuant to which the Custodian employs a Foreign Subcustodian shall require the Foreign Subcustodian to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and each Customer from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Subcustodian's performance of such obligations and that such contract governing the foreign custody arrangements with each
Eligible Foreign Custodian selected by the Foreign Custody Manager shall satisfy the requirements of Rule 17f-5(c)(2) under the Investment Company Act. At the election of a Customer, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Subcustodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Customer has not been made whole for any such loss, damage, cost, expense, liability or claim. With respect to losses incurred by any Customer as a result of the acts or the failure to act of any Foreign Subcustodian, the Custodian shall take appropriate action to recover such losses from such Foreign Subcustodian; and the Custodian's sole responsibility and liability to any Customer shall be limited to amounts so received from such Foreign Subcustodian (exclusive of costs and expenses incurred by the Custodian). The Customers authorize the Custodian to hold securities recorded to the Custodial Account in accounts which the Custodian has established with one or more of the Custodian's branches or Foreign Subcustodians. The Custodian and Foreign Subcustodians are authorized to hold any of Foreign Securities in the Custodian's accounts with any Depository in which the Custodian or they participate. The Custodian may add new, replace or remove Foreign Subcustodians. Upon the Fund's request, the Custodian shall identify the name, address and principal place of business of any Foreign Subcustodian of the Fund's securities. In the event the Custodian replaces a Foreign Subcustodian, the Custodian shall not utilize such replacement Foreign Subcustodian until after the Foreign Custody Manager has determined that utilization of such Foreign Subcustodian satisfies the requirements of the Investment Company Act and Rule 17f-5 thereunder.
(c) In each case in which the Foreign Custody Manager maintains Foreign Securities with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Securities with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements with an Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Fund.
(d) For purposes of this Section 2.3, the general partner of the Fund shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Securities in each country for which the Custodian is serving as Foreign Custody Manager of the Fund.
(e) The Foreign Custody Manager shall make written reports notifying the board of directors of the Fund of any material change in the foreign custody arrangements of the Fund as described in this Section 2.3.
(f) In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the Investment Company Act would exercise.
(g) The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5 under the Investment Company Act. The Fund represents to the Custodian that its general partner has
determined that it is reasonable for the board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as Foreign Custody Manager of the Fund.
(h) The Custodian shall credit Foreign Securities (whether or not held by or through any Foreign Subcustodian) to the appropriate Sub-Account of the Custodial Account or the Fund Custodial Account, as applicable. A Foreign Subcustodian shall hold the Fund's Foreign Securities together with financial assets belonging to other of the Custodian's or Wells Fargo Bank, National Association's customers in accounts identified on such Foreign Subcustodian's books as for the exclusive benefit of the Custodian's or Wells Fargo Bank, National Association's customers. Any Account Property in the accounts held by a Foreign Subcustodian shall be subject only to the instruction of the Custodian or the Custodian's agent. Any Account Property held in a Depository for the account of a Foreign Subcustodian shall be subject only to the directions of such Foreign Subcustodian. Any agreement the Custodian enters into with a Foreign Subcustodian for holding the Custodian's customers' assets shall provide that such assets shall not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Foreign Subcustodian except for safe custody or administration, and that the beneficial ownership of such assets shall be freely transferable without the payment of money or value other than for safe custody or administration.
(i) With respect to Account Property maintained outside the United States, "Depository" shall mean a securities depository or clearing agency which operates a system for the central holding of securities or any equivalent book entries in that country or a securities depository or clearing corporation that operates a transnational system for central holding of securities or equivalent book entries in the country or a Compulsory Depository. A "Compulsory Depository" shall mean an eligible foreign custodian: (a) the use of which is mandatory because (1) its use is required by law or regulation, (2) securities cannot be withdrawn from the depository or (3) maintaining securities outside the depository is not consistent with prevailing custodial practices.
(j) Any Foreign Securities held in a foreign jurisdiction shall be held in a manner that is standard and customary in such foreign jurisdiction for holding securities for the benefit of a secured party or protecting the interests of a beneficial owner thereof or the equivalent in such jurisdiction.
(k) With respect to each Eligible Securities Depository, the Custodian shall exercise reasonable care, prudence and diligence (i) to provide the Fund with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depository in accordance with section (a)(1)(i)(A) of Rule 17f-7 under the Investment Company Act, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Custodian agrees to exercise reasonable care, prudence and diligence performing the duties set forth in this paragraph.
2.4 (a) The Administrative Agent hereby represents and warrants that it is the duly authorized administrative agent under the Credit Agreement acting on behalf of and for the benefit of the Lenders (as defined in the
Credit Agreement), and hereby covenants that any actions taken by it hereunder will be solely for the benefit of the Lenders (as defined in the Credit Agreement) in accordance with the Credit Agreement and the Pledge and Intercreditor Agreement.
(b) The Secured Parties Representative hereby represents and warrants that it is the duly authorized agent for the Secured Parties (as defined in the Pledge and Intercreditor Agreement) under the Pledge and Intercreditor Agreement, and covenants that any actions it takes under or pursuant to this Agreement shall be solely for the benefit of such Secured Parties under, and shall be taken strictly in accordance with, the Pledge and Intercreditor Agreement.
2.5 (a) The Fund hereby appoints the Custodian as agent, bailee, securities intermediary and custodian of all Money, Foreign Securities, Chattel Paper, Instruments, Negotiable Documents, Ordinary Documents, Securities and other identified tangible or intangible property at any time delivered to the Custodian and identified for deposit in the Fund Custodial Account by or on behalf of the Fund during the term of this Agreement, including all distributions from and proceeds of the foregoing received by the Custodian during such term, but not including any Account Property (collectively, together with such property, if any, that may be transferred to the Fund Custodial Account from the Custodial Account from time to time at the instruction of the Instructing Party, the "Fund Account Property") and authorizes the Custodian to hold or credit to the Fund Custodial Account the Fund Account Property as herein provided. If it is not expressly stated by the Fund that any such property is being delivered as Fund Account Property pursuant to this Section 2.5, the Custodian shall treat such property for all purposes hereunder as Account Property. The Custodian hereby accepts such appointment and agrees to establish and maintain a securities account, which shall be designated Account No. 50934903 (the "Fund Custodial Account"), which may include one or more sub-accounts for record-keeping purposes, in which it will hold the Fund Account Property as provided herein. The name of the Fund Custodial Account shall be "Special Value Continuation Partners Not Pledged."
(b) All of the provisions of this Agreement applicable to the Custodial Account (including Sub-Accounts) and Account Property shall, mutatis mutandis, be applicable to the Fund Custodial Account and the Fund Account Property, except that the Fund shall be the sole and exclusive Instructing Party and Party In Interest with respect to the Fund Custodial Account and the Fund Account Property, and neither the Fund Custodial Account nor the Fund Account Property shall be subject to the lien of the Pledge and Intercreditor Agreement in favor of the Secured Parties Representative. The agreement of the Custodian set forth in Section 2.1 to comply with "entitlement orders" from the Secured Parties Representative shall not include or apply to the Fund Custodial Account, and the Fund Custodial Account shall not be subject to the control or dominion of the Administrative Agent or the Secured Parties Representative.
(c) Notwithstanding any term hereof to the contrary, if a Liquidation Notice has been delivered to the Custodian and not withdrawn, the Custodian shall not transfer any Account Property to the Fund Custodial Account without the prior express written permission of the Secured Parties Representative.
ARTICLE III
CUSTODY OF ACCOUNT PROPERTY
3.1 (a) Account Property shall be delivered to the Custodian, to be held in custody hereunder.
(b) The Fund hereby appoints the Custodian its true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for the Fund and in the Fund's name, place and stead, following a Liquidation Notice and until such Liquidation Notice is withdrawn, to take any further actions required to register the transfer of any such Account Property to the Custodian or the Secured Parties Representative (or to otherwise transfer or dispose of such Account Property pursuant to the terms of this Agreement).
(c) The Fund covenants and agrees to take all actions reasonably requested by the Custodian in order to facilitate the delivery of Account Property delivered hereunder, including, without limitation, providing certifications required in connection with the transfer of any Account Property subject to restrictions on transfer.
(d) The Custodian is authorized, in its discretion, to register ownership of any Account Property in its nominee name or through any clearing agency or Depository Institution without increase or decrease of its liability. The Fund shall accept the return or delivery of Account Property of the same class and denomination as those deposited with the Custodian by the Fund or otherwise received by the Custodian for the appropriate Sub-Account of the Custodial Account, and the Custodian need not retain the particular certificates so deposited or received. If any of the Fund's Account Property registered in the Custodian's name or the name of the Custodian's nominee or held in a Depository and registered in the name of the Depository's nominee are called for partial redemption by the issuer of such Account Property, the Custodian is authorized to allot the called portion to the Fund.
3.2 For purposes of this Section 3.2, the Custodian shall list each
Bank Loan and other items of Other Account Property (through the use of dummy
CUSIP or loan numbers, for example) on its custody system, but in no event
shall the Custodian have any obligation to make modifications to such custody
system or any related computer or other programs. The Custodian shall furnish
(a) the Fund and the Secured Parties Representative with evidence of daily
transactions, and (b) the Customers (i) with a monthly summary of all transfers
to or from the Custodial Account (including Sub-Accounts), (ii) an account
statement, as of the last Business Day of each week, setting forth in
reasonable detail a list of all Institutional Account Property, all Other
Account Property (to the extent listed on the Custodian's system), and a copy
of each Transmittal Letter and each Disposition Letter received by the
Custodian during such week, and (iii) to the extent delivered to the Custodian,
the periodic reports required pursuant to Section 6.1.2 of the Credit
Agreement.
3.3 With respect to all Account Property, the Custodian shall, unless otherwise instructed to the contrary pursuant to Written Instructions given by the Instructing Party:
(a) Receive all income and other payments and, with respect to all Institutional Account Property, advise the Instructing Party and the Fund as promptly as practicable of any such amounts due but not paid;
(b) With respect to all Institutional Account Property, present for payment and receive the amount paid upon all instruments which may mature and advise the Instructing Party and the Fund as promptly as practicable of any such amounts due but not paid;
(c) Forward to the Instructing Party, with a copy to the Fund, all the information or documents that it may receive from an issuer which, in the opinion of the Custodian, are intended for the beneficial owner thereof;
(d) Execute, as Custodian, any certificates of ownership, affidavits, declarations or other certificates under the Code in connection with the collection of bond and note coupons which it receives and is requested to execute (provided, however, that it shall not be obligated to execute any such instrument which it deems, in its reasonable judgment, is not required, not in appropriate form or would impose upon it liability or expense, the reimbursement of which is not satisfactorily assured to it hereunder or otherwise);
(e) Hold in accordance with the provisions hereof, all rights and similar Negotiable Documents, Instruments or Securities, as the case may be, issued with respect to any Negotiable Documents, Instruments or Securities, as the case may be, held by the Custodian hereunder;
(f) Endorse for collection checks, drafts or other negotiable instruments;
(g) Exchange Account Property for other Account Property where the exchange is purely ministerial as, for example, the exchange of Account Property in temporary form for Account Property in definitive form or the mandatory exchange of Account Property; and
(h) Sell Account Property with fractional interests resulting from a stock split or a stock dividend and to credit the Custodial Account with the proceeds thereof.
3.4 Upon receipt by the Custodian of Written Instructions from the Instructing Party, the Custodian will exchange Negotiable Documents, Instruments and Securities held hereunder in connection with any conversion privilege, reorganization, recapitalization, redemption in kind, consolidation, tender offer or exchange offer, or any exercise of subscription, purchase or other similar rights represented by Negotiable Documents, Instruments and Securities. Upon receipt by the Custodian of Written Instructions from the Fund, the Custodian shall transfer Account Property which does not constitute Margin Stock from the Equity Sub-Account to the Debt Sub-Account in exchange for (i) transfers of cash in an amount equal to the historical cost of such non-Margin Stock Account Property, or other Account Property having the same historical cost as such non-Margin Stock Account Property, from the Debt Sub-Account to the Equity Sub-Account or (ii) disbursements of cash from the Debt Sub-Account of equal amounts, each as directed by the Fund.
3.5 (a) The Custodian is not at any time under any duty to supervise the investment of (other than to forward promptly all notices of corporate actions with respect to any investment), or to advise or make any recommendation for the purchase, sale, retention or disposition of, Account Property.
(b) Any instruction by an Instructing Party shall be complete and contain sufficient information to enable the Custodian to perform the instruction. Without limiting the foregoing, each instruction (i) to forward amounts to any Person shall identify the nature of such payment, and (ii) in any situation in which there is not sufficient available cash in the Custodial Account to make the requested payments, shall specify the priority and allocation of which the Custodian shall follow with respect to distribution or application of such available amounts (provided, however, that in all such instances prior to the receipt by the Custodian of a Liquidation Notice, it shall be entitled to apply available amounts first to unpaid amounts owing to itself, the Administrative Agent and the Secured Parties Representative, notwithstanding receiving instruction to the contrary).
(c) At any time prior to receipt of a Liquidation Notice, the
Custodian shall be entitled to pay periodically from the Custodial Account
without instruction of (but with notice to the Fund ) any Instructing Party (i)
to itself, amounts due and payable to it as ordinary fees and expenses pursuant
to this Agreement, (ii) to the Administrative Agent, such amounts as the
Administrative Agent may instruct (as set forth in a written certification, if
the Custodian shall so request) are due and payable to it as ordinary fees and
expenses pursuant to the Credit Agreement and (iii) to the Secured Parties
Representative, such amounts as the Secured Parties Representative may instruct
(as set forth in a written certification, if the Custodian shall so request)
are due and payable to it as ordinary fees and expenses pursuant to the Pledge
and Intercreditor Agreement. Subject to Section 6.15(d) hereof and in
accordance with Section 6.15(g), the Custodian shall be entitled to follow the
instructions of any requesting party with respect to any payment or
disbursements of funds pursuant to and in accordance with this Section 3.5(c)
without liability on its part and without any obligation or duty to inquire
into, investigate, monitor or other wise determine compliance with the
applicable terms, restrictions, limitations or requirements or any other
Transaction Document.
(d) Any release or distribution of Account Property by the Custodian pursuant to the instruction of an Instructing Party (including but not limited to any transfer of property from the Custodial Account to the Fund Custodial Account) shall automatically and without further action or consent by the Administrative Agent or the Secured Parties Representative (but subject to the consent of the Secured Parties Representative if a Liquidation Notice has been delivered to the Custodian, as provided in Section 2.5(c)) release such property free and clear from the lien of the Pledge and Intercreditor Agreement.
3.6 (a) Each Customer agrees that the Custodian shall have no obligation hereunder to purchase any Account Property, including but not limited to any Foreign Securities, unless one or more of the Customers shall have provided the Custodian with sufficient immediately available funds to settle all transactions (and the Custodian shall have received adequate Written Instructions from the Instructing Party). As used herein, "sufficient immediately available funds" shall mean either (i) sufficient United States currency to purchase the necessary foreign currency or (ii) sufficient applicable foreign currency, to cover scheduled purchases. The Custodian shall
credit the appropriate Sub-Account of the Custodial Account with immediately available funds each day which result from the contractual settlement of all sale transactions, based upon advice received by the Custodian from its agents and depositories. Such funds shall be in Dollars or such other currency as the Instructing Party may specify to the Custodian. Should the Fund fail to have sufficient immediately available funds in such Sub-Account to settle these deliveries of Account Property pursuant to the preceding sentence (a "Deficit"), the Custodian, in its sole discretion, may elect (i) to reject the settlement of any or all of the Account Property delivered to the Custodian that day to such Sub-Account, (ii) to settle the deliveries on the Fund's behalf and debit such Sub-Account (A) for the amount of such Deficit and (B) for the amount of the funding or other cost or expense incurred or sustained by the Custodian for the Fund's failure to have sufficient immediately available funds in such Sub-Account by the applicable settlement deadlines for the Custodian, or (iii) to reverse the posting of the Account Property credited to such Sub-Account. The foregoing rights are in addition to and not in limitation of any other rights or remedies available to the Custodian under this Agreement or otherwise. Any advances made by the Custodian to the Fund in connection with the purchase, sale, redemption, transfer or other designation of Account Property or in connection with disbursements of funds to any party, which create or result in an over-draft in the Custodial Account (including Sub-Accounts) shall be deemed a loan by the Custodian to the Fund, payable on demand, and bear interest on the amount of the loan each day that the loan remains unpaid at the Custodian's prime rate in effect as announced by the Custodian from time to time (unless another rate has been separately agreed upon, in writing, between the Custodian and the Fund in respect of such advances). No prior action or course of dealing on the Custodian's part with respect to the settlement of Account Property transactions on the Fund's behalf shall be used by or give rise to any claim or action by the Fund against the Custodian for the Custodian's refusal to pay or settle for Account Property transactions the Fund has not timely funded as required herein.
(b) In acting upon instructions to settle the purchase or sale of Account Property, the Custodian is authorized to act in accordance with customary securities processing practices for the relevant market, including, without limitation, in the case of a sale, to deliver such Account Property to the purchaser thereof or dealer therefor (including to an agent for any such purchaser or dealer) against a receipt, with the expectation of collecting payment from the purchaser, dealer or agent to whom the Account Property was so delivered.
(c) The Custodian is authorized and hereby agrees to effect currency exchange transactions in connection with transactions in Foreign Securities, or as otherwise may be requested by the Instructing Party and agreed to by the Custodian, through customary banking channels, including through Wells Fargo Bank, National Association or an affiliate of Wells Fargo Bank, National Association. All expenses and risks incident to the collection and conversion of such currency exchange transactions shall be assumed by the Fund. The Custodian shall have no responsibility for the fluctuation in exchange rates affecting such conversion.
3.7 Notwithstanding anything to the contrary contained herein, the Custodian shall have the same obligations hereunder with respect to each item of Other Account Property as shall apply to Institutional Account Property to the extent such Other Account Property conforms to the usual and customary form of Institutional Account Property of a similar Type. Each Customer acknowledges
and agrees that all Other Account Property delivered by or on behalf of such Customer to the Custodian shall (a) conform in both form and substance to the terms of this Agreement and (b) be listed on a trade ticket (each a "Transmittal Letter") delivered to the Custodian prior or simultaneously therewith. With respect to Other Account Property, the Custodian shall be obligated to treat the same in accordance with the Type thereof, and shall be fully justified and entitled to act hereunder in accordance with and in reliance on the Type marked thereon with respect thereto. In the event that any item of Other Account Property shall not be clearly marked as to Type, the Custodian shall promptly notify the Fund and the Instructing Party thereof and, until such time as the Instructing Party shall identify such item by Type pursuant to Written Instructions, the Custodian shall treat such item as an Ordinary Document.
3.8 (a) In the case of any Bank Loan that is to be delivered, assigned or transferred to the Custodian, the Fund shall deliver to the Custodian, for the benefit of the Secured Parties, as soon as practicable: (i) a copy of all documents evidencing the purchase or acquisition of the Bank Loan by the Fund; and (ii) all originals of any promissory notes or participation certificates issued to, or held by the Fund, representing such Bank Loan.
(i) Promptly after each determination by the Fund to purchase a Bank Loan, the Fund shall deliver to the Custodian on or before the settlement date for such purchase Written Instructions specifying with respect to such purchase: (a) the particular Bank Loan purchased, including, where available, any CUSIP number, the facility amount, the date of such Bank Loan, and such other information as the Custodian may reasonably require to identify the particular Bank Loan; (b) whether such purchase is to be accomplished pursuant to an Assignment Agreement or a Participation Agreement; (c) the settlement date for such purchase; (d) the total amount payable upon such purchase, including any assignment fee and/or any processing fee, and the institutions to which such amounts are to be paid; (e) the name of the financial institution from whom the purchase was made and (f) the name of the financial institution from whom the Loan Documents are to be received by the Custodian. The Custodian shall pay to the financial institution specified in the Written Instructions out of the money held hereunder for the amounts payable as set forth in such Written Instructions, such payment may be without, and not against, delivery to the Custodian of either (A) an executed Assignment Agreement in favor of Fund and any related promissory note delivered to the Custodian in connection therewith; (B) an executed Participation Agreement in favor of the Fund, or (C) any promissory note or Loan Documents. In the event Written Instructions described in the first sentence of this Section are received on the settlement date, the Custodian shall use commercially reasonable efforts to settle the purchase on such settlement date, but shall not be liable for a failure to do so.
(ii) Promptly after each determination by the Fund to sell a Bank Loan, the Fund shall deliver to the Custodian on or before the settlement date for such sale Written Instructions specifying with respect to such sale: (a) the particular Bank Loan sold, including, where available, any CUSIP number, the facility amount, the date of such Bank Loan, and such other information as the Custodian may reasonably require to identify the particular Bank Loan; (b) the amount of such sale; (c) whether such sale is to be accomplished by an
Assignment Agreement or a Participation Agreement; (d) the settlement date for such sale; (e) the total amount payable upon such sale; (f) the name of the financial institution to whom the sale was made; (g) the amount of fees or charges, if any, to be paid by the Fund in connection with such sale, and the financial institutions to whom the same are to be paid; and (h) in the case of a sale accomplished by an Assignment Agreement, the name of the financial institution to whom the Loan Documents (or in the case of a sale of less than all of the Bank Loan, copies of the Loan Documents) held by the Custodian hereunder are to be delivered. Upon receipt of the total amount payable upon such sale, provided the same conforms to the total amount payable as set forth in such Written Instructions, the Custodian shall arrange for the delivery of the Loan Documents and any promissory note (or in the case of a sale of less than all of the Bank Loan accomplished by an Assignment Agreement, a portion thereof) held by the Custodian and an executed Assignment Agreement or Participation Agreement prepared by the Fund, whichever is indicated by the Written Instructions, to the financial institution specified in the Written Instructions. In the event the Written Instructions described in the first sentence of this Section are received on the settlement date, the Custodian shall use commercially reasonable efforts to settle the sale on such settlement date, but shall not be liable for a failure to do so.
(iii) Promptly after any determination by the Fund to make a disbursement pursuant to a borrowing request with respect to a Bank Loan acquired through an assignment or purchase of a participation, Fund shall deliver to the Custodian, prior to noon New York City time on the date on which such disbursement is to be made, Written Instructions specifying with respect to such disbursement; (a) the dollar amount to be disbursed; (b) the name of the person or financial institution to whom such disbursement is to be made; and (c) and the date on which such disbursement is to be made. The Custodian shall make such disbursement of the amount set forth in the Written Instructions out of the moneys hereunder on the dates specified in the Written Instructions. In the event the Written Instructions described in the first sentence of this Section are received on the date specified therein on which the disbursement is to be made after noon New York City time, the Custodian shall use commercially reasonable efforts to make such disbursement on such date, but shall not be liable for a failure to do so.
(iv) Whenever a payment of interest or principal or any other payment is due to the Fund in connection with a Bank Loan held hereunder, the Custodian shall accept payment of such amount and hold the same hereunder. The Custodian may, in its absolute discretion, provisionally credit such amounts on the due date therefor, such credit subject to reversal at the Custodian's discretion at any time prior to actual receipt of final payment. If any such amount is not timely received the Custodian shall, at the cost and expense of the Fund, take such action as it deems commercially reasonable to effect collection. In the case of any payment with respect to which the Fund wishes to disburse a portion thereof to another financial or other institution, the Custodian shall make such disbursement out of the moneys held hereunder upon receipt of Written Instructions specifying: (a) the dollar amount of such disbursement; and (b) the date on which such disbursement is to be made.
(v) The Custodian shall act as custodian of the Loan Documents, Assignment Agreements, and Participation Agreements, together with any related promissory notes delivered to Custodian hereunder, but only when, as and if the same are delivered to and actually received by the Custodian.
(b) The Custodian shall forward to Fund all information, notices, or documents that it may receive with respect to a Bank Loan from time to time, including, without limitation, borrowing requests or disbursement notices, unless the Custodian reasonably believes the Fund has received the same. With respect to any borrowing request, disbursement notice, or similar document, the Custodian shall act only upon timely Written Instructions of the Fund, and shall have no liability or responsibility for any representations in such request or for any similar representations in any of the Loan Documents, shall have no duty to make any investigation, and shall have no notice of any event of default or failure of a condition precedent, and shall not be required to determine, or make any inquiry with respect to, the use the Fund intends to make of any disbursement. All such determinations shall be made by the Fund. In connection with any roll-over notice, notice of conversion, or interest-rate election request, or similar notice, the Custodian shall upon receipt of Written Instructions from the Fund make appropriate entries in its books and records.
(i) Notwithstanding any other provision to the contrary, when the Custodian is instructed to make payment for a purchase of a Bank Loan, whether such purchase is accomplished by an Assignment Agreement or a Participation Agreement, such payment need not be made against delivery to the Custodian of an Assignment Agreement, Participation Agreement, Loan Documents or any promissory note. The Fund assumes all responsibility and liability for all risks involved in connection with the Custodian's making such payment and for any failure of the foregoing to be delivered to the Custodian at the time of such payment or any time thereafter.
(ii) Notwithstanding any other provision contained in this Agreement, the Custodian shall not be liable for any loss or damage, including counsel fees, resulting from its actions or omissions to act with respect to Bank Loans, except for any loss or damage arising out of its own gross negligence or willful misconduct with respect to its express duties. In no event shall the Custodian be liable to the Fund or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising under or in connection with Bank Loans, even if previously informed of the possibility of such damages and regardless of the form of action. The Fund agrees to indemnify the Custodian against, and save the Custodian harmless from, all liability, claims, losses and demands whatsoever, including reasonable counsel fees, however arising or incurred because of or in connection with the actions or omissions to act of the Custodian with respect to Bank Loans, except to the extent the same constitutes direct money damages arising out of Custodian's own gross negligence or willful misconduct.
(c) The procedures described in clauses (a) and (b) may be revised and supplemented from time to time with the written consent of all of the parties to this Agreement (without the consent of the Lenders under the Credit Agreement). The parties agree to negotiate in good faith such revisions and
supplements as may be reasonable or necessary to enable the Fund to continue to acquire Bank Loans and the Custodian to hold them for the benefit of the Secured Parties.
(d) The Custodian shall have no obligation or duty to take any action to vote upon, consent to or approve, or otherwise take or exercise any action upon any request, notice or solicitation from the issuer (or agent on behalf of the issuer) of, or similar matter with respect to, any Account Property, such as, without limitation, any proposed reorganization, amendment, modification, extension, conversion, consolidation, tender offer or exchange offer or similar matter, or otherwise to preserve rights against minor parties, absent instruction from the Instructing Party; and the Custodian shall have no duty or obligation to evaluate or render advice to the Instructing Party with regard to any such matter.
3.9 (a) With respect to any Trade Payable to be transferred to the Custodial Account, at the time of settlement, the Fund shall send the Custodian a notice describing such Trade Payable and a copy of any documents evidencing its purchase thereof and shall thereafter promptly forward the items specified in clause (b) or (c) below after its receipt thereof.
(b) With respect to any Trade Payable to be transferred to the Custodial Account, the Fund shall deliver to Custodian a Documentation Package containing all Chattel Paper, if any, constituting such Pledged Trade Payable.
(c) With respect to any Trade Payable transferred to the Custodial Account as to which the account debtor or obligor thereunder has filed or subsequently files for protection under the federal Bankruptcy Code, in addition to the foregoing actions, the Party In Interest shall file a proof of claim setting forth the terms of the pledge in accordance with Rule 3001(o)(3) of the Federal Rules of Bankruptcy Procedure. With respect to any Trade Payable purchased or acquired by the Fund after a proof of claim against the account debtor or obligor thereunder has already been filed, the Fund hereby waives its rights to object to any evidence of the terms of the pledge thereof filed by the Secured Parties Representative or the Custodian in accordance with Rule 3001(e)(4) of the Federal Rules of Bankruptcy Procedure, provided that the terms of such filing are consistent with, and do not violate any provision of the Credit Agreement, this Agreement or the Pledge and Intercreditor Agreement. To the extent that the terms of such filing are inconsistent with, or violate any provision of the Credit Agreement, this Agreement or the Pledge and Intercreditor Agreement, the Fund retains, and does not waive, its right to object to any filing made by the Secured Parties Representative or the Custodian under Rule 3001(a)(4) of the Federal Rules of Bankruptcy Procedure.
3.10 (a) Notwithstanding any term of Section 3.1 to the contrary, the Custodian shall be entitled in any instance to take delivery of and hold any Account Property by such other means and procedures (whether or not as described in, or in compliance with, the terms of said Section 3.1) as it may deem appropriate or expedient, or as may be consistent with its then applicable procedures, including without limitation using nominees or other methods of good delivery (but not in "street name"), utilizing or holding through other agents, intermediaries, brokers, dealers, clearing or depository banks, subcustodians or other depositories, or through any "direct paper" book-entry or other recognized securities system, in each case in any combination, as it
may deem appropriate or, where appropriate, holding of securities as part of a fungible bulk; subject, however, to its duties under applicable law.
(b) The Custodian shall, upon request, provide the Fund with any report obtained by the Custodian relating to any securities system's accounting system or its internal accounting control and procedures for safeguarding securities deposited in such securities system.
3.11 The Custodian, the Fund, the Administrative Agent and the Secured Parties Representative each hereby agrees that each item of Account Property (and other property, if any) other than cash or Money contained in or credited to the Custodian Account or Fund Custodian Account from time to time, of whatever nature or kind, shall be treated as a "financial asset" within the meaning of, and under, Article 8 of the NYUCC.
3.12 All items of income, gain, expense and loss recognized in the Custodial Account or Fund Custodian Account which the Custodian determines it is required by law to report to the Internal Revenue Service (or any state or local taxing authorities) shall be reported under the name and taxpayer identification number of the Fund. The Fund shall provide the Custodian the Fund's taxpayer identification number promptly following the execution and delivery of this Agreement.
3.13 The Custodian hereby represents and warrants that it has not entered into, and hereafter during the term of this Agreement shall not enter into, any agreement granting "control" (within the meaning of ss. 8-106(d)(2), 9-104 and 9-106 of the NYUCC) with respect to the Custodial Account (or any Sub-Account) or the Account Property to any person, other than as set forth in this Agreement. The Custodian is a bank, broker or trust company which in the ordinary course of its business maintains security accounts for others and is acting in that capacity as Custodian under this Agreement.
3.14 Notwithstanding anything to the contrary herein, the Custodian agrees that financial assets, money and other items credited to the Custodial Account and the Escrow Account will not be subject to deduction, set-off, recoupment, banker's lien, or any other right in favor of any person other than the Secured Party Representatives under the Pledge and Intercreditor Agreement; provided, however, the Custodian may set off (i) all amounts due to the Custodian in respect of customary fees and expenses for the routine maintenance and operation of Custodial Account and the Escrow Account and (ii) the face amount of any checks which have been credited to a Custodial Account or the Escrow Account but are subsequently returned unpaid because of uncollected or insufficient funds.
ARTICLE IV
PURCHASE AND SALE OF ACCOUNT PROPERTY;
CREDITS TO CUSTODIAL ACCOUNT
4.1 Promptly after each purchase or sale of Account Property (and prior to the time at which the Custodian is required to release or deliver any Account Property (including any cash purchase price) in connection therewith), the Instructing Party and, to the extent reasonably required by the Custodian at its option (provided, however, that the Custodian shall have no obligation
to seek such instruction), the Fund and the Administrative Agent shall deliver to the Custodian Written Instructions specifying all information necessary for the Custodian to deliver such Account Property (and sufficient to indicate that the same is in compliance with the requirements of this Agreement). The Custodian shall account for all purchases and sales of Account Property on the contractual settlement date unless otherwise agreed to by the Custodian. In connection with each sale or other transfer of Other Account Property, the Instructing Party shall deliver to the Custodian a trade ticket (each, a "Disposition Letter") listing each item of Other Account Property subject to such sale or transfer. In connection with settlements of purchases of privately placed notes or certificates on shares of beneficial interest, in each case, upon original issuance, the Custodian need not make payment on delivery versus payment basis and may pay for the same prior delivery of such note, certificate or share or of any receipt or commitment therefor.
4.2 Each Customer understands that when the Custodian is instructed to deliver Account Property against payment, delivery of such Account Property and receipt of payment therefor may not be completed simultaneously. Each Customer agrees that the Custodian shall have no responsibility or liability for any credit risks involved in connection with the Custodian's delivery of Account Property pursuant to instructions of the Instructing Party; provided, however, that the Custodian shall not deliver Account Property prior to receipt of payment therefor unless specifically authorized by the Instructing Party. In the event of such specific authorization, the Custodian agrees that in the event no payment is received by the Custodian in connection with any delivery of Account Property, the Custodian shall, upon the request of the Instructing Party and at the sole cost and expense of the Fund, use reasonable and customary efforts (in accordance with its ordinary custody business practices) to seek the return of such Account Property or the payment therefor; provided, however, that the Custodian shall have no obligation hereunder to commence or engage in any litigation or arbitration in connection therewith.
4.3 The Custodian may, as a matter of bookkeeping convenience or by separate agreement with the Instructing Party, credit the Custodial Account with the proceeds from the sale, redemption or other disposition of Account Property or interest, dividends or other distributions payable on Account Property prior to its actual receipt of final payment therefor. All such credits shall be conditional until the Custodian's actual receipt of final payment and may be reversed by the Custodian to the extent that final payment is not received. Payment with respect to a transaction will not be "final" until the Custodian shall have received immediately available funds which under applicable law or rule are irreversible and not subject to any security interest, levy or other encumbrance (other than those contemplated by the Credit Agreement), and which are specifically applicable to such transaction.
4.4 The Custodian shall have no obligation, and shall not be liable, for any loss or damage whatsoever resulting from its failure to settle any Account Property transaction where the rules of a Depository prevent the receipt or delivery of such Account Property (i.e., that such Account Property has been "chilled"). The Custodian may, but shall have no obligation to, attempt to utilize alternative methods of delivering securities from time to time offered by a Depository.
4.5 Unless otherwise invested overnight as directed in a timely manner by the Instructing Party, all Dollars in the Custodial Account at the end of a business day will be invested in Cash Equivalents by the Custodian (which investment shall be in the name of the Custodian and shall be solely under the control and dominion of the Custodian, subject to the duties and covenants of the Custodian under this Agreement).
4.6 Each of the Fund and the Secured Parties Representative hereby covenants and agrees that in any instance in which it shall or may act as Instructing Party, it shall only instruct the Custodian, with respect to the Custodial Account and Account Property, in a way that is consistent with and in compliance with the Pledge and Intercreditor Agreement, this Agreement and the other Transaction Documents to which it is a party and that may be applicable.
4.7 In no instance shall the Custodian be required to receive, and the Instructing Party shall not cause, the assignment to the Custodian of any Other Account Property (including without limitation any Bank Loans) unless (i) the terms of such assignment and Other Account Property do not impose upon the Custodian, as assignee, any obligations or liabilities (including without limitation any funding or lending obligations) and (ii) the terms of such assignment expressly state that such assignment is made strictly and solely to the Custodian in its capacity as a nominee, that the Custodian in its individual corporate capacity shall not have and does not assume any obligations or liabilities thereunder, and such assignment is subject to the condition that there shall be no recourse in respect of any obligations or liabilities arising out of such assignment or assigned property against the Custodian in its individual or corporate capacity (or against its assets or properties owed in its individual or corporate capacity).
4.8 With respect to all transactions for the Custodial Account, including, without limitation, dividend and interest payments and sales and redemptions of Account Property, availability of funds credited to the Custodial Account shall be based on the type of funds used in the trade settlement or payment, including, but not limited to, same day availability for federal or same day funds and next business day availability for clearing house or next day funds.
4.9 The following special provisions relate to all Foreign Securities:
(a) Cash may be held pursuant to the Fund's instructions in either interest or non-interest bearing accounts as may be available for the particular currency. To the extent the Custodian can comply with the Fund's instructions to the Custodian, the Custodian is authorized to maintain cash balances on deposit for the Fund with the Custodian or one of the Custodian's or Wells Fargo Bank, National Association's affiliates at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as the Fund may direct, if acceptable to the Custodian.
(b) Account Property shall be transferred, exchanged or delivered by the Custodian or Foreign Subcustodian upon receipt by the Custodian of instructions which include all information required by the Custodian. Settlement and payment for Account Property received for, and delivery of Account Property out of, the Custodial Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivery of securities to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of Account Property out of the Custodial Account may be made in any manner specifically required by the Fund's instructions acceptable to the Custodian.
(c) When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar corporate action is received which bears an expiration date, the Custodian shall endeavor to obtain instructions from the Instructing Party, but if instructions are not received in time for the Custodian to take timely action, or actual notice of such corporate action was received too late to seek instructions, the Custodian is authorized to sell such rights entitlement or fractional interest and to credit the Custodial Account with the proceeds or to take any other action the Custodian deems, in good faith, to be appropriate in which case the Custodian shall be held harmless for any such action.
4.10 The Custodian may provide proxy voting services, if elected by the Instructing Party and agreed to by the Custodian, in accordance with the then customary proxy voting services procedures of the Custodian. Proxy voting services may be provided by the Custodian or, in whole or in part, by one or more third parties appointed by the Custodian (which may be the Custodian's affiliates).
The Custodian shall endeavor to promptly notify each Customer of such rights or discretionary actions or of the date or dates by when such rights must be exercised or such action must be taken provided that the Custodian has received, from the issuer (with respect to Securities issued in the United States) or from one of the nationally or internationally recognized bond or corporate action services to which the Custodian subscribes, timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken.
In the event that the Instructing Party does not elect to have the Custodian provide proxy voting services or does not instruct otherwise, the following shall apply. With respect to all Securities, however registered, the voting rights are to be exercised by the Fund or its designee. With respect to Securities issued in the United States, the Custodian's only duty shall be to promptly mail to the Fund any documents (including proxy statements, annual reports and signed proxies) relating to the exercise of such voting rights. With respect to Foreign Securities, at the request of the Fund, the Custodian will provide the Fund with access to a provider of global proxy services (the cost of which will be paid by the Fund). If the Fund determines not to utilize the services of such global proxy services provider, the Custodian will provide the Fund with proxy material actually received by the Custodian from Foreign Subcustodians, but otherwise shall have no obligations with respect to voting.
4.11 The Custodian shall not be liable to the Fund or any third party for any taxes, fines or penalties payable by the Custodian or the Fund, and shall be indemnified accordingly, whether these result form the inaccurate completion of documents by the Fund or any third party, or as a result of the provision to the Custodian or any third party of inaccurate or misleading information or the withholding of material information by the Fund or any other third party, or as a result of any delay of any revenue authority or any other
matter beyond the Custodian's control. The Fund confirms that, if the Custodian notifies the Fund prior to taking any such action, the Custodian is authorized to deduct from any cash received or credited to the Custodial Account any taxes or levies required by any revenue or governmental authority for whatever reason in respect of the Custodial Account. Other than as expressly provided in this subclause, the Custodian shall have no responsibility with regard to the Fund's tax position or status in any jurisdiction. The Fund confirms that the Custodian is authorized to disclose any information requested by any revenue authority or any governmental body in relation to the Fund or the securities and/or cash held for the Fund.
4.12 To facilitate the administration of the Fund's trading and investment activity, the Custodian is authorized to enter into spot or forward foreign exchange contracts with the Fund or an Authorized Person for the Fund and may also provide foreign exchange through the Custodian's subsidiaries or affiliates, Wells Fargo Bank, National Association or its affiliates or Foreign Subcustodians. Instructions including standing instructions, may be issued with respect to such contracts but the Custodian may establish rules or limitation concerning any foreign exchange facility made available. In all cases where the Custodian and the Custodian's subsidiaries or affiliates, Wells Fargo Bank, National Association or its affiliates or Foreign Subcustodians enter into a foreign exchange contract related to the Custodial Account, the terms and conditions shall be determined by the Custodian in its absolute discretion.
ARTICLE V
OVERDRAFTS OR INDEBTEDNESS
If the Custodian in its sole discretion advances funds into or for the benefit of the Custodial Account in the ordinary course of the Custodian's custody business, or there shall arise for whatever reason an overdraft in the Custodial Account in the ordinary course of the Custodian's custody business, or if the Fund is for any other reason indebted to the Custodian hereunder, the Fund shall repay the Custodian on demand the amount of the advance, overdraft or indebtedness plus accrued interest at a rate ordinarily charged by the Custodian to its institutional custody customers. Except as contemplated by the immediately preceding sentence, the Custodian shall not make any loans or otherwise extend any credit to the Fund. The Fund hereby grants to the Custodian a first lien and security interest in and to the Custodial Account and all Account Property now or hereafter existing or acquired or held in the Custodial Account as security for all obligations owed by the Fund or any other person to the Custodian under or pursuant to this Agreement, and acknowledges and agrees that it has the right to grant such lien and security interest free of any right of redemption or prior claim by any other person. Each Customer hereby acknowledges and agrees that the Custodian has a continuing first lien and security interest in and to the Custodial Account and all Account Property now or hereafter existing or acquired or held in the Custodial Account in order to secure all of the obligations owed by the Customers to the Custodian hereunder. The Custodian shall be entitled to all the rights and remedies of a pledgee under common law and a secured party under the UCC and any other applicable laws or regulations as then in effect; provided, however, that to the extent the Custodian shall seek payment of any sum due hereunder from the Custodial Account or the Account Property, the Custodian shall first, apply all cash in the form of Dollars in the Custodial Account thereto and, thereafter, liquidate any remaining Account Property and apply the cash proceeds thereof to such sum; provided, further, that Custodian shall not liquidate any collateral security pursuant to this Article V unless such sum is in excess of ten days
past due. The Custodian's security interest in the Custodial Account shall be a first lien and security interest subject to no setoffs, counter-claims or other liens prior to or on a parity with it in favor of any other party (other than specific liens granted preferred status by statute), and the Fund shall take any and all additional steps which the Custodian requires to assure itself of such priority and status, including notifying third parties of, or obtaining their consent to, the Custodian's security interest.
ARTICLE VI
CONCERNING CUSTODIAN
6.1 (a) The Custodian shall exercise the degree of care of a prudent professional custodian for hire in carrying out the provisions of this Agreement. Except as otherwise expressly provided herein, the Custodian shall not be liable for any costs, expenses, damages, liabilities or claims (including, without limitation, attorneys' and accountants' fees) incurred by or asserted against the Customers, or any one or more of them, except those costs, expenses, damages, liabilities or claims arising out of the negligence, bad faith or willful misconduct of the Custodian. The Custodian shall have no obligation hereunder for costs, expenses, damages, liabilities or claims (including, without limitation, attorneys' or accountants' fees) which are sustained or incurred by reason of any action or inaction by any depository (including any Depository or Compulsory Depository), clearing corporation or other or other agent, sub-custodian or intermediary, unless such action or inaction is caused by the negligence, bad faith or willful misconduct of the Custodian. The Custodian's responsibility with respect to any Account Property held by a Foreign Subcustodian is limited to the failure on the part of Custodian to (i) comply with the provisions of Section 2.3 or (ii) exercise reasonable care in the selection or retention of such Foreign Subcustodian in light of prevailing settlement and securities handling practices, procedures and controls in the relevant market. With respect to any costs, expenses, damages, liabilities, or claims (including, without limitation, attorneys' and accountants' fees) incurred by the Customers as a result of the acts or the failure to act by any Foreign Subcustodian, the Custodian shall take appropriate action to recover such costs, expenses, damages, liabilities, or claims from such Foreign Subcustodian. In no event shall the Custodian be liable to any customer or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement.
(b) The Fund hereby agrees to indemnify the Custodian and hold the
Custodian harmless from and against any and all costs, expenses, damages,
liabilities and claims (including, without limitation, reasonable attorneys'
fees and accountants' fees), sustained or incurred by or asserted against the
Custodian by reason of or as a result of any action or inaction, or arising out
of the Custodian's performance hereunder or under the Pledge and Intercreditor
Agreement, including, without limitation, reasonable fees and expenses of
counsel incurred by the Custodian in a successful defense of claims by any one
or more of the Customers; provided, that the Fund shall not have any obligation
hereunder to indemnify the Custodian for those costs, expenses, damages,
liabilities or claims for which the Custodian has accepted liability under
Section 6.1(a). This indemnity shall be a continuing obligation of the Fund and
its respective successors and assigns, notwithstanding the termination of this
Agreement.
6.2 Without limiting the generality of the foregoing, the Custodian shall be under no obligation to inquire into, and shall not be liable for, the
validity or genuineness of any Account Property purchased or sold by the Customers or any of them, the legality of their purchase or sale, the propriety of the amount paid therefor upon purchase or sale, or any actions of third parties with respect to the negotiability of Account Property, and the Custodian shall not be liable for any non-delivery of documentation required to be delivered under Sections 3.8 and 3.9.
6.3 The Custodian may, with respect to questions of law specifically regarding the Custodial Account and Account Property, obtain the advice of counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice. The Custodian shall have the right, but not the obligation, to consult with the Party In Interest regarding all matters hereunder.
6.4 The Custodian shall be under no obligation to take action to collect any amount payable on Account Property in default, or if payment is refused.
6.5 The Fund agrees to pay to the Custodian the fees set forth in a separate fee letter agreement, dated as of July 31, 2006, between the Custodian and the Fund or as may be agreed upon from time to time. The Fund agrees to reimburse Custodian for all costs associated with the conversion of Account Property and the transfer of Account Property and records kept in connection with this Agreement. The Fund agrees to reimburse the Custodian for out-of-pocket expenses (including without limitation attorney's fees and expenses) incurred in the administration of this Agreement or performance of its duties hereunder, including those which are a normal incident of the services provided hereunder.
6.6 The Custodian shall be entitled to rely upon any Written Instruction actually received by the Custodian. If, at any time, Written Instructions through an on-line communication system offered by the Custodian is utilized, such use shall be subject to the Terms and Conditions provided by the Custodian to the parties hereto.
6.7 Upon reasonable request and provided the Custodian shall suffer no significant disruption of its normal activities, each Customer shall have reasonable access to the Custodian's books and records relating to the Custodial Account and Account Property during the Custodian's normal business hours and upon reasonable advance request. Upon reasonable request by any Customer, copies of any such books and records shall be provided to such Customer at its expense.
6.8 The books and records pertaining to the Custodial Account and Account Property, the Fund Custodial Account, the Escrow Account and the Fund Account Property which are in possession of the Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by Section 17(f) of the Investment Company Act and Rule 17f-1 thereunder.
6.9 It is understood that the Custodian is authorized to supply any information regarding the Custodial Account and Account Property which is required by any law or governmental regulation now or hereafter in effect.
6.10 The Custodian shall provide the Fund, at such times as the Fund may reasonable request, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a securities system, or held by an Eligible Foreign Custodian relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund, to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.
6.11 The Custodian shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes, fires; floods, wars, civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities; accidents; labor disputes; acts of civil or military authority; and governmental actions. The Custodian shall endeavor to provide notice to the Fund and the Instructing Party of the occurrence of any such circumstances as soon as reasonably practicable thereafter.
6.12 The Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against the Custodian in connection with this Agreement.
6.13 Notwithstanding anything to the contrary contained herein, during any Suspension Period, the Custodian shall have the right to refrain from taking any instructions from the Instructing Party unless the Custodian shall have reasonably determined that (a) it will be compensated for its services rendered hereunder at the times and in the amounts set forth in a separate fee letter dated as of July 31, 2006, between the Custodian and the Fund, with any past due amounts being paid upon demand, and (b) it is and shall be adequately indemnified for any and all liabilities, losses, damages, costs, expenses and claims in connection with the performance of its duties hereunder, upon terms and conditions substantially similar to those terms and conditions set forth herein, by the Administrative Agent or the Fund.
6.14 The Custodian hereby agrees that it shall, at the expense of the
Fund, negotiate in good faith with the other parties hereto with respect to any
amendments, supplements or other modifications to this Agreement which may be
proposed by any such party for the purpose of ensuring the perfection of the
security interests which have been granted by the Fund in the Account Property
to the Secured Parties Representative; provided, however, that nothing in this
Section 6.12 shall require the Custodian to undertake any obligation, business,
service or activity (a) which it shall have chosen as an institutional, legal,
business or policy matter (1) not to offer to the public or (2) to discontinue
or (b) for which it is not, based on its reasonable determination, adequately
compensated and indemnified.
6.15 The Custodian hereby represents and warrants that:
(i) it is a bank duly organized and validly existing in good standing under the laws of the United States of America;
(ii) it is empowered under applicable laws and by its charter to enter into and perform the services contemplated in this Agreement;
(iii) all requisite corporate proceedings have been taken to authorize it to enter into and per form this Agreement and this Agreement has been duly executed and is the valid, binding and enforceable obligation of Custodian; and
(iv) it and its affiliates collectively have and will continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
6.16 (a) Subject to Section 6.16(b) below, the Custodian shall have no liability for any actions taken pursuant to or on reliance upon Written Instructions of the Instructing Party. Without limiting the foregoing, the Custodian shall be entitled to follow the Written Instructions of the Instructing Party with respect to any payment or disbursements of funds, or release or delivery of the Account Property from the Custodial Account without liability on its part and without any obligation or duty to inquire into, investigate, monitor or other wise determine compliance with the applicable terms, restrictions, limitations or requirements of any other Transaction Document, including without limitation applicable terms of the Advisory Agreement, the Pledge and Intercreditor Agreement, the Credit Agreement or the Operating Agreement, and shall not otherwise have any duty to monitor, determine, inquire as to or ascertain the compliance by the Fund (or any other party) with respect to any of the Transaction Documents.
(b) Notwithstanding any term of Section 6.16(a) to the contrary,
(i) during any Suspension Period (other than any Suspension Period occurring as a result of the delivery of a Liquidation Notice), the Fund shall continue to be entitled to instruct the Custodian (as Instructing Party), and the Custodian shall continue to follow such instructions, with respect to the Custodial Account, except that:
(A) any instruction by the Fund to release, deliver, sell or otherwise dispose of Account Property, shall be accompanied by written evidence acceptable to the Custodian (at its option and on which it may conclusively rely) of the consent or approval by the Controlling Class (as defined in the Pledge and Intercreditor Agreement) or Secured Parties Representative; or, if not accompanied by such consent, the Custodian shall promptly give written notice to the Secured Parties Representative and if within three Business Days of the Secured Parties Representative's receipt of such notice (or, if such instruction is accompanied by a certificate of an Authorized Officer of the Fund to the effect that such Account Property has a Market Value, as defined in the Credit Agreement, of $6,000,000 or less, on which the Custodian may conclusively rely, within two Business Days of the Secured Parties Representative's receipt of such notice), the Custodian shall not have received written objection thereto from the Secured Parties Representative, it shall follow such instruction of the Fund; provided that the foregoing shall not apply to sales or dispositions of Account Property to the extent such sales and
dispositions do not exceed $2,000,000 in the aggregate during the existence of such Suspension Period;
(B) any instructions by the Fund to release or deliver any Account Property (including cash) for the purpose of purchasing or acquiring any Account Property other than Cash Equivalents (as defined in the Pledge and Intercreditor Agreement) shall be accompanied by written evidence acceptable to the Custodian (at its option and on which it conclusively may rely) of the prior written consent of the Controlling Class (as defined in the Pledge and Intercreditor Agreement); and
(C) during any Suspension Period occurring as a result of the delivery of a Liquidation Notice, the Custodian shall (1) not follow any directions regarding the funds or other property on deposit in the Custodial Account from the Fund and (2) take all reasonable actions to assist the Secured Parties Representative in a foreclosure and enforcement in the manner set forth herein, including, without limitation, the prompt transfer to the Secured Parties Representative from time to time at its request of all funds in the Custodial Account and of all proceeds and products of the Collateral.
6.17 Notwithstanding any term hereof to the contrary:
(a) In no instance shall the Custodian be liable or responsible for the actions or omissions of the Fund, the Administrative Agent, the Secured Parties Representative, the Investment Manager or the Co-Manager, or the failure of the Fund to provide any documentation required by Sections 3.8 and 3.9.
(b) The Custodian shall not be responsible for the accuracy or sufficiency of any recitals (including without limitation recital of federal book-entry regulations) set forth herein.
(c) In the absence of bad faith on its part, the Custodian may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Custodian and conforming to the requirements of this Agreement; provided, however, that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Custodian, the Custodian shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement and shall promptly notify the party delivering the same if such certificate or opinion does not so conform; provided, further, that the Custodian shall not be required to determine whether it has received the documentation required by Sections 3.8 and 3.9
(d) The Custodian shall not be liable for any error of judgment made in good faith and with the reasonable belief that the action taken (or forbearance, as the case may be) was authorized or within its rights or powers hereunder, unless it shall be proven that the Custodian was negligent in ascertaining the pertinent facts.
(e) No provision of this Agreement shall require the Custodian to expend or risk its own funds or otherwise incur any financial or other liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk,
or liability is not reasonably assured to it; provided, however, that the reasonable costs of performing its ordinary services under this Agreement shall not require such indemnity.
(f) The Custodian shall not be liable for interest on any money received by it except as the Custodian may agree in writing with the Instructing Party.
(g) The Custodian may rely on any resolution, certificate, statement, instrument, opinion, request, direction, consent, order, note or other document believed by it to be genuine and to have been signed or presented by the proper person.
(h) The Custodian may consult with counsel (and may when it deems necessary or appropriate require an opinion of counsel) and shall not be liable for any action it takes or omits to take in good faith in reliance on the advice of counsel selected by it with due care (or in reliance upon any opinion of counsel).
(i) Although the Custodian shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, or other paper or document, it may, in its discretion, make such further inquiry or investigation into such fact or matters as it may see fit.
(j) The Custodian shall not be deemed to have notice or knowledge of any matter (including without limitation any event of default or acceleration, or rescission of acceleration) unless an officer of the Custodian assigned to the administration of this Agreement has actual knowledge thereof or unless written notice thereof from the Fund, the Administrative Agent or the Secured Parties Representative is received by the Custodian at the office of the Custodian identified pursuant to Section 8.2 hereof and such notice makes reference to this Agreement.
(k) The permissive right of the Custodian to take or refrain from taking any actions enumerated in this Agreement shall not be construed as a duty.
ARTICLE VII
TERMINATION
The Custodian and, prior to the commencement of any Suspension Period, the Administrative Agent and the Secured Parties Representative, acting jointly and, thereafter, the Instructing Party, may each terminate this Agreement by giving to the other parties hereto a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of such notice. Upon termination hereof, the Fund shall pay to the Custodian such compensation as may be due to the Custodian, and shall likewise reimburse the Custodian for other amounts payable or reimbursable to the Custodian hereunder. The Custodian shall follow such reasonable Written Instructions concerning the transfer of custody of records, Account Property and other items as the Instructing Party shall give; provided that (a) the Custodian shall have no liability for shipping and insurance costs associated therewith, and (b) full payment shall have been made to the Custodian of all its compensation, costs, expenses and other amounts hereunder. If any Account Property remains in the Custodial Account on the date of termination of this Agreement, the Custodian may deliver to the Party In Interest such Account Property. Upon termination of this Agreement, except as otherwise provided herein, all
obligations of the parties to each other hereunder shall cease (provided, however, that all indemnifications in favor of the Custodian hereunder shall continue and survive).
ARTICLE VIII
MISCELLANEOUS
8.1 Contemporaneously with the execution and delivery of this Agreement, each Customer shall provide to the Custodian a Certificate of Authorized Persons, which may be changed or altered from time to time by delivery of a subsequent Certificate of Authorized Persons (from any Authorized Person), upon which the Custodian shall be entitled to rely conclusively. Each Customer agrees to furnish to the Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, the Custodian shall be fully protected in acting upon Written Instructions of such present Authorized Persons.
8.2 Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and received by it at its offices at 9062 Old
Annapolis Road, Columbia, Maryland 21045-1951, Attention: Corporate Trust
Services--Special Value Continuation Partners, LP or at such other place as
such Customer may from time to time designate in writing, or by facsimile at
(410) 715-3748, Attention: Corporate Trust Services--Special Value Continuation
Partners, LP.
8.3 Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Administrative Agent shall be sufficiently given if addressed to the Administrative Agent and received by it at its offices at Wachovia Capital Markets, LLC, 301 South College Street, NC0600, Charlotte, NC 28202, or at such other place as such Customer may from time to time designate in writing, or by facsimile at (704) 715-0067, or by email at paul.burkhart@wachovia.com, Attention: Paul Burkhart.
8.4 Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Secured Parties Representative shall be sufficiently given if addressed to the Secured Parties Representative and received by it at its offices at Wachovia Capital Markets, LLC, 301 South College Street, NC0600, Charlotte, NC 28202, or at such other place as such Customer may from time to time designate in writing, or by facsimile at (704) 715-0067, or by email at paul.burkhart@wachovia.com, Attention: Paul Burkhart.
8.5 Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and received by it at its offices at 2951 28th Street, Suite 1000, Santa Monica, California 90405, or at such other place as such Customer may from time to time designate in writing; or by facsimile at (310) 566-1010, Attention: Howard M. Levkowitz.
8.6 Each and every right granted to any party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of any party to exercise, and no delay in exercising, any
right will operate as a waiver thereof, nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof or the exercise of any other right.
8.7 In case any provision or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by the parties hereto. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by any party without the written consent of the other parties.
8.8 Each of this Agreement, the Custodial Account and Escrow Account and the securities entitlements (as defined in Section 8-102(a)(17) of the NYUCC) or any instructions pertaining thereto shall be construed in accordance with and governed by the substantive laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be the location of Custodian as the bank for purposes of Sections 9-301, 9-304 and 9-307 of the UCC and as the securities intermediary for purposes of Sections 9-301 and 9-307 and Section 8-110 of the UCC. Each party hereby consents to the exclusive jurisdiction of a state or federal court situated in the State of New York in connection with any dispute arising hereunder. To the extent that in any jurisdiction the Custodian, the Secured Parties Representative, the Administrative Agent or the Fund, as the case may be, may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, the Custodian, the Secured Parties Representative, the Administrative Agent or the Fund, as the case may be, irrevocably agrees not to claim, and it hereby waives, such immunity. The Customers and the Custodian hereby irrevocably waive any objection on the ground of venue, forum non conveniens, or any similar grounds, and irrevocably consent to service of process by mail or in any manner permitted by New York law, and irrevocably waive their respective rights to any jury trial.
8.9 Except as set forth in the following sentence, in performing hereunder, the Custodian is acting solely on behalf of the Secured Parties, and no contractual or service relationship shall be deemed to be established hereby between the Custodian and any other person (other than the Fund, the Administrative Agent and the Secured Parties Representative to the extent provided herein).
8.10 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
8.11 Each party hereto acknowledges and agrees that the obligations of the Secured Parties Representative and the Administrative Agent hereunder are only those expressly set forth herein with respect to such party. The Administrative Agent shall act hereunder on the terms and conditions set forth in Article VIII of the Credit Agreement, and the Secured Parties Representative shall act hereunder on the terms and conditions set forth in Article X of the Pledge and Intercreditor Agreement.
8.12 The Administrative Agent and the Secured Parties Representative shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with the confidentiality standard applicable under the Credit Agreement or the Pledge and Intercreditor Agreement, as applicable. The Custodian will maintain the confidentiality of all Confidential Information (as defined below) in accordance with procedures the Custodian ordinarily utilizes in maintaining similar confidential information to protect Confidential Information delivered to the Custodian; provided that the Custodian may deliver or disclose Confidential Information to (i) the Custodian's directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure is reasonably required for the administration of this Agreement), (ii) the Custodian's financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 8.13 to the extent such disclosure is reasonably required for the administration of this Agreement, (iii) any federal or state regulatory, governmental or judicial authority having jurisdiction over the Custodian, (iv) Moody's and S&P, (v) any other Person with the consent of the Fund or (vi) any Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to such Person, (x) in response to any subpoena or other legal process upon prior notice to the Fund (unless prohibited by applicable law, rule, order or decree or other requirement having the force of law) or (y) in connection with any litigation to which such Person is a party upon prior notice to the Fund (unless prohibited by applicable law, rule, order or decree or other requirement having the force of law). In the event of any required disclosure of the Confidential Information by the Custodian, the Custodian agrees to use reasonable efforts to protect the confidentiality of the Confidential Information.
For the purposes of this Section 8.13, "Confidential Information" means information delivered to the Custodian by or on behalf of the Fund in connection with and relating to the transactions contemplated by or otherwise pursuant to this Agreement; provided that such term does not include information that (a) was publicly known or otherwise known to the Custodian prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by the Custodian or any Person acting on behalf of the Custodian, (c) otherwise is known or becomes known to the Custodian other than (i) through disclosure by the Fund or (ii) as a result of the breach of a fiduciary duty to the Fund or a contractual duty to the Fund and (d) is allowed to be treated as non-confidential by consent of the Fund.
8.13 No amendment of any provision of this Agreement shall be effective unless in writing and signed by all of the parties hereto.
8.14 (a) The Custodian agrees that no recourse shall be had with respect to any obligation to the Custodian under this Agreement against any past, present or future members, incorporators, directors, officers, partners, employees or securityholders of the Fund (collectively, "Fund Control Persons"), and in no event shall any Fund Control Person be held liable, personally or otherwise, with respect to the obligations of the Fund hereunder whether by virtue of any statute or rule of law or by the enforcement of any assessment, penalty or otherwise, all such liability being expressly waived and released by the Custodian. The foregoing provision of this Section 8.15 shall not, in any event, limit the right of any Person to name the Fund as a defendant in any action or suit or in the exercise of any other remedy under this Agreement, so long as no judgment in the nature of a deficiency judgment
or seeking personal liability shall be asked for or (if obtained) enforced against any Fund Control Person. The Custodian agrees that all obligations of the Fund to the Custodian under this Agreement shall be subject to Section 6.5 of the Pledge and Intercreditor Agreement.
(b) Each party hereto (other than the Fund) hereby covenants and agrees that, prior to the date which is one year and one day after the termination of the Credit Agreement and the payment in full of any amounts owed under the Credit Agreement, such Person will not acquiesce, petition or otherwise invoke or cause the Fund to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Fund under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Fund or any substantial part of the property of the Fund, or ordering the winding up or liquidation of the affairs of the Fund; provided, however, that nothing in this Section 8.15(b) shall constitute a waiver of any right to indemnification, reimbursement or other payment from the Fund pursuant to this Agreement.
(c) Each of the parties hereto hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding commercial paper notes and other indebtedness for borrowed money of any CP Conduit or SPC, such Person shall not institute against, or join any other Person in instituting against, such CP Conduit or SPC, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings. This provision shall survive the termination of the Credit Agreement and the making and repayment of the Loans.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written.
SPECIAL VALUE CONTINUATION PARTNERS, LP
Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Custodian
Title:
WACHOVIA CAPITAL MARKETS, LLC,
as Administrative Agent and as Secured
Parties Representative
Title:
[Signature Page to Custodial Agreement]
EXHIBIT A TO CUSTODIAL AGREEMENT
FORM OF PAYOFF NOTICE
The undersigned individual[s], [Authorized Person[s] (as defined in
the Custodial Agreement referred to below) of Wachovia Capital Markets, LLC]
(the "Notice Party"), hereby certifies, represents and warrants to the
Custodian (as defined below) as follows with respect to the Custodial
Agreement, dated as of July 31, 2006 (as amended, supplemented or otherwise
modified from time to time, the "Custodial Agreement"), by and among (a)
Special Value Continuation Partners, LP, a Delaware limited partnership (the
"Fund"), (b) Wachovia Capital Markets, LLC, as Administrative Agent (in such
capacity and together with any successor thereto, the "Administrative Agent")
under the Credit Agreement, dated as of July 31, 2006, by and among the Fund,
the Lenders party thereto (the "Lenders"), the Administrative Agent and
Wachovia Capital Markets, LLC, as arranger (as the same may be amended,
extended, restated, supplemented, modified, refinanced, refunded or replaced
(in whole or in part) (including with lenders other than the initial lenders)
from time to time, together with any agreements or instruments in respect of
any amendment, extension, restatement, supplement, modification, refinancing,
refunding or replacement thereof, the "Credit Agreement"), (c) Wachovia Capital
Markets, LLC, as Secured Parties Representative (in such capacity and together
with any successor thereto, the "Secured Parties Representative") under the
Pledge and Intercreditor Agreement, dated as of July 31, 2006, by and among the
Fund, the Custodian, the Administrative Agent and the Secured Parties
Representative (as amended, supplemented or otherwise modified from time to
time, the "Pledge and Intercreditor Agreement") and (d) Wells Fargo Bank,
National Association, as agent, bailee, custodian and securities intermediary
for the Fund, the Secured Parties Representative and the Administrative Agent
(in such capacity and together with any successor thereto, the "Custodian"):
I. The Fund has satisfied all of its monetary obligations which, as of the date hereof, are due and owing under the Credit Agreement.
IN WITNESS WHEREOF, this certificate has been executed this ____ day of ____________, ____.
WACHOVIA CAPITAL MARKETS, LLC,
as Administrative Agent
Title:
EXHIBIT B TO CUSTODIAL AGREEMENT
FORM OF WITHDRAWAL NOTICE
The undersigned individuals, Authorized Persons (as defined in the Custodial Agreement referred to below) of the Secured Parties Representative (as defined below), hereby certifies, represents and warrants to the Custodian (as defined below), as follows with respect to the Custodial Agreement, dated as of July 31, 2006 (as amended, supplemented or other wise modified from time to time, the "Custodial Agreement"), by and among (a) Special Value Continuation Partners, LP, a Delaware limited partnership (the "Fund"), (b) Wachovia Capital Markets, LLC, as Administrative Agent (in such capacity and together with any successor thereto, the "Administrative Agent") under the Credit Agreement, dated as of July 31, 2006, by and among the Fund, the Lenders party thereto (the "Lenders"), the Administrative Agent and Wachovia Capital Markets, LLC, as arranger (as the same may be amended, extended, restated, supplemented, modified, refinanced, refunded or replaced (in whole or in part) (including with lenders other than the initial lenders) from time to time, together with any agreements or instruments in respect of any amendment, extension, restatement, supplement, modification, refinancing, refunding or replacement thereof, the "Credit Agreement"), (c) Wachovia Capital Markets, LLC, as Secured Parties Representative (in such capacity and together with any successor thereto, the "Secured Parties Representative") under the Pledge and Intercreditor Agreement, dated as of July 31, 2006, by and among the Fund, the Custodian, the Administrative Agent and the Secured Parties Representative (as amended, supplemented or otherwise modified from time to time, the "Pledge and Intercreditor Agreement") and (d) Wells Fargo Bank, National Association, as agent, bailee, custodian and securities intermediary for the Fund, the Secured Parties Representative and the Administrative Agent (in such capacity and together with any successor thereto, the "Custodian").
I. The [Notice of Suspension], [Acceleration Notice] or [Liquidation Notice] (copy attached) previously delivered to you by the undersigned is hereby withdrawn.
IN WITNESS WHEREOF, this certificate has been executed this ____ day of __________, ____.
WACHOVIA CAPITAL MARKETS, LLC,
as Secured Parties Representative
Title:
SCHEDULE I
COUNTRY LIST
Exhibit K
CREDIT AGREEMENT
dated as of July 31, 2006
among
SPECIAL VALUE CONTINUATION PARTNERS, LP,
as Borrower,
VARIOUS FINANCIAL INSTITUTIONS,
as Lenders
and
WACHOVIA CAPITAL MARKETS, LLC,
as Administrative Agent and Arranger
TABLE OF CONTENTS
-----------------
Page
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ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Defined Terms...................................................................................1
Section 1.2 Use of Defined Terms............................................................................1
Section 1.3 Interpretation..................................................................................2
Section 1.4 Accounting Matters..............................................................................2
Section 1.5 Collateral Documents............................................................................3
Section 1.6 Conflict Between Credit Documents...............................................................3
Section 1.7 Legal Representation of the Parties.............................................................3
Section 1.8 References to Definitions in the Collateral Valuation Schedules.................................3
ARTICLE II
COMMITMENTS
Section 2.1 Commitments.....................................................................................3
Section 2.1.1 Commitment of Each Lender.....................................................3
Section 2.1.2 Amount of Commitments.........................................................4
Section 2.2 Optional Reductions of Total Maximum Commitment.................................................5
Section 2.3 Extension of Facility...........................................................................6
Section 2.3.1 Notice of Extension...........................................................6
Section 2.3.2 Withdrawing Lenders...........................................................6
Section 2.3.3 Termination of Commitment of Withdrawing Lender................................
Section 2.3.4 Assignment by Withdrawing Lender..............................................7
Section 2.3.5 Total Maximum Commitment After Extension......................................7
Section 2.4 Fees............................................................................................8
Section 2.4.1 Commitment Fee................................................................8
Section 2.4.2 Administrative Agent's Fee....................................................8
ARTICLE III
LOANS AND LENDER NOTES
Section 3.1 Borrowing Procedure.............................................................................8
Section 3.1.1 Borrowing Requests............................................................8
Section 3.1.2 Funding of Borrowings........................................................10
Section 3.2 Lender Notes...................................................................................11
Section 3.3 Principal Payments.............................................................................12
Section 3.3.1 Repayments and Prepayments...................................................12
Section 3.3.2 Application..................................................................13
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Section 3.4 Interest.......................................................................................13
Section 3.4.1 Interest Rules and Calculations..............................................13
Section 3.4.2 Interest Periods.............................................................15
Section 3.4.3 [Reserved]...................................................................15
Section 3.4.4 Increased Costs, Illegality, etc.............................................15
Section 3.4.5 Compensation.................................................................17
Section 3.4.6 Change of Lending Office; Limitation on Indemnities..........................18
Section 3.4.7 Replacement of Lenders.......................................................18
Section 3.5 Method and Place of Payment....................................................................19
Section 3.6 Net Payments...................................................................................20
Section 3.7 Other CP Conduit Lenders and Liquidity Providers; Designated CP Conduits and
Designated CP Conduit Committed Lenders........................................................22
Section 3.8 SPC Loans......................................................................................23
ARTICLE IV
CONDITIONS TO CREDIT EXTENSIONS
Section 4.1 Initial Loans..................................................................................24
Section 4.1.1 Evidence of Authority........................................................24
Section 4.1.2 Agreement; Lender Notes......................................................24
Section 4.1.3 Collateral Documents.........................................................24
Section 4.1.4 [Reserved]...................................................................25
Section 4.1.5 Borrower Contributions in Relation to Facility Commitment and
Preferred Interests..........................................................25
Section 4.1.6 Investment Management Agreement, Co-Management Agreement and Borrower
Organization Agreement.......................................................25
Section 4.1.7 No Litigation, etc...........................................................25
Section 4.1.8 Certificate as to Conditions, Warranties, No Default, etc......................
Section 4.1.9 Insurance Report, etc........................................................26
Section 4.1.10 Opinions of Counsel..........................................................26
Section 4.1.11 Investment Manager Letter....................................................26
Section 4.1.12 Closing Fees, Expenses, etc..................................................26
Section 4.1.13 Federal Reserve Form U-1 or G-3..............................................26
Section 4.1.14 Rating of Loans and Preferred Interests......................................27
Section 4.1.15 Satisfactory Legal Form......................................................27
Section 4.1.16 Key Individuals..............................................................27
Section 4.1.17 Independent Public Accountant................................................27
Section 4.1.18 CP Conduit Ratings; Liquidity Backstop.......................................27
Section 4.1.19 [Reserved]...................................................................28
Section 4.1.20 [Reserved]...................................................................28
Section 4.2 All Loans......................................................................................28
Section 4.2.1 Compliance with Warranties, Total Maximum Commitment, Borrowing Base,
No Default, etc..............................................................28
Section 4.2.2 Borrowing Request, etc.......................................................28
Section 4.2.3 Regulations T, U and X.......................................................29
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Organization, etc..............................................................................29
Section 5.1.1 Organization, Power, Authority, etc..........................................29
Section 5.1.2 Exemption from Registration..................................................29
Section 5.2 Due Authorization, Non-Contravention, etc......................................................29
Section 5.3 Government Approval, Regulation, etc...........................................................30
Section 5.4 Validity, etc..................................................................................30
Section 5.5 Financial Information..........................................................................30
Section 5.6 Litigation, etc................................................................................30
Section 5.7 Regulations T, U and X.........................................................................30
Section 5.8 Pension and Welfare Plans......................................................................31
Section 5.9 Subsidiaries...................................................................................31
Section 5.10 Taxes..........................................................................................31
Section 5.11 Absence of Default.............................................................................31
Section 5.12 Capitalization.................................................................................32
Section 5.13 Ownership of Properties........................................................................32
Section 5.14 Real Property..................................................................................32
Section 5.15 [Reserved].....................................................................................32
Section 5.16 Environmental Warranties.......................................................................32
Section 5.17 Borrower's Business............................................................................32
Section 5.18 Collateral Documents...........................................................................33
Section 5.19 Investment Management Agreement................................................................33
Section 5.20 Use of Proceeds................................................................................33
Section 5.21 Compliance with Margin Requirements..............................................................
Section 5.22 Transaction Documents..........................................................................34
Section 5.23 Restatement and Reaffirmation..................................................................34
ARTICLE VI
COVENANTS
Section 6.1 Affirmative Covenants..........................................................................34
Section 6.1.1 Collateral Valuation Covenant................................................34
Section 6.1.2 Information, etc.............................................................37
Section 6.1.3 Maintenance of Borrower's Existence, etc.....................................38
Section 6.1.4 Foreign Qualification........................................................38
Section 6.1.5 Payment of Taxes and Other Claims............................................39
Section 6.1.6 Insurance....................................................................39
Section 6.1.7 Notice of Default, Litigation, etc...........................................39
Section 6.1.8 Performance of Obligations...................................................40
Section 6.1.9 Audits; Books and Records....................................................40
Section 6.1.10 Compliance with Laws, etc....................................................40
Section 6.1.11 Environmental Matters........................................................41
Section 6.1.12 Maintenance of Property......................................................41
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Section 6.1.13 Delivery; Further Assurances.................................................41
Section 6.1.14 Investment Manager, etc......................................................42
Section 6.1.15 Minimum Net Worth............................................................42
Section 6.1.16 Affirmative Hedging Requirement..............................................42
Section 6.1.17 Use of Proceeds..............................................................42
Section 6.1.18 Compliance with Over-Collateralization Test..................................43
Section 6.1.19 Regulations T, U, and X......................................................44
Section 6.1.20 Plan Assets..................................................................44
Section 6.1.21 Key Individuals..............................................................44
Section 6.1.22 Regulated Investment Company.................................................44
Section 6.1.23 Closed-end Company Status....................................................44
Section 6.2 Negative Covenants.............................................................................44
Section 6.2.1 No Other Business; Subsidiaries..............................................44
Section 6.2.2 Limitations on Debt or Equity Securities.....................................45
Section 6.2.3 Liens........................................................................46
Section 6.2.4 Performance of Obligations...................................................47
Section 6.2.5 Limitations on Restricted Payments...........................................47
Section 6.2.6 Change of Name, etc..........................................................48
Section 6.2.7 Merger, Consolidation; Successor Entity Substituted..........................49
Section 6.2.8 Investment Dispositions, etc.................................................50
Section 6.2.9 Modification of Certain Instruments, Organic Documents, Agreements,
etc..........................................................................50
Section 6.2.10 Agreements Restricting Liens.................................................51
Section 6.2.11 Inconsistent Agreements......................................................51
Section 6.2.12 Environmental Matters........................................................51
Section 6.2.13 Pension and Welfare Plans....................................................51
Section 6.2.14 Payment of Management or Advisory Fees.......................................51
Section 6.2.15 Limitation on Bank Loans.....................................................51
Section 6.2.16 Commodities; Real Estate.....................................................52
Section 6.2.17 Margin Stock.................................................................52
Section 6.2.18 Limitations on Hedging and Short Sale Transactions...........................52
Section 6.2.19 [Reserved]...................................................................53
Section 6.2.20 Limitations on Transactions with Affiliates..................................53
Section 6.2.21 Limitation on Hedging SPEs' Debt.............................................53
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default..............................................................................53
Section 7.1.1 Non-Payment of Obligations...................................................54
Section 7.1.2 Over-Collateralization Test; Limitations on Hedging and Short Sale
Transactions; Leverage.......................................................54
Section 7.1.3 Non Performance of Other Obligations.........................................54
Section 7.1.4 Breach of Warranty...........................................................54
Section 7.1.5 [Reserved]...................................................................54
Section 7.1.6 Default, Acceleration on Other Debt, etc.....................................54
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Section 7.1.7 Secured Hedging Transaction Default..........................................55
Section 7.1.8 Judgments....................................................................55
Section 7.1.9 Bankruptcy, Insolvency, etc..................................................55
Section 7.1.10 Failure of Valid, Perfected, First-Priority Lien.............................56
Section 7.1.11 Investment Company Act.......................................................56
Section 7.1.12 Dissolution or Termination of Borrower.......................................56
Section 7.1.13 Removal of the Investment Manager; Trigger Event.............................56
Section 7.2 Action if Bankruptcy...........................................................................56
Section 7.3 Action if Other Event of Default...............................................................56
Section 7.4 Notice of Default..............................................................................57
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.1 Appointment....................................................................................57
Section 8.2 Nature of Duties...............................................................................57
Section 8.3 Lack of Reliance on the Administrative Agent...................................................58
Section 8.4 Certain Rights of the Administrative Agent.....................................................58
Section 8.5 Reliance.......................................................................................58
Section 8.6 [Reserved].....................................................................................59
Section 8.7 The Administrative Agent in Its Individual Capacity............................................59
Section 8.8 Holders of Lender Notes or Loans...............................................................59
Section 8.9 Resignation by the Administrative Agent........................................................59
Section 8.10 Consultation with Experts......................................................................60
Section 8.11 Administrative Agent's Fees....................................................................60
ARTICLE IX
MISCELLANEOUS
Section 9.1 Payment of Expenses, etc.......................................................................60
Section 9.2 Right of Setoff................................................................................61
Section 9.3 Notices........................................................................................62
Section 9.4 Benefit of Agreement.............................................................................
Section 9.5 No Waiver; Remedies Cumulative.................................................................66
Section 9.6 Payments Pro Rata..............................................................................67
Section 9.7 Calculations; Computations.....................................................................67
Section 9.8 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.........................68
Section 9.9 Counterparts...................................................................................69
Section 9.10 Effectiveness..................................................................................69
Section 9.11 Headings Descriptive.............................................................................
Section 9.12 Amendment or Waiver............................................................................69
Section 9.13 Survival.......................................................................................71
Section 9.14 Domicile of Loans..............................................................................71
Section 9.15 Confidentiality................................................................................71
Section 9.16 Register.......................................................................................72
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Section 9.17 Lender Affiliate Securities....................................................................73 Section 9.18 Marshalling; Recapture.........................................................................73 Section 9.19 Lender Representations, etc.; Non-Recourse Obligations.........................................74 Section 9.20 No Petition....................................................................................76 Section 9.21 Integration....................................................................................76 Section 9.22 Acknowledgment.................................................................................76 Section 9.23 Judgment Currency..............................................................................76 Section 9.24 Collateral Valuation Schedule..................................................................77 Section 9.25 Consequences of Lender Ratings Downgrade.......................................................77 ANNEX X Definitions EXHIBIT A Form of Borrowing Request EXHIBIT B-1 Form of Revolving Note EXHIBIT B-2 Form of Swingline Note EXHIBIT C [Reserved] EXHIBIT D Form of Assignment Agreement EXHIBIT E Form of Tax Certificate EXHIBIT F Form of Investment Manager Letter EXHIBIT G Form of Pledge and Intercreditor Agreement EXHIBIT H Form of Compliance Certificate EXHIBIT I Form of Custodial Agreement EXHIBIT J Form of Valuation Statement SCHEDULE 1 Commitments and Percentages SCHEDULE 2 Lending Offices and Notice Data SCHEDULE 3 UCC-1 Filing Jurisdictions SCHEDULE 4 Approved Dealers SCHEDULE 5 Approved Investment Banking Firms SCHEDULE 6 Approved Pricing Services SCHEDULE 7 Industries SCHEDULE 8 Approved Counterparties SCHEDULE 9 Moody's Collateral Valuation Schedule SCHEDULE 10 S&P Collateral Valuation Schedule SCHEDULE 11 Approved Third Party Appraisers |
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 31, 2006 (this "Agreement"), is entered into by and among SPECIAL VALUE CONTINUATION PARTNERS LP, a limited partnership formed under the laws of the State of Delaware (the "Borrower"), VARIOUS FINANCIAL INSTITUTIONS which are, or may become, parties hereto as Lenders, and WACHOVIA CAPITAL MARKETS, LLC, as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and as arranger (in such capacity, the "Arranger").
W I T N E S S E T H:
WHEREAS, the Borrower is a newly organized limited partnership formed to pursue a strategy of investing on a leveraged basis and actively managing a diversified pool of Fund Investments;
WHEREAS, the Borrower desires to obtain Commitments from the Lenders, pursuant to which Loans shall be made, subject to the terms and conditions set forth herein, in a maximum aggregate principal amount not to exceed at any time the lesser of (a) the Total Maximum Commitment and (b) the Borrowing Base minus the aggregate outstanding liquidation preference of the Preferred Interests at such time;
WHEREAS, the Lenders are willing, on the terms and conditions hereinafter set forth, to extend such Commitments; and
WHEREAS, this Agreement constitutes a novation of each of a credit agreement or demand note, dated as of July 31, 2006, executed and delivered by Special Value Bond Fund II, LLC to the lender named therein, and a credit agreement or demand note, dated as of July 31, 2006, executed and delivered by Special Value Absolute Return Fund, LLC to the lender named therein;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Defined Terms. As used in this Agreement, and unless the context requires a different meaning, capitalized terms used but not defined herein shall have the respective meanings set forth in Annex X hereto. In the event of any inconsistency between the definition of any term as set forth herein and the definition of such term as set forth in Annex X, the definition of such term as set forth in Annex X shall control.
Section 1.2 Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each Assignment Agreement,
notice and other communication delivered from time to time in connection with this Agreement or any other Credit Document.
Section 1.3 Interpretation. In this Agreement, unless a clear contrary intention appears:
(a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement and the Annex and Exhibits hereto), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor;
(e) reference to any Applicable Law means such Applicable Law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder;
(f) unless the context indicates otherwise, reference to any Article, Section, Schedule, Annex or Exhibit means such Article, Section or Schedule hereof or Annex or Exhibit hereto;
(g) "hereunder," "hereof," "hereto" and words of similar import shall be deemed references to this Agreement as a whole and not to any particular Article, Section or other provision hereof;
(h) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and
(i) relative to the determination of any period of time, "from" means "from and including," "to" means "to but excluding," and "through" means "through and including."
Section 1.4 Accounting Matters. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP applied in the preparation of the financial statements of the Borrower referred to in Section 6.1.2(a).
Section 1.5 Collateral Documents. References in this Agreement to the Pledge and Intercreditor Agreement or any other Collateral Document, in a case where such Collateral Document is or would be governed by the laws of any jurisdiction other than the State of New York, shall mean and be a reference to a document having a purpose and effect under the laws of such other jurisdiction substantially similar to the purpose and effect of the corresponding Collateral Document.
Section 1.6 Conflict Between Credit Documents. Except with respect to matters covered in the Pledge and Intercreditor Agreement (where, in such case, the provisions of the Pledge and Intercreditor Agreement shall control), if there is any conflict between this Agreement and any other Credit Document, this Agreement and such other Credit Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, this Agreement shall prevail and control.
Section 1.7 Legal Representation of the Parties. This Agreement was negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring this Agreement or any other Credit Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof.
Section 1.8 References to Definitions in the Collateral Valuation Schedules. References to a term having the meaning set forth in both Collateral Valuation Schedules shall be applied separately using such term as defined in each of the Collateral Valuation Schedules; provided, however, that (i) if at any time none of the Loans or Preferred Interests are then rated by Moody's but some or all of the Loans and Preferred Interests are rated by S&P, the Moody's Collateral Valuation Schedule shall not be applicable for any purpose hereunder and (ii) if at any time none of the Loans or Preferred Interests are then rated by S&P but some or all of the Loans and Preferred Interests are rated by Moody's, the S&P Collateral Valuation Schedule shall not be applicable for any purpose hereunder.
ARTICLE II
COMMITMENTS
Section 2.1 Commitments. Subject to the terms and conditions of this Agreement, each Lender severally and for itself alone agrees to provide the Commitments described in this Section 2.1.
Section 2.1.1 Commitment of Each Lender.
(a) Each Lender shall, from the Closing Date to the Commitment Termination Date and subject to the terms and conditions hereof, severally, but not jointly, make revolving loans (each a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower equal to its Revolving Percentage of the aggregate amount of any Revolving Borrowing requested from all Lenders. The commitment of each Lender described in this Section 2.1.1(a) is herein referred
to as its "Revolving Commitment" and, together with its Revolving Percentage, is set forth in Schedule 1 hereto. Each Revolving Loan shall be denominated in Dollars and, except as provided below, each Loan made by a Lender other than a CP Conduit shall be incurred and maintained only as a LIBOR Loan, and each Loan made by a CP Conduit shall be incurred and maintained only as a Cost of Funds Rate Loan. Subject to the terms hereof, the Borrower may from time to time borrow, prepay, repay and reborrow Revolving Loans pursuant to the Revolving Commitments.
(b) Notwithstanding paragraph (a) of this Section 2.1.1 or any other provision of this Agreement or the other Transaction Documents, no Lender that is a Designated CP Conduit shall be required to make, purchase or maintain any Revolving Loan or purchase or participate in any Swingline Loan; provided that upon any refusal of a Designated CP Conduit to make or purchase a Revolving Loan or purchase or participate in any Swingline Loan hereunder, its corresponding Designated CP Conduit Committed Lender shall purchase or participate in such Swingline Loan or, subject to Article 4, make or purchase such Revolving Loan.
(c) Notwithstanding paragraphs (a) and (d) of this Section 2.1.1,
Section 3.1.2 or any other provision of this Agreement or the other Transaction
Documents, but without limiting the obligation of any related Liquidity
Provider, each Lender that is an Other CP Conduit shall only be required to
make Loans to the extent it has funds available therefor.
(d) The Swingline Lender shall, from the Closing Date to the Swingline Expiry Date and subject to the terms and conditions hereof, make a loan or loans (each, a "Swingline Loan" and, collectively, the "Swingline Loans") to the Borrower in the aggregate amount of any Borrowing of Swingline Loans requested from the Swingline Lender. Subject to the terms hereof, the Borrower may from time to time borrow, prepay, repay and reborrow Swingline Loans.
Section 2.1.2 Amount of Commitments.
(a) No Lender shall be required to make any Revolving Loan under its Revolving Commitment if, after giving effect thereto and the receipt and application by the Borrower of the proceeds of such Revolving Loan, the then aggregate outstanding principal amount of Revolving Loans made by such Lender (and, in the case of a Designated CP Conduit or Designated CP Conduit Committed Lender, the Loans made by its corresponding Designated CP Conduit Committed Lender or Designated CP Conduit, respectively, and, in the case of an Other CP Conduit, the Loans made by its related Liquidity Provider), when added to such Lender's Revolving Percentage of the aggregate amount of all Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) would exceed (x) its respective Revolving Percentage of the Total Revolving Commitments at such time or (y) its respective Revolving Percentage of the aggregate principal amount of all Revolving Loans (as if each Lender had funded all of its Revolving Loans in accordance with this Agreement).
(b) The Swingline Lender shall not be required to make, and shall not make, any Swingline Loan if (i) after giving effect thereto, the then aggregate outstanding principal amount of Swingline Loans would exceed the Maximum Swingline Amount, (ii) after giving effect thereto and the receipt and application by the Borrower of the proceeds thereof, the sum of the then aggregate outstanding principal amount of Revolving Loans and the then aggregate outstanding principal amount of Swingline Loans would exceed the Total Revolving Commitments at such time, (iii) a Default has occurred and is continuing, (iv) to the Swingline Lender's knowledge, any other condition set forth in Section 4.2 has not been satisfied or (vi) the LIBOR Market Index Rate cannot be determined. The Swingline Lender shall not be permitted to make any Swingline Loan after it has received a notice from the Borrower or any Lender that a Default has occurred unless such Default has been cured or waived in accordance with the terms hereof.
Section 2.2 Optional Reductions of Total Maximum Commitment. The Borrower may, from time to time on any Business Day (the "Commitment Reduction Date"), voluntarily reduce the amount of the Total Maximum Commitment; provided, that (i) all such reductions shall (x) require at least five (5) Business Days' prior notice to the Administrative Agent, (y) apply proportionately to the Total Revolving Commitments, each Lender's Revolving Commitment (in accordance with its Revolving Percentage of the Total Revolving Commitment) and (z) permanently reduce the Total Maximum Commitment by the amount of such reduction (the "Commitment Reduction Amount") (such reduction permanently reducing the amount resulting from each calculation of Total Maximum Commitment thereafter), (ii) any partial reduction of the Total Maximum Commitment shall be in a minimum amount of $3,000,000 and in an integral multiple of $1,000,000 for amounts in excess thereof, (iii) no such reduction shall reduce any Lender's Revolving Commitment to an amount less than the sum of the aggregate outstanding Revolving Loans of such Lender and such Lender's Revolving Percentage of the aggregate outstanding principal amount of Swingline Loans, and (iv) if such reduction occurs on or prior to the second anniversary of the Closing Date, the Borrower shall have paid the Commitment Reduction Premium to the Lenders, ratably according to their respective Percentages as of the related Commitment Reduction Date. With respect to each Designated CP Conduit and its corresponding Designated CP Conduit Lender, there shall be a single payment to the Designated CP Conduit Lender.
For the purposes of this Section 2.2, "Commitment Reduction Premium" shall mean, with respect to any Commitment Reduction Date occurring on or prior to the second anniversary of the Closing Date, an amount equal to a percentage of the Commitment Reduction Amount, which percentage shall be determined by linear interpolation (and rounded to the nearest 0.0001%) during the period from the Closing Date, as to which the percentage shall be 0.5%, through the second anniversary of the Closing Date, as to which the percentage shall be 0.1%. No Commitment Reduction Premium shall be payable with respect to any Commitment Reduction Date occurring after the second anniversary of the Closing Date.
The Administrative Agent shall notify the Lenders, Moody's and S&P of receipt of notice of any voluntary reduction of the Total Maximum Commitment
hereunder promptly following receipt of such notice. For the purposes of this
Section 2.2, the Commitment of a Designated CP Conduit and the Commitment of
its corresponding Designated CP Conduit Committed Lender shall be treated as a
single Commitment and shall each be reduced by an equal amount, and the
reduction of any Other CP Conduit's Commitment shall be deemed to effect a
corresponding reduction in the obligations of its related Liquidity Provider.
Section 2.3 Extension of Facility.
Section 2.3.1 Notice of Extension. Subject to complying with this
Section 2.3.1, so long as no violation of Section 6.1.18 (without giving effect
to the grace periods provided for therein) shall have occurred and be
continuing under this Agreement, the Borrower may request a 364-day extension
of the Commitment Termination Date from the Scheduled Commitment Termination
Date to the date that is 364 days after the Scheduled Commitment Termination
Date (the "Extension Date"); provided, that any Extension Date that would
otherwise be a day that is not a Business Day shall be the preceding Business
Day. The Borrower may, by notice to the Administrative Agent (such notice being
an "Extension Notice") given no more than six (6) months and no less than three
(3) months prior to the Scheduled Commitment Termination Date, request that the
Lenders extend the Commitment Termination Date from the Scheduled Commitment
Termination Date to the Extension Date. The Extension Notice shall be
accompanied by a certificate from the Borrower stating that no Default has
occurred and is continuing. The Administrative Agent shall notify the Lenders
of its receipt of any Extension Notice within five (5) Business Days after the
Administrative Agent's receipt thereof, and each Lender shall notify the
Administrative Agent of its decision regarding such Extension Notice during the
period commencing on the date such notice is received by the Administrative
Agent and terminating on the date which is thirty (30) days thereafter (the
"Consent Period"). Each Lender may, by an irrevocable notice (a "Consent
Notice") to the Administrative Agent at any time during the Consent Period,
consent to such extension, which consent may be given or withheld by each
Lender in its absolute and sole discretion (each Lender giving a Consent Notice
during the Consent Period being called a "Continuing Lender"). Notwithstanding
anything else to the contrary, any such extension shall be subject to the
conditions that (i) all Continuing Lender(s) have an aggregate amount of
Commitments representing more than 50% of the aggregate of all Commitments (as
in effect at the time of the delivery of the Extension Notice), (ii) no Default
shall have occurred and be continuing on the Scheduled Commitment Termination
Date, it being understood that any such extension of the Scheduled Commitment
Termination Date shall be deemed to be a representation and warranty by the
Borrower that the condition set forth above in this clause (ii) has been
satisfied and (iii) all representations and warranties of the Borrower set
forth in Article V shall be true and correct in all material respects on the
Scheduled Commitment Termination Date. The Administrative Agent shall promptly
notify the Borrower, Moody's, S&P and each Continuing Lender of the
effectiveness of any extension of the Scheduled Commitment Termination Date
pursuant to this Section 2.3.1.
Section 2.3.2 Withdrawing Lenders. No extension pursuant to Section 2.3.1 shall be effective with respect to a Lender that either (i) by a notice
(a "Withdrawal Notice") delivered to the Administrative Agent during the Consent Period, declines to consent to such extension or (ii) has failed to respond to the Administrative Agent within the Consent Period (each such Lender giving a Withdrawal Notice or failing to respond in a timely manner being called a "Withdrawing Lender").
Section 2.3.3 Termination of Commitment of Withdrawing Lender. Unless its Commitment has been assigned pursuant to Section 2.3.4, the Commitment of each Withdrawing Lender shall terminate on the Scheduled Commitment Termination Date without giving effect to any extension, and any Borrowing Request specifying a Business Day for a Borrowing occurring on or after the Scheduled Commitment Termination Date shall have no effect in respect of such Withdrawing Lender. The Administrative Agent shall promptly notify the Borrower (and the Borrower shall promptly notify Moody's and S&P) of the termination of the Commitments of Withdrawing Lenders and the aggregate Commitments of all Lenders as of the close of business on the Scheduled Commitment Termination Date.
Section 2.3.4 Assignment by Withdrawing Lender. A Withdrawing Lender shall be obliged, at the request of the Borrower or the Administrative Agent (and subject to the Withdrawing Lender receiving payment in full of an amount equal to the sum of (1) the principal of, and all accrued interest on, all outstanding Loans of the Withdrawing Lender, plus (2) all accrued, but theretofore unpaid, fees owing to the Withdrawing Lender pursuant to Section 2.4, plus (3) all other amounts due and owing to the Withdrawing Lender under, or with respect to, this Agreement and the other Credit Documents, or such other amount as to which the Withdrawing Lender shall agree), as of the Scheduled Commitment Termination Date, to assign, without recourse or warranty (other than a warranty as to unencumbered ownership of the Loans so being assigned) all of its rights and obligations (including its Commitment) hereunder to another financial institution chosen by the Borrower; provided, that such assignment shall be made pursuant to and satisfy all the requirements of Section 9.4(b) (it being understood that no Withdrawing Lender shall be required to pay the assignment fee referred to therein), and such assignment is otherwise consented to by the Administrative Agent and the Borrower. Any such financial institution shall, pursuant to the terms of Section 9.4(b), thereafter be a Lender for all purposes of this Agreement, and the Commitment and Loans so assigned shall be extended pursuant to Section 2.3.1.
Section 2.3.5 Total Maximum Commitment After Extension. If the Commitment Termination Date is extended pursuant to Section 2.3.1, the Total Maximum Commitment and the Total Revolving Commitments shall be permanently reduced (such reduction permanently reducing the amount resulting from each calculation of the Total Maximum Commitment and the Total Revolving Commitments thereafter) by an amount equal to the sum of the Commitments and the Revolving Commitments, respectively, of each Withdrawing Lender that has not assigned its Loans and Commitments in accordance with Section 2.3.4 on or prior to the Scheduled Commitment Termination Date (without giving effect to any extension).
Section 2.4 Fees.
Section 2.4.1 Commitment Fee. The Borrower agrees to pay on each Quarterly Date after the Closing Date and on the Scheduled Commitment Termination Date (if such Commitment Termination Date has not been extended pursuant to Section 2.3.1 or if any principal otherwise becomes due in respect of any Loans on the Scheduled Commitment Termination Date) and on the Extension Date (if the Commitment Termination Date has been extended pursuant to Section 2.3.1) (each such date, a "Commitment Fee Payment Date"), to the Administrative Agent for the account of the Lenders, ratably according to their respective Percentages for the calendar quarter (or portion thereof) preceding each such payment, a non-refundable fee equal to the sum of (i) the aggregate amount of, with respect to each day during the calendar quarter (or portion thereof) preceding the related Commitment Fee Payment Date on which the aggregate outstanding amount of Revolving Loans was equal to or greater than the applicable Minimum Borrowing Amount, the Unutilized Commitment with respect to such day multiplied by 0.20% per annum (calculated on an actual/360-day basis) and (ii) the aggregate amount of, with respect to each day during the calendar quarter (or portion thereof) preceding the related Commitment Fee Payment Date on which the aggregate outstanding amount of Revolving Loans was less than the applicable Minimum Borrowing Amount, the Unutilized Commitment with respect to such day multiplied by 0.25% per annum (calculated on an actual/360-day basis). With respect to each Designated CP Conduit and its corresponding Designated CP Conduit Lender, there shall be a single fee paid to the Designated CP Conduit Lender.
Section 2.4.2 Administrative Agent's Fee. The Borrower shall pay fees to the Administrative Agent in the amount and manner specified in the Fee Letter.
ARTICLE III
LOANS AND LENDER NOTES
Section 3.1 Borrowing Procedure. Borrowings of Loans shall be made in accordance with this Section 3.1.
Section 3.1.1 Borrowing Requests.
(a) On any Business Day on or after the Closing Date and prior to the Commitment Termination Date, the Borrower, on the terms and conditions provided herein, may from time to time request that Revolving Loans be made by all Lenders with Revolving Commitments. The aggregate amount of such requested Loans shall be in a principal amount equal to (A) $3,000,000 or an integral multiple of $1,000,000 for amounts in excess thereof or (B) if less than the amount specified in (A), the unused amount of the Commitments. Revolving Loans shall be requested by the Borrower by delivering, e-mailing or telecopying to the Administrative Agent a Borrowing Request no later than the time specified in the next sentence. A written request for a Borrowing shall be received by the Administrative Agent no later than 9:00 a.m. (Los Angeles time) not less than three (3) Business Days preceding the date of the requested Loans, in the
case of LIBOR Loans and Cost of Funds Rate Loans that are Revolving Loans. Subject to Section 3.4.4, each Borrowing Request shall be irrevocable and binding upon the Borrower. All Borrowing Requests for LIBOR Loans and Cost of Funds Rate Loans hereunder shall be made on a pro rata basis (based on the available amounts of the Commitments of Lenders other than CP Conduits and of CP Conduits, respectively).
(b) Whenever the Borrower desires to make a Borrowing of Swingline Loans hereunder, it shall give the Swingline Lender, not later than 10:00 a.m. (Los Angeles time) on the date that a Swingline Loan is to be made, written notice in the form of a Borrowing Request of each Swingline Loan to be made hereunder; provided, that no more than five Swingline Loans may be requested in any calendar month unless the Swingline Lender otherwise consents and no Borrowing of a Swingline Loan may be made at any time when the LIBOR Market Index Rate cannot be determined or when the Borrowing of a Swingline Loan would result, after giving effect to all related Mandatory Borrowings, in more than ten (10) separate Interest Periods with respect to all Revolving Loans. Each such notice shall be irrevocable and specify in each case (A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate principal amount of Swingline Loans to be made pursuant to such Borrowing. Each such Swingline Loan shall be (i) denominated in Dollars in a principal amount of $1,000,000 or an integral multiple of $1,000,000 for amounts in excess thereof and (ii) made as Swingline Rate Loans. Mandatory Borrowings shall be made in accordance with Section 3.1.1(c), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of the Mandatory Borrowings as set forth in Section 3.1.1(c).
(c) Swingline Loans shall be funded with an automatic Borrowing of
Revolving Loans (each such Borrowing, a "Mandatory Borrowing"), on the third
Business Day following the Borrowing of any Swingline Loan hereunder, from all
Revolving Lenders pro rata on the basis of their respective Revolving
Percentages (determined before giving effect to any termination of the
Commitments pursuant to Section 7.3) and the proceeds thereof shall be applied
directly to the Swingline Lender to repay the Swingline Lender for such
outstanding Swingline Loans. Each such Revolving Lender hereby irrevocably
agrees, subject to the limitations on the obligations of CP Conduits and the
limitations with respect to Types of Loans that may be made by CP Conduits and
Lenders other than CP Conduits set forth in Section 2.1.1, to make Revolving
Loans pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified in writing by the
Swingline Lender notwithstanding (i) the amount of the Mandatory Borrowing may
not comply with the minimum amount for Borrowings otherwise required hereunder,
(ii) whether any conditions specified in Article IV are then satisfied, (iii)
whether a Default then exists (provided such Swingline Loan did not violate the
last sentence of Section 2.1.2(b) when made), (iv) the date of such Mandatory
Borrowing, and (v) the amount of the Total Maximum Commitment at such time
(provided, that such Swingline Loan met the requirements of Section
2.1.2(b)(ii) when made). In the event that any Mandatory Borrowing is required
to be made and cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding described in Section 7.1.9 with respect to the Borrower), then each
such Revolving Lender hereby agrees, subject to the limitations on the
obligations of CP Conduits and the limitations with respect to Types of Loans
that may be made by CP Conduits and Lenders other than CP Conduits set forth in
Section 2.1.1, that it shall forthwith purchase (as of the date the Mandatory
Borrowing would otherwise have occurred, but adjusted for any payments received
from the Borrower on or after such date and prior to such purchase) from the
Swingline Lender such participations in the outstanding Swingline Loans as
shall be necessary to cause such Revolving Lender to share in such Swingline
Loans ratably based upon its respective Revolving Percentage (determined before
giving effect to any termination of the Commitments pursuant to Section 7.3);
provided, that (x) all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date as of which the respective
participation is required to be purchased and, to the extent attributable to
the purchased participation, shall be payable to the participant from and after
such date and (y) at the time any purchase of participations pursuant to this
sentence is actually made, the purchasing Revolving Lender shall be required to
pay the Swingline Lender interest on the principal amount of the participation
purchased for each day from and including the day upon which the Mandatory
Borrowing would otherwise have occurred to but excluding the date of payment
for such participation, at the Swingline Rate plus the Applicable Margin for
each such day.
(d) The Administrative Agent shall notify the Lenders (or any other Person as previously directed in writing by a Lender to the Administrative Agent) of the receipt of each Borrowing Request (including with respect to any Swingline Loan) promptly, and in no event later than the Business Day following receipt thereof. Such notice shall be given in writing by facsimile or e-mail. Each request for Loans made pursuant to this Section 3.1.1 shall constitute the Borrower's representation and warranty made to the Administrative Agent and the Lenders that all of the applicable conditions contained in Article IV shall, after giving effect to such Borrowing, be satisfied, and the making available of such Loans to the Borrower shall be subject to the satisfaction of the applicable conditions of Article IV.
(e) Any such notice of a Borrowing Request given to a Designated CP Conduit under this Section 3.1.1 shall be effective with respect to any Designated CP Conduit Committed Lender that assumes the obligations of any Designated CP Conduit hereunder on or prior to the date of the Borrowing specified therein.
Section 3.1.2 Funding of Borrowings.
(a) No later than 10:00 a.m. (Los Angeles time) on the Business Day specified in each Borrowing Request (or (x) in the case of Swingline Loans, no later than the close of business on the date specified pursuant to Section 3.1.1(b) or (y) in the case of Mandatory Borrowings, not later than 10:00 a.m. (Los Angeles time) on the date specified in Section 3.1.1(c)), each Lender shall make available its pro rata share (based on such Lender's Revolving Percentage) of each Borrowing requested to be made on such date (or, in the case of Swingline Loans, the Swingline Lender shall make available the full amount thereof) in the manner provided below. All such amounts shall be made
available in Dollars and immediately available funds at the Payment Office and (other than in the case of Mandatory Borrowings) the Administrative Agent promptly shall make available to the Borrower by depositing to the Custodial Account the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available same to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender (or if such Lender is a Designated CP Conduit, from its Designated CP Conduit Commitment Lender). If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall as soon as practicable pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover on demand from such Lender (or the Borrower, as the case may be, if such Lender fails to pay) interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 3.4, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.
Section 3.2 Lender Notes. Each Loan made by a Lender shall be evidenced by (i) if a Revolving Loan, a promissory note payable to the order of such Lender in a maximum principal amount equal to such Lender's Revolving Percentage of the Total Revolving Commitments and shall be dated the Closing Date and substantially in the form of Exhibit B-1 (a "Revolving Note") and (ii) if a Swingline Loan, a promissory note payable to the order of the Swingline Lender in a maximum principal amount equal to the Maximum Swingline Amount and dated the Closing Date and substantially in the form of Exhibit B-2 (the "Swingline Note").
The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to its respective Lender Note (or on a continuation of such grid attached to such Lender Note and made a part thereof), which notations shall evidence, inter alia, the date of, the outstanding principal amount of, and the interest rate applicable to, the
Loans evidenced thereby. The notations on each such grid (and on each such continuation) indicating the outstanding principal amount of the Loans made by such Lender shall be prima facie evidence (absent manifest error) of the principal amount thereof owing and unpaid, but the failure to record any such amount on such grid (or on such continuation) shall not limit or otherwise affect the obligations of the Borrower hereunder or under any Lender Note to make payment of the principal of or interest on such Loans when due.
Notwithstanding the foregoing or any other provision of this Agreement, a Lender may, by written request to the Borrower and the Administrative Agent, elect not to have its Loans evidenced by a Lender Note, in which case Loans made by such Lender shall be evidenced solely by the Register.
Section 3.3 Principal Payments.
Section 3.3.1 Repayments and Prepayments. The Borrower shall make payment in full of all unpaid principal of (x) each Revolving Loan on the Commitment Termination Date and (y) each Revolving Loan made by a Withdrawing Lender (and not assigned pursuant to Section 2.3.4) on the Scheduled Commitment Termination Date and (z) each Swingline Loan on the Swingline Expiry Date. Prior thereto, the Borrower:
(a) may, from time to time on any Business Day, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Revolving Loans made as part of any particular Borrowing; provided, that:
(i) no such prepayment of any Borrowing of Revolving Loans may be made which, after giving effect thereto, would result in the aggregate outstanding principal amount of such Revolving Loans being less than $1,000,000 (unless repaid in full) or other than an integral multiple of $1,000,000;
(ii) each such voluntary prepayment shall require at least three (3) Business Days' prior written notice to the Administrative Agent;
(iii) each such voluntary prepayment shall be in a minimum amount of $1,000,000 and an integral multiple of $1,000,000 (or, if less, the outstanding principal amount of all Loans then outstanding);
(iv) a prepayment on a day other than the last day of the Interest Period for such Revolving Loan shall in all cases be subject to the requirements of Section 3.4.5; and
(v) no such prepayment may be made if, after giving effect thereto, a Swingline Loan would remain outstanding;
(b) shall, on each date when any reduction in the Total Maximum Commitment shall become effective, make a mandatory prepayment of all Loans equal to the excess, if any, of the aggregate outstanding principal amount of all Loans over the Total Maximum Commitment as so reduced;
(c) shall make a prepayment of Loans as may be required by Section 6.1.18;
(d) shall, immediately upon any acceleration of the maturity of any Loans pursuant to Sections 7.2 and/or 7.3 as required by the terms of the Pledge and Intercreditor Agreement, repay all Loans; and
(e) shall repay the outstanding amount of any Swingline Loan not funded by a Mandatory Borrowing in accordance with Section 3.1.1(c) on the fifteenth (15th) Business Day following the making of such Swingline Loan.
Each repayment and prepayment of any Loans made pursuant to this Section 3.3.1 shall be without premium or penalty, except as may be otherwise required by this Agreement (including Section 3.4.5).
Section 3.3.2 Application. Prepayments shall be applied to such Loans as may be specified by the Borrower (so long as any prepayment of Revolving Loans being maintained as LIBOR Loans and Cost of Funds Rate Loans is made on a pro rata basis among such Loans); provided, however, that, during the occurrence and continuance of an Event of Default, or in the event any Lender fails to acquire its pro rata share in any Swingline Loan from the Swingline Lender, prepayments shall be applied first to the portion of such Loans being maintained as Swingline Loans and then on a pro rata basis among all remaining Loans but subject in any event to Section 9.6. Absent such specification by the Borrower or the occurrence and continuance of an Event of Default, any prepayment of any Loans shall be applied first to the portion of such Loans being maintained as Swingline Rate Loans and then to the portion of such Loans being maintained as LIBOR Loans and Cost of Funds Rate Loans (on a pro rata basis among such Loans being maintained as LIBOR Loans and Cost of Funds Rate Loans).
Section 3.4 Interest.
Section 3.4.1 Interest Rules and Calculations.
(a) [Reserved].
(b) (i) The unpaid principal amount of each LIBOR Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be LIBOR plus the Applicable Margin and (ii) the unpaid principal amount of each Cost of Funds Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall be the higher of (x) LIBOR plus the Applicable Margin and (y) the applicable Cost of Funds Rate determined in accordance with Section 3.4.1(i) plus the Applicable Margin.
(c) The unpaid principal amount of each Swingline Rate Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be the Swingline Rate in effect from time to time plus the Applicable Margin.
(d) All overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan (regardless of Type) and any other overdue amount payable hereunder shall bear interest at a rate per annum equal to LIBOR plus 3.00%.
(e) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) on each Quarterly Date following the calendar quarter in which such interest accrued, and (ii) at maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
(f) The Borrower shall, no later than ten (10) Business Days prior to each Quarterly Date, review the potential sources available for the payment of amounts due on such Quarterly Date (including, without limitation, borrowings under this Agreement, cash (including from the sale of Collateral) and contributions of equity capital to the Borrower, including any Subordinated Equity Security. The Borrower shall thereupon make cash available from one or more such sources in order to pay in full all amounts due on the applicable Quarterly Date.
(g) All computations of interest hereunder shall be made in accordance with Section 9.7(b).
(h) The Administrative Agent, upon determining LIBOR on any LIBOR Determination Date, shall promptly notify the Borrower and the Lenders thereof.
(i) Each Lender making Cost of Funds Rate Loans hereunder shall, no later than the fifth Business Day following the end of each calendar quarter (or, if this Agreement shall terminate prior to the end of any calendar quarter, at least five Business Days prior to the termination of this Agreement), furnish to the Administrative Agent such Lender's written determination, in excel format, of its Cost of Funds Rate (subject to the cap set forth in the definition thereof) plus the Applicable Margin, and the resulting amount of interest due to such Lender, for such preceding calendar quarter (or, if this Agreement is being terminated prior to the end of a calendar quarter, for such period from the beginning of a calendar quarter through the termination of this Agreement), provided, that such Lender need only furnish such written determination of such Cost of Funds Rate plus the Applicable Margin and resulting amount of interest due if the amount of interest due such Lender would exceed the amount of interest due such Lender if such interest were calculated using LIBOR plus the Applicable Margin. The Administrative Agent shall compile any such determinations timely received from the Lenders and furnish them to the Borrower no later than the 10th Business Day following the end of each calendar quarter (or, if this Agreement shall terminate prior to the end of any calendar quarter, no later than the termination of this Agreement). If any such written determination of interest due based on the Cost of Funds Rate is not received by the Borrower from the Administrative Agent in a timely manner, interest payable on the affected Cost of Funds Rate Loan on the immediately succeeding Quarterly Date shall be calculated on the basis of LIBOR plus the Applicable Margin. Each Lender furnishing any such determination of its Cost of Funds Rate shall represent to
the Borrower that such determination constitutes such Lender's good faith calculation of its actual cost of funding with respect to the applicable Cost of Funds Rate Loans, and such representation shall, absent demonstrable error, be final and conclusive and binding on all parties (subject to timely receipt thereof by the Borrower in accordance with the foregoing sentence).
Section 3.4.2 Interest Periods. By delivering a Borrowing Request in respect of the making of a Borrowing of LIBOR Loans or Cost of Funds Rate Loans, the Borrower shall be deemed to have elected an Interest Period of one month. If the Borrower does not prepay or repay a Revolving Loan by the end of an Interest Period, the Borrower shall be deemed to have elected to continue such Revolving Loan for an additional Interest Period of one month. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of LIBOR Loans or Cost of Funds Rate Loans shall commence on the date of such Borrowing and any Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the preceding Interest Period expires;
(ii) there shall be no more than ten (10) separate Interest Periods permitted with respect to all Revolving Loans;
(iii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the succeeding Business Day; provided, that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the preceding Business Day; and
(v) no Interest Period shall extend beyond the Commitment Termination Date (and, if the Commitment Termination Date shall be the Extension Date, no Interest Period with respect to a Loan made by a Withdrawing Lender that has not assigned such Loan pursuant to Section 2.3.4 shall extend beyond the Scheduled Commitment Termination Date).
Section 3.4.3 [Reserved]
Section 3.4.4 Increased Costs, Illegality, etc.
(a) In the event that (x) in the case of Section 3.4.4(a)(i) below, the Administrative Agent or (y) in the case of Sections 3.4.4(a)(ii) and (iii)
below, any Lender, shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):
(i) on any date for determining LIBOR that, by reason of any changes arising after the date of this Agreement affecting the London interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR; or
(ii) at any time, that such Lender or SPC shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any LIBOR Loans or Cost of Funds Rate Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges) because of (x) any change since the Closing Date in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements) and/or (y) other circumstances occurring after the Closing Date materially affecting the London interbank market, or the position of such Lender in such market, in the case of LIBOR Loans, or the commercial paper market generally, in the case of Cost of Funds Rate Loans; or
(iii) at any time, that the making or continuance of any LIBOR Loan has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation, guideline (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law but with which such Lender customarily complies even though the failure to comply therewith would not be unlawful);
then, and in any such event, such Lender (or the Administrative Agent in the case of Section 3.4.4(a)(i) above) shall, (x) on or after such date and (y) within ten (10) Business Days of the date on which such event no longer exists, give written notice to the Borrower and to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter (A) in the case of Section 3.4.4(a)(i) above, LIBOR Loans shall no longer be available until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist, and any Borrowing Request given by the Borrower with respect to LIBOR Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (B) in the case of Section 3.4.4(a)(ii) above, the Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its reasonable discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof, submitted to the Borrower by such Lender shall, absent manifest error, be final and
conclusive and binding upon all parties hereto) and (C) in the case of Section
3.4.4(a)(iii) above, the Borrower shall take one of the actions specified in
Section 3.4.4(b) as promptly as possible and, in any event, within the time
period required by law.
(b) At any time that any LIBOR Loan or Cost of Funds Rate Loan is
affected by the circumstances described in Section 3.4.4(a)(ii) or (iii), the
Borrower may (and in the case of a LIBOR Loan affected pursuant to Section
3.4.4(a)(iii), upon receipt of the notice referred to in subsection (a) above,
the Borrower shall) either (i) if the affected LIBOR Loan or Cost of Funds Rate
Loan is then being made pursuant to a Borrowing, cancel said Borrowing by
giving the Administrative Agent written notice thereof on the same date that
the Borrower was notified by a Lender pursuant to Section 3.4.4(a)(ii) or
(iii), or (ii) if the affected LIBOR Loan or Cost of Funds Rate Loan is then
outstanding, upon at least three (3) Business Days' notice to the
Administrative Agent, require the affected Lender to convert each such LIBOR
Loan or Cost of Funds Rate Loan into a Loan bearing interest at the Base Rate;
provided, that if more than one Lender is affected at any time, then all
affected Lenders must be treated the same pursuant to this Section 3.4.4(b).
(c) If any Lender shall have determined that after the Closing Date, the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority (including any central bank or comparable agency charged with the interpretation or administration thereof), or compliance by such Lender (or any corporation controlling such Lender) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's (or such controlling corporation's) capital or assets as a consequence of its Commitments or obligations hereunder to a level below that which such Lender (or such controlling corporation) would have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender's (or such controlling corporation's) policies with respect to capital adequacy), then from time to time, within fifteen (15) days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as shall compensate such Lender (or such controlling corporation) for such reduction. Each Lender, upon determining in good faith and using averaging and attribution methods which are reasonable that any additional amounts shall be payable pursuant to this Section 3.4.4(c), shall give prompt written notice thereof to the Borrower, which notice shall set forth the basis in reasonable detail of the calculation of such additional amounts, although, subject to Section 3.4.6(b), the failure to give any such notice shall not release or diminish any of the Borrower's obligations to pay additional amounts pursuant to this Section 3.4.4(c) upon the subsequent receipt of such notice.
Section 3.4.5 Compensation. The Borrower shall compensate each Lender, upon written request by the Administrative Agent on behalf of any such Lender (which request shall set forth the basis for requesting such compensation), for all costs, losses, expenses and liabilities (including, without limitation, any cost, loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund its
LIBOR Loans or Cost of Funds Rate Loans) which such Lender may reasonably
sustain: (i) if for any reason (other than a default by such Lender or the
Administrative Agent) a Borrowing of LIBOR Loans or Cost of Funds Rate Loans
does not occur on a date specified therefor in a Borrowing Request (whether or
not withdrawn or cancelled by the Borrower or deemed withdrawn pursuant to
Section 3.4.4(a)); (ii) if any prepayment or repayment of any of its LIBOR
Loans or Cost of Funds Rate Loans occurs on a date which is not the last day of
an Interest Period; (iii) if any prepayment of any of its LIBOR Loans or Cost
of Funds Rate Loans is not made on any date specified in a notice of prepayment
given by the Borrower; or (iv) as a consequence of (x) any other default by the
Borrower to repay its LIBOR Loans or Cost of Funds Rate Loans when required by
the terms of this Agreement (including a default resulting in acceleration of
the due date of the Loans hereunder) or (y) an election made pursuant to
Section 3.4.4(b). A Lender's basis for requesting compensation pursuant to this
Section 3.4.5 and a Lender's calculation of the amount thereof, shall, absent
demonstrable error, be final and conclusive and binding on all parties hereto.
Section 3.4.6 Change of Lending Office; Limitation on Indemnities.
(a) Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 3.4.4(a)(ii) or (iii), 3.4.4(c) or 3.6 with respect to such Lender, it shall, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event; provided, that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section; and provided, further, that such designation shall be made only if it would otherwise be permitted as a participation under Section 9.4. Nothing in this Section 3.4.6 shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 3.4.4 or 3.6.
(b) Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 3.4.4 or 3.6 is given by any Lender more than one hundred eighty (180) days after such Lender obtained, or reasonably should have obtained, knowledge of the occurrence of the event giving rise to the additional costs of the type described in such Sections, such Lender shall not be entitled to compensation under Section 3.4.4 or 3.6 for any amounts incurred or accruing prior to the one hundred eightieth (180th) day prior to the giving of such notice to the Borrower; provided that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
Section 3.4.7 Replacement of Lenders. (x) Upon the occurrence of any
event giving rise to the operation of Section 3.4.4(a)(ii) or (iii), Section
3.4.4(c) or Section 3.6 with respect to any Lender which results in such Lender
charging to the Borrower increased costs in excess of those being generally
charged by the other Lenders or becoming incapable of making LIBOR Loans or
Cost of Funds Rate Loans, (y) if a Lender becomes a Defaulting Lender, and/or
(z) in the case of a refusal by a Lender to consent to a proposed change,
waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders as provided in Section 9.12(b), the Borrower shall have the right, if no Default or Event of Default then exists, to replace such Lender (the "Replaced Lender") with one or more other Eligible Transferee or Transferees reasonably acceptable to the Administrative Agent, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the "Replacement Lender"); provided, that (i) at the time of any replacement pursuant to this Section 3.4.7, the Replacement Lender shall enter into one or more Assignment Agreements pursuant to Section 9.4(b) (and with all fees payable pursuant to said Section 9.4(b) to be paid by the Replacement Lender) pursuant to which the Replacement Lender shall acquire all of the Commitments and outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the sum of (1) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Replaced Lender, and (2) an amount equal to all accrued, but theretofore unpaid, fees owing to the Replaced Lender pursuant to Section 2.4, and shall pay to the Swingline Lender an amount equal to the Replaced Lender's Percentage of any Mandatory Borrowing to the extent that such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations of the Borrower owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full by the Borrower to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to in clauses (i) and (ii) above, the recordation of the assignment on the Register by the Administrative Agent pursuant to Section 9.16 and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Lender Note or Lender Notes executed by the Borrower, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the Replaced Lender under this Agreement, which shall survive as to such Replaced Lender.
Section 3.5 Method and Place of Payment. Except as otherwise specifically provided herein (or agreed among the Borrower, the Administrative Agent and any Lender with respect to payments to such Lender), all payments under this Agreement shall be made to the Administrative Agent for the ratable (based on their applicable Percentages) account of the Lenders entitled thereto (which funds the Administrative Agent shall promptly forward to such Lenders), not later than 8:00 a.m. (Los Angeles time) on the date when due and shall be made in immediately available funds and in Dollars at the Payment Office, it being understood that written notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 8:00 a.m. (Los Angeles time) shall be deemed to have been made on the succeeding Business Day. Except as otherwise provided in Section 3.4.2(a)(iv), whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension.
Section 3.6 Net Payments.
(a) All payments made by the Borrower hereunder or under any Lender Note or Loan shall be made without setoff, counterclaim or other defense. Except as provided in Section 3.6(b), all such payments shall be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of and any franchise tax imposed on or in lieu of taxes on net income of a Lender or the Administrative Agent pursuant to the laws of the jurisdiction in which such Lender or the Administrative Agent, as the case may be (each a "Lending Party"), is organized or managed and controlled or the jurisdiction in which the principal office or applicable lending office of such Lending Party is located, managed or controlled or any subdivision or taxing authority thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts, if any, as may be necessary so that every payment of all amounts due under this Agreement or under any Lender Note or Loan, after withholding or deduction for or on account of any Taxes, shall not be less than the amount provided for herein or in such Lender Note or Loan. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lending Party, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of and any franchise tax imposed on or in lieu of taxes on net income of such Lender pursuant to the laws of the jurisdiction in which it is organized or managed and controlled or the jurisdiction in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which it is organized or the jurisdiction in which the principal office is organized or managed and controlled or the jurisdiction in which the principal office or applicable lending office of such Lender is located, managed or controlled, and for any withholding of taxes as such Lending Party shall determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lending Party pursuant to this sentence. The Borrower shall furnish to the Administrative Agent within thirty (30) days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lending Party, and reimburse such Lending Party upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lending Party. Such indemnification shall be made within thirty (30) days after the date any Lender makes written demand therefor.
(b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Administrative Agent (A) on or prior to the Closing Date, or (B) in the case of such a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Sections 3.4.7 or 9.4 (unless the respective Lender
was already a Lender hereunder immediately prior to such assignment or
transfer), on the date of such assignment or transfer to such Lender, (i) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 ECI or W-8 BEN (or successor forms) certifying to such Lender's entitlement
to a complete exemption from United States withholding tax with respect to
payments to be made under this Agreement and under any Lender Note or Loan, or
(ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Code and cannot deliver either Internal Revenue Service Form W-8 ECI or
W-8 BEN pursuant to clause (i) above, (x) a certificate substantially in the
form of Exhibit E (any such certificate, a "Tax Certificate") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 BEN (or successor form) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and under any Lender Note or Loan.
In addition, each Lender agrees that from time to time after the Closing Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it shall deliver
to the Borrower and the Administrative Agent two new accurate and complete
original signed copies of Internal Revenue Service Form W-8 ECI or W-8 BEN (or
successor forms), or Form W-8 BEN (or successor form) and a Tax Certificate, as
the case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Lender to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Lender Note or Loan, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such form
or Tax Certificate, in which case such Lender shall not be obliged to deliver
any such form or Tax Certificate. Notwithstanding anything to the contrary
contained in Section 3.6(a), but subject to Section 9.4(b) and the immediately
succeeding sentence, (x) the Borrower shall be entitled, to the extent it is
required to do so by law, to deduct or withhold income or similar taxes imposed
by the United States (or any political subdivision or taxing authority thereof
or therein) from interest, fees or other amounts payable hereunder for the
account of any Lender which is not a United States person (as defined above)
for U.S. Federal income tax purposes to the extent that such Lender has not
provided to the Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding and (y) the Borrower
shall not be obligated pursuant to Section 3.6(a) to gross-up payments to be
made to a Lender in respect of income or similar taxes imposed by the United
States if (I) such Lender is not a United States person (as defined above) and
has not provided to the Borrower the Internal Revenue Service Forms required to
be provided to the Borrower pursuant to this Section 3.6(b) or (II) in the case
of a payment (other than interest if and only if such Lender complies with
clauses (ii)(x) and (y) above) to a Lender described in clause (ii) above, to
the extent that such Forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained
in the preceding sentence or elsewhere in this Section 3.6 and except as set
forth in Section 9.4, the Borrower agrees to pay additional amounts and to
indemnify each Lender in the manner set forth in Section 3.6(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any amounts deducted or withheld by it as described in the
immediately preceding sentence as a result of any changes after the Closing
Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes; provided, such Lender shall provide to the Borrower and the Administrative Agent, upon the request of the Borrower, any reasonably available applicable IRS tax form (reasonably similar in its simplicity and degree of detail to IRS Form W-8 ECI or W-8 BEN or a Tax Certificate) necessary or appropriate for the exemption or reduction in the rate of such U.S. Federal withholding tax.
(c) If the Borrower pays any additional amount under this Section 3.6 to a Lender and such Lender determines in its sole discretion that it has actually received any refund in respect of such additional amount paid by the Borrower, such Lender shall repay such refund to the Borrower, net of all out-of-pocket expenses of such Lender and without interest (except to the extent such refund includes interest); provided that, the Borrower, upon the request of such Lender, agrees to return such refund (plus penalties, interest or other charges) to such Lender in the event such Lender is required to repay such refund. Whether or not a Lender claims any refund or credit or files any amended tax return shall be in the sole discretion of such Lender. Nothing in this Section 3.6 shall require a Lender to (i) disclose or detail the basis of its calculation of the amount of any tax benefit or refund to the Borrower or any other party or (ii) disclose such Lender's tax returns.
Section 3.7 Other CP Conduit Lenders and Liquidity Providers;
Designated CP Conduits and Designated CP Conduit Committed Lenders. In the
event that any Lender that is a CP Conduit shall become obligated to make any
payment of or make a claim for any payment of the types referred to in Section
3.4.4, 3.4.5 or 3.6 to any Liquidity Provider for such Other CP Conduit or any
Designated CP Conduit Committed Lender for such Designated CP Conduit, as the
case may be, or such Liquidity Provider or Designated CP Conduit Committed
Lender is entitled to receive payments of such types, the Borrower agrees that
it will pay to such Lender the amounts that the Lender is so obligated to pay
to such Liquidity Provider or such Designated CP Conduit Committed Lender or
that such Liquidity Provider or Designated CP Committed Lender is entitled to
receive, but in each case solely to the extent that the Borrower would have
been obligated to make such payments to such Liquidity Provider or such
Designated CP Conduit Committed Lender pursuant to this Agreement had such
Liquidity Provider or such Designated CP Conduit Committed Lender been a Lender
under this Agreement in lieu of such Other CP Conduit or such Designated CP
Conduit and complied with the provisions of this Agreement. In the event that
the Liquidity Agreement or other support agreement with respect to any Other CP
Conduit does not specify any particular payment of the types referred to in
Section 3.4.4, 3.4.5 or 3.6, or does so only by reference to the payments such
Other CP Conduit is entitled to received hereunder, the Borrower agrees that it
will pay to such Other CP Conduit (for payment to the related Liquidity
Provider or other support provider, as applicable) the amounts that the
Borrower would have been obligated to pay to such Liquidity Provider or other
support provider pursuant to Section 3.4.4, 3.4.5 or 3.6 had such Liquidity
Provider or other support provider been a Lender under this Agreement in lieu
of such Other CP Conduit and complied with the provisions of this Agreement.
Section 3.8 SPC Loans. Notwithstanding anything to the contrary
contained herein, any Lender may grant to a special purpose funding vehicle (an
"SPC") sponsored by such Lender, identified as such in writing from time to
time by such Lender to the Administrative Agent and the Borrower, the option to
provide to the Borrower all or any part of any Loan that the Lender would
otherwise be obligated to make to the Borrower pursuant to the terms hereof;
provided that (i) nothing herein shall constitute a commitment to make any Loan
by any SPC, and (ii) if an SPC elects not to exercise such option or otherwise
fails to provide all or any part of such Loan, the Lender shall be obligated to
make such Loan pursuant to the terms hereof. The making of a Loan by an SPC
hereunder shall utilize the Commitment of such Lender to the same extent, and
as if, such Loan were made by the Lender. Any SPC that makes a Loan shall (i)
have in regard to such Loan all of the rights (exercisable, however, only
through the Lender as its agent) that the Lender would have had if it had made
such Loan directly (including but not limited to the rights under Sections
3.4.4, 3.4.5, 3.6 and 9.1) and (ii) be deemed to have made the representations
made herein by each Lender and comply with this Agreement in regard to such
Loan as if the SPC were a party hereto; provided that all monetary obligations
of a lender under this Agreement shall remain solely with the Lender.
Notwithstanding any Loans that may be provided by an SPC hereunder, (i) the
Administrative Agent, the Swingline Lender and the Borrower shall be entitled
to continue to deal solely and directly with the Lender in connection with this
Agreement, (ii) the Lender shall remain fully liable to the Administrative
Agent, to the Swingline Lender and to the Borrower for the timely performance
of all obligations of the Lender under this Agreement and (iii) none of the
Administrative Agent or the Borrower shall be obligated at any time to pay to
any SPC or to the Lender any greater amounts pursuant to the terms hereof than
it would have been required to pay had the Lender made such Loans directly
(except to the extent that the interest payable on a Cost of Funds Rate Loan
may exceed the interest payable on a LIBOR Loan and except as specified in the
preceding sentence). Each SPC that provides a Loan hereunder shall
simultaneously provide the Administrative Agent and the Borrower with a written
undertaking to comply with the confidentiality provisions specified in Section
9.15. The Borrower, all the Lenders and the Administrative Agent each hereby
agrees (which agreement shall survive the termination of this Agreement) that,
prior to the date that is one (1) year and one (1) day after the payment in
full of all outstanding commercial paper or other senior indebtedness of any
SPC, it will not institute against, or join any other person in instituting
against, such SPC any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under the laws of the United States or any State
thereof. In addition, notwithstanding anything to the contrary contained in
this Section 3.8 or Section 9.4, any SPC may (i) with notice to, but without
the prior written consent of, the Borrower or the Administrative Agent, without
the payment of the processing fee therefor, assign all or a portion of its
interests in any Loans to the Lender or to any financial institutions consented
to by the Borrower and the Administrative Agent providing liquidity and/or
credit facilities to or for the account of such SPC to support the funding or
maintenance of Loans, and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency. Nothing in this section
that would affect the rights or obligations of an SPC may be amended without
the written consent of any SPC that has Loans outstanding at the time of the
amendment.
ARTICLE IV
CONDITIONS TO CREDIT EXTENSIONS
Section 4.1 Initial Loans. Notwithstanding any other provision of this Agreement, the obligations of the Lenders to fund the initial Borrowing shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 4.1.
Section 4.1.1 Evidence of Authority. The Administrative Agent shall have received:
(a) a certificate of the Borrower, dated the Closing Date, as to:
(i) the authority of the Borrower to execute, deliver and perform this Agreement, the Lender Notes, the Preferred Interests, the Pledge and Intercreditor Agreement, each other Credit Document to be executed by it and each other instrument, agreement or other document to be executed in connection with the transactions contemplated in connection herewith and therewith, and
(ii) the authority and signatures of those Persons authorized to execute and deliver this Agreement, the Lender Notes and the other Credit Documents and to act with respect to this Agreement and each other Credit Document to be executed by the Borrower, upon which certificate each Lender, including each assignee (whether or not it shall have then become a party hereto), may conclusively rely until it shall have received a further certificate of the Borrower canceling or amending such prior certificates;
(b) a copy of the Organic Documents and the Preferred Interests of the Borrower, each certified in a manner satisfactory to the Administrative Agent, and the provisions of which shall be satisfactory to the Administrative Agent, and a certificate of legal existence for the Borrower issued by the Secretary of State of Delaware; and
(c) such other instruments, agreements or other documents (certified if requested) as the Administrative Agent or the Lenders may reasonably request.
Section 4.1.2 Agreement; Lender Notes. The Administrative Agent shall have received executed counterparts of this Agreement from all of the parties hereto and each Lender shall have received its respective Lender Note, each duly executed and delivered.
Section 4.1.3 Collateral Documents. The Administrative Agent shall have received:
(a) the Pledge and Intercreditor Agreement substantially in the form of Exhibit G, dated as of the Closing Date, duly executed and delivered by the Borrower and the other parties thereto, together with:
(i) executed copies of Uniform Commercial Code Financing Statements (Form UCC-1), dated a date reasonably near to the Closing Date as may be acceptable to the Administrative Agent, naming the Borrower as the debtor and the Secured Parties Representative as the secured party or other similar instruments or documents in a form suitable for filing in all jurisdictions identified in Schedule 3; and
(ii) copies of search reports certified by a party reasonably acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective financing statements that name the Borrower as the debtor and which are on file in the jurisdictions identified in Schedule 3, showing that no financing statements (other than those filed pursuant to this Agreement) cover any Collateral, except with respect to Liens permitted by Section 6.2.3);
(b) evidence that all other actions that, in the reasonable opinion of the Administrative Agent, are advisable to perfect and protect the Liens in the Collateral created or purported to be created by the Collateral Documents have been taken; and
(c) a copy of the Custodial Agreement substantially in the form of Exhibit I, dated as of the Closing Date, as executed and delivered by the Borrower and the other parties thereto.
Section 4.1.4 [Reserved]
Section 4.1.5 Borrower Contributions in Relation to Facility Commitment and Preferred Interests. On the Closing Date, the Contributed Company Capital of the Borrower shall equal or exceed the sum of the original Facility Commitment and the aggregate stated liquidation preference of the Preferred Interests.
Section 4.1.6 Investment Management Agreement, Co-Management Agreement and Borrower Organization Agreement. The Administrative Agent shall have received a copy, certified by the Borrower, of the Investment Management Agreement, the Co-Management Agreement and the Borrower Organization Agreement, each duly executed and delivered by the Borrower and/or the Investment Manager or the Co-Manager. The Administrative Agent shall forward each such copy of the Investment Management Agreement, the Co-Management Agreement and the Borrower Organization Agreement to the Rating Agencies.
Section 4.1.7 No Litigation, etc. No litigation, arbitration, governmental investigation, proceeding or inquiry shall, on the date of the initial Loans, be pending or, to the knowledge of the Borrower, threatened with
respect to any of the transactions contemplated hereby which would, in the reasonable opinion of the Required Lenders, be adverse to, or be detrimental to the interests of, any of the parties hereto.
Section 4.1.8 Certificate as to Conditions, Warranties, No Default, etc. The Administrative Agent shall have received a certificate of the Borrower, dated the date of the initial Loans, in form and substance satisfactory to the Administrative Agent, to the effect that, as of such date:
(a) all conditions set forth in this Article IV have been fulfilled;
(b) all representations and warranties of the Borrower set forth in Article V are true and correct in all material respects; and
(c) no Default has occurred and is continuing.
Section 4.1.9 Insurance Report, etc. The Administrative Agent shall have received evidence that all insurance policies, coverages and riders required pursuant to Section 6.1.6 are in effect on the Closing Date.
Section 4.1.10 Opinions of Counsel. The Administrative Agent shall have received and delivered to each Lender the following opinion letters, each dated the Closing Date and in form satisfactory to the Administrative Agent, and addressed to the Administrative Agent, all Lenders, Moody's and S&P:
(a) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Borrower;
(b) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Investment Manager; and
(c) Opinion of Kennedy Covington Lodell & Hickman, LLP, special counsel to the Custodian.
Section 4.1.11 Investment Manager Letter. The Administrative Agent shall have received from the Investment Manager a letter addressed to the Administrative Agent and the Lenders, substantially in the form of Exhibit F consenting to the provisions of Section 6.2.14.
Section 4.1.12 Closing Fees, Expenses, etc. The Administrative Agent shall have received for its own account, or for the account of each Lender and the Arranger, as the case may be, all fees, costs and expenses then due and payable under this Agreement (including Section 9.1 and the Fee Letter).
Section 4.1.13 Federal Reserve Form U-1 or G-3. The Administrative Agent shall have received on behalf of each Lender that is subject to such regulations a Federal Reserve Form U-1 or Form G-3, as the case may be, duly completed and executed by the Borrower and such Lender.
Section 4.1.14 Rating of Loans and Preferred Interests. The Administrative Agent shall have received (i) a letter from Moody's addressed to the Borrower and the Administrative Agent, confirming that the Loans hereunder have received ratings of "Aaa" by Moody's and that the Preferred Interests have received ratings of at least "Aa3" by Moody's and (ii) a letter from S&P addressed to the Borrower and the Administrative Agent, confirming that the Loans hereunder have received ratings of "AAA" by S&P and that the Preferred Interests have received ratings of at least "AA-" by S&P.
Section 4.1.15 Satisfactory Legal Form. All limited partnership and other actions or proceedings taken or required to be taken in connection with the transactions contemplated hereby and all agreements, instruments and documents executed or submitted pursuant to this Section 4.1 by or on behalf of the Borrower shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel; all certificates and opinions delivered pursuant to this Article IV shall be addressed to the Administrative Agent and each Lender, or the Administrative Agent and each Lender shall be expressly entitled to rely thereon; the Administrative Agent and its counsel shall have received all information, and such number of counterpart originals or such certified or other copies of such information, as the Administrative Agent or its counsel may reasonably request; and all legal matters incident to the transactions contemplated by this Agreement shall be satisfactory to counsel to the Administrative Agent.
Section 4.1.16 Key Individuals. The Administrative Agent shall have received a list of the Key Individuals as of the Closing Date.
Section 4.1.17 Independent Public Accountant. The Administrative Agent shall have received a copy of an engagement letter between the Borrower and the Independent Public Accountant pursuant to which the Independent Public Accountant agrees for the period specified therein to prepare the reports required to be prepared by it pursuant to Sections 6.1.1(f) and 6.1.2(d).
Section 4.1.18 CP Conduit Ratings; Liquidity Backstop. Each Lender that is a CP Conduit:
(a) to the extent required of such CP Conduit, shall have received copies of letters from each of Fitch (if applicable), Moody's and S&P confirming the ratings assigned by each such rating agency to such CP Conduit's commercial paper notes;
(b) solely in the case of each Designated CP Conduit, shall have represented and warranted in writing to the Borrower, the Swingline Lender and the Administrative Agent that it has entered into a valid and binding Loan Purchase Agreement with one or more Designated CP Conduit Committed Lenders and any other parties thereto, which Loan Purchase Agreement shall provide for commitments by the Designated CP Conduits Committed Lenders parties thereto to purchase, or acquire participations in, the Loans of the Designated CP Conduit party thereto; and
(c) to the extent required, shall have received an executed program administration and fee letter or similar document.
Section 4.1.19 [Reserved]
Section 4.1.20 [Reserved]
Section 4.2 All Loans. Notwithstanding any other provision of this Agreement, without duplication of any conditions precedent required to be satisfied pursuant to Section 4.1, the obligations of the Lenders to make any Loan shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 4.2.
Section 4.2.1 Compliance with Warranties, Total Maximum Commitment, Borrowing Base, No Default, etc. Both immediately before and after giving effect to each Loan:
(a) the representations and warranties set forth in Article V shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date);
(b) all representations and warranties set forth in each of the Collateral Documents shall be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date);
(c) no Default shall have occurred and be continuing;
(d) the aggregate amount of all Loans outstanding and Loans requested to be made shall not exceed the lesser of (i) the Total Maximum Commitment at such time and (ii) the Borrowing Base minus the aggregate outstanding liquidation preference of the Preferred Interests at such time (determined after giving effect to the receipt by the Borrower of the proceeds of the requested Loan(s) and the use by the Borrower on such date of such proceeds); and
(e) the Uniform Commercial Code Financing Statements (or other similar instruments or documents) referred to in Section 4.1.3(a)(i) shall have been filed in all jurisdictions identified in Schedule 3.
Section 4.2.2 Borrowing Request, etc. The Administrative Agent shall have received a Borrowing Request. Each of the delivery of any such Borrowing Request and the acceptance by the Borrower of the proceeds or other benefits of any Loan shall constitute a representation and warranty by the Borrower that on the date of such request for a Loan, and immediately before and after giving effect to the application of any proceeds of any Loans requested thereby, all statements set forth in Section 4.2.1 are true and correct in all material respects.
Section 4.2.3 Regulations T, U and X. Immediately after such Borrowing, the Borrower shall be in compliance with Regulations T, U and X.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce each Lender, the Administrative Agent and the Arranger to enter into this Agreement, to engage in the transactions contemplated herein and in the other Credit Documents and, in the case of the Lenders, to make the Loans hereunder, the Borrower represents and warrants to each Lender, the Administrative Agent and the Arranger as set forth in this Article V.
Section 5.1 Organization, etc.
Section 5.1.1 Organization, Power, Authority, etc. The Borrower is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in each jurisdiction where the nature of its business requires such qualification to the extent required pursuant to Sections 6.1.3 and 6.1.4 (except for any failures to be so qualified, which, in the aggregate would not have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Lender Notes and each other Credit Document and each Transaction Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it (except for any failure to hold any such licenses, permits and/or other approvals, which, in the aggregate would not have a Material Adverse Effect).
Section 5.1.2 Exemption from Registration. Assuming compliance by the Lenders with the restrictions and the accuracy of the representations and warranties set forth in Section 9.19, all transactions contemplated by this Agreement are exempt from registration under the Securities Act or the "Blue Sky" laws of any state.
Section 5.2 Due Authorization, Non-Contravention, etc. The execution and delivery by the Borrower of this Agreement, the Lender Notes, each other Credit Document and each Transaction Document to which it is a party, the performance by the Borrower of its obligations hereunder and thereunder, all Loans obtained hereunder by the Borrower, the granting of the Liens provided for in the Collateral Documents and the consummation of all other actions incidental to any thereof have been duly authorized by all necessary action, do not and shall not conflict with, result in any violation of, or constitute any default under, any provision of any Organic Document or Contractual Obligation of the Borrower (assuming the truth and accuracy of the representations and warranties of the Lenders set forth herein and compliance by them with their covenants hereunder) or any law or governmental regulation or court decree or order (including, without limiting the foregoing, Section 18 of the Investment Company Act, or any successor provision thereto, and any applicable "asset coverage" maintenance requirements set forth therein) and shall not result in or require the creation or imposition of any Lien on any of the Borrower's
properties pursuant to the provisions of any Contractual Obligation (other than
the Liens provided for in the Collateral Documents and the Liens permitted by
Section 6.2.3).
Section 5.3 Government Approval, Regulation, etc. The Borrower has been registered as an investment company under the Investment Company Act and is a Closed-end Company for purposes of the Investment Company Act. No other Approval is required for the due execution, delivery or performance by the Borrower of this Agreement, the Lender Notes, or any other Credit Document or any Transaction Document or the consummation of any transactions contemplated hereby or thereby, except for authorizations, approvals, actions, notices or filings which have been duly obtained or made and are in full force and effect.
Section 5.4 Validity, etc. This Agreement has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower enforceable in accordance with its terms; and the Lender Notes and each of the other Credit Documents and each Transaction Document to which the Borrower is a party shall, on the due execution and delivery thereof, constitute the legal, valid and binding obligation of the Borrower, enforceable in accordance with their respective terms, in each case, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or by general equitable principles relating to enforceability.
Section 5.5 Financial Information. With respect to any representation and warranty which is deemed to be made after the date hereof by the Borrower, the balance sheet and statements of operations, of Company Equity, earnings and of cash flow, which as of such date shall most recently have been furnished by or on behalf of the Borrower to each Lender and the Administrative Agent for the purposes of or in connection with this Agreement or any transaction contemplated hereby, shall have been prepared in accordance with GAAP consistently applied (except as disclosed therein), and shall present fairly the consolidated financial condition of the Borrower as at the dates thereof for the periods then ended, subject, in the case of quarterly financial statements, to normal year-end audit adjustments, purchase accounting adjustments and such other exceptions specifically noted in the notes thereto.
Section 5.6 Litigation, etc. There is no pending or, to the best knowledge of the Borrower, threatened, litigation, action, proceeding, order, investigation or claim, at law or in equity or before or by any Governmental Authority affecting the Borrower or the Investment Manager or any of their respective properties, assets or revenues which could reasonably be expected to result in or constitute a Material Adverse Effect.
Section 5.7 Regulations T, U and X. The proceeds of any Loans made hereunder have not been, and will not be, used for a purpose which violates or would cause any Lender to violate, or would be inconsistent with, Regulation T, U or X.
Section 5.8 Pension and Welfare Plans.
(a) Neither the Borrower nor any ERISA Affiliate maintains, contributes to (or is obligated to contribute to) or has any liability to any Pension Plan or Welfare Plan (other than with respect to a fully-insured Welfare Plan), unless such maintenance, contribution or liability, in the aggregate, would not have a Material Adverse Effect. Neither the Borrower, nor any ERISA Affiliate has at any time maintained or contributed to (or has been obligated to contribute to) any Pension Plan or Welfare Plan (other than a fully-insured Welfare Plan), unless such maintenance or contribution would not have a Material Adverse Effect.
(b) None of the assets of the Borrower constitute Plan Assets.
(c) The formation of the Borrower, and the Fund Investments from time
to time effected or contemplated by the Borrower, do not and will not
constitute a nonexempt prohibited transaction (as such term is defined in
Section 4975 of the Code and/or Section 406 of ERISA) that could subject the
Administrative Agent and/or any Lender to any tax or penalty on prohibited
transactions imposed under Section 4975 of the Code and/or Section 502(i) of
ERISA.
(d) There are no material collective bargaining agreements covering any employees of any of the Borrower's ERISA Affiliates (other than those entities which have become an ERISA Affiliate of the Borrower as a result of the Borrower's investment in such entities) or with respect to which the Borrower or any of its ERISA Affiliates (other than those entities which have become an ERISA Affiliate of the Borrower as a result of the Borrower's investment in such entities) has or could have any material liability or responsibility.
Section 5.9 Subsidiaries. Except for any Hedging SPEs or Investment Holding Subsidiaries, the Borrower has no Subsidiaries.
Section 5.10 Taxes. The Borrower has filed all tax returns required by law to have been filed by it (except for such tax returns with respect to which the failure to file timely would not have a Material Adverse Effect); to the best of the Borrower's knowledge, all such tax returns are true and correct in all material respects; and the Borrower has paid or withheld (as applicable) all taxes and governmental charges thereby shown to be owing or required to be withheld, except any such taxes or charges which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books.
Section 5.11 Absence of Default. No Default or Event of Default exists or would result from the incurrence of any Obligations by the Borrower or from the grant or perfection of the Liens on the Collateral pursuant to the Pledge and Intercreditor Agreement. As of the Closing Date, the Borrower is not in default under or with respect to (a) any Contractual Obligation in any respect that, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under Section 7.1
or (b) any governmental regulation or court decree or order or under any law, which default would be reasonably likely to have a Material Adverse Effect.
Section 5.12 Capitalization. As of the Closing Date, the Contributed Company Capital equals or exceeds the sum of the original Facility Commitment and the aggregate stated liquidation preference of the Preferred Interests.
Section 5.13 Ownership of Properties. The Borrower owns all of its properties and assets, of any nature whatsoever, free and clear of all Liens, except (i) as permitted pursuant to Section 6.2.3 and (ii) Liens on properties and assets not included in the Collateral.
Section 5.14 Real Property. The Borrower owns no real property, except for such real property as the Borrower may have acquired or received as a distribution in connection with a workout, bankruptcy, foreclosure, restructuring or other similar process or proceeding in respect of a Fund Investment, which acquisition shall be promptly disclosed to the Administrative Agent at the time of such acquisition.
Section 5.15 [Reserved]
Section 5.16 Environmental Warranties. The Borrower neither owns nor leases, nor has it ever owned or leased, any facilities or property the ownership of or leasehold interest in which, with the passage of time, or the giving of notice or both, would give rise to liability (including any contingent liability) under any Environmental Law except such liability, if any, as would not reasonably be likely to result in or constitute a Material Adverse Effect.
Section 5.17 Borrower's Business. The Borrower does not engage in any business or activity other than (a) issuing the Lender Notes and incurring Loans pursuant to this Agreement, issuing and selling the Preferred Interests pursuant to the Borrower Organization Agreement (including any permitted refinancings thereof), issuing Common Interests, issuing Subordinated Equity Securities, acquiring, owning, holding, selling, exchanging, redeeming, pledging, structuring, negotiating, originating, syndicating, contracting for the management of (including entering into the Investment Management Agreement and the Co-Management Agreement) and otherwise dealing with Fund Investments and other instruments and property in connection therewith and in accordance with the terms hereof (including acquiring majority or controlling interests in operating companies as a result of such activities) and entering into Hedging and Short Sale Transactions in accordance with the provisions of this Agreement, (b) issuing or incurring obligations permitted by Section 6.2.2, (c) owning the Capital Stock of any Hedging SPEs or Investment Holding Subsidiaries, (d) engaging in other activities permitted by the Borrower Organization Agreement, including establishing investment committees and investment policies, earning origination, management, funding, break-up and similar fees with respect to Fund Investments, obtaining governance power with respect to Fund Investments and co-investing with related parties and other Persons and (e) engaging in any other activities which are necessary, suitable
or appropriate to accomplish the foregoing or are incidental thereto, connected therewith or ancillary thereto.
Section 5.18 Collateral Documents. The provisions of the Collateral Documents executed or to be executed by the Borrower shall, upon the due execution and delivery thereof in accordance herewith, together with the making of all filings and recordings in locations referred to in Schedule 3 and the taking of possession of the Collateral in accordance with the provisions of the Collateral Documents, be effective to create a valid and perfected first priority Lien in all right, title and interest of the Borrower in the Collateral in accordance with the terms of the Pledge and Intercreditor Agreement.
Section 5.19 Investment Management Agreement. The Investment Management Agreement is in full force and effect and no default (other than that which may arise as a result of the Borrower's compliance with Section 6.2.14) exists thereunder. The Investment Manager is authorized to act on behalf of the Borrower in connection with the presentation of Borrowing Requests and payment instructions, the making of the prepayment specifications referred to in Section 3.3.2 and as otherwise authorized under the terms of the Investment Management Agreement; provided, that the Borrower shall provide a certificate of the Persons so authorized as provided in Section 4.1.1(a)(ii).
Section 5.20 Use of Proceeds. The proceeds of the Borrowings hereunder shall be used by the Borrower for the purpose of making investments in Fund Investments, entering into Secured Hedging Transactions, Defensive Hedge Transactions and other Hedging and Short Sale Transactions permitted hereunder, paying dividends on, redeeming, repurchasing and paying any liquidation preference with respect to, Preferred Interests and Common Interests to the extent such payments are permitted hereunder, capitalizing Hedging SPEs and Investment Holding Subsidiaries, paying principal, interest, commitment fees and other amounts on Debt (including the repayment of the Debt of Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC in connection with the contribution of assets from such funds to the Borrower on the Closing Date) and paying, or reimbursing others of the payment of, fees and expenses incurred in connection with the formation and operation of the Borrower, the Hedging SPEs and the Investment Holding Subsidiaries, the arranging of the Loans and the execution, delivery and performance of this Agreement and the other Transaction Documents including, but not limited to, the payment of fees payable to, and reimbursement of expenses of, the Investment Manager pursuant to the Investment Management Agreement and the Co-Manager pursuant to the Co-Management Agreement and the payment of premiums to any insurer, and the payment of other ongoing professional and administrative fees and expenses associated with the business and operation of the Borrower, the Hedging SPEs and Investment Holding Subsidiaries incurred in the ordinary course of business, or as otherwise determined to be incurred by the Borrower.
Section 5.21 Compliance with Margin Requirements. The Borrower is not in violation of any provision of Section 7 of the Exchange Act, and no part of the proceeds of any Loans will be used, directly or indirectly, either (i) for the purpose, whether immediate, incidental or ultimate, of "buying" or
"carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or (ii) for any purpose if, in the case of either clause (i) or (ii), as a result the provisions of the regulations of the FRS Board are violated. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of Federal Reserve Form G-3 or Federal Reserve Form U-1, as applicable, referred to in Regulation U.
Section 5.22 Transaction Documents. Each of the Transaction Documents to which it is a party has been duly authorized, executed and delivered by each of the Borrower and the Investment Manager, as the case may be, and is its valid and binding agreement. The Borrower has delivered to the Administrative Agent a true, correct and complete copy of each Transaction Document. Each Transaction Document is in full force and effect in the form so delivered to the Administrative Agent except as amended pursuant to Section 6.2.9.
Section 5.23 Restatement and Reaffirmation. The Borrower hereby restates and reaffirms the representations and warranties set forth in the Collateral Documents. Such representations and warranties shall be incorporated by reference herein with the same effect as if fully set forth herein.
ARTICLE VI
COVENANTS
Section 6.1 Affirmative Covenants. The Borrower agrees with the Administrative Agent and each Lender that, until all Commitments have been terminated and all principal and interest on the Loans and all other Obligations then due and payable have been paid and performed in full, the Borrower shall perform the Obligations set forth in this Section 6.1.
Section 6.1.1 Collateral Valuation Covenant.
(a) On each Business Day (as of the close of business on such day), the Borrower shall in good faith (i) calculate the Advance Amount using the Moody's Valuation Procedures using the most recent Market Value for each Fund Investment as determined in accordance with the Moody's Collateral Valuation Schedule and (ii) calculate the Advance Amount using the S&P Valuation Procedures using the most recent Market Value for each Fund Investment in accordance with the terms of the S&P Collateral Valuation Schedule; provided that for the purposes of this Agreement, the Advance Amount shall at all times be the lesser of the Advance Amounts calculated in accordance with clauses (i) and (ii) above. The Market Value of each Fund Investment shall be calculated by the Borrower (i) for purposes of the Moody's Valuation Procedures, as set forth in the Moody's Collateral Valuation Schedule and (ii) for purposes of the S&P Valuation Procedures, as set forth in the S&P Collateral Valuation Schedule.
(b) Within ten (10) Business Days of each Reporting Date, the Borrower shall furnish to Moody's, S&P and the Administrative Agent (which shall furnish to each Lender) a written statement (in excel format) substantially in the form of Exhibit J hereto (a "Valuation Statement") certified by the Borrower as of such Reporting Date, which shall include, in addition to other matters specified in such Exhibit J:
(i) a schedule of all Fund Investments by issue and by Asset Category included in the determination of the Advance Amount, setting forth:
(1) the current Market Value of each such Fund Investment and the original cost of each such Fund Investment;
(2) the written quotations from Approved Dealers, closing price or closing bid price on an Approved Exchange, and any Approved Third-Party Appraisal or quotation from an Approved Investment Banking Firm or other means used for calculating the Market Value of each such Fund Investment;
(3) to the extent applicable, information as to rating, maturity, the Yield-to-Worst, and whether each such Fund Investment was Performing; and
(4) the percentages applied to each such Fund Investment to derive the portion of the Advance Amount attributable to each such Fund Investment;
(ii) a schedule of all Unquoted Investments owned by the Borrower, setting forth the Market Value of each such Unquoted Investment and the date of the determination of such Market Value, its Asset Category, its cost and, when applicable, the value provided by an Approved Third-Party Appraisal or Approved Investment Banking Firm and the date of determination of such value;
(iii) the aggregate Market Value of all Eligible Investments, setting forth a list of Excluded Investments and calculations of applicable Portfolio Limitations;
(iv) the calculation of the Advance Amount under the Moody's Collateral Valuation Schedule and the S&P Collateral Valuation Schedule and the Borrowing Base as of such date;
(v) a schedule of the Secured Hedging Net Exposure of each Secured Hedging Transaction then outstanding;
(vi) a schedule of the aggregate amount of Debt of the Borrower incurred as permitted under Section 6.2.2 and outstanding;
(vii) a schedule of all of the assets sold with their respective purchase and sale prices and the date of such purchase and sale of such assets sold; and
(viii) a statement certifying that, except as otherwise indicated on the Valuation Statement, the Borrower had determined the current Market Value of all Fund Investments using quotations provided since the date of the immediately prior Valuation Statement.
It is expressly understood by the Administrative Agent and the Lenders that the information provided hereunder identifying the Fund Investments, and Market Values and/or Market Value Prices therefor is intended solely for the purpose of credit analysis by the Lenders. The Administrative Agent and the Lenders agree that they shall not use any such information for trading purposes or furnish such information to trading personnel or to any other Person for any purpose which is inconsistent with the foregoing restrictions or this Agreement.
(c) Notwithstanding the provisions of Section 6.1.1(b), in the event that the Borrower in good faith determines that a market disruption makes it impracticable to deliver a Valuation Statement to be provided hereunder on its due date, the Borrower may deliver such Valuation Statement within four (4) Business Days after its due date set forth herein and no Default in respect of this Section 6.1.1 shall occur or be deemed to occur for such four (4) Business Days; provided that on such due date the Borrower shall have furnished to Moody's, S&P and the Administrative Agent (which shall furnish to each Lender) a written statement, certified by the Borrower as of each such date, that the Borrower reasonably believes that it is in compliance with the Over-Collateralization Test.
(d) Not later than the Business Day following any Excess Date, the Borrower will deliver to the Administrative Agent (which shall furnish to each Lender), Moody's and S&P a supplement to the most recent Valuation Statement (in excel format) setting forth each of the items included in the Valuation Statement as of such Excess Date.
(e) The Borrower's determination of the Advance Amount, the Market Value Price and the Market Value of Fund Investments pursuant to Section 6.1.1(a) and (b), respectively, in good faith shall be deemed correct for purposes of this Agreement, unless, within thirty (30) days after receiving the applicable Valuation Statement, the Administrative Agent shall object in writing that such determination was made in a manner inconsistent with the provisions of this Agreement and disadvantageous to the Lenders or as having been calculated in error. In the event of any such dispute as to the calculation of the Advance Amount or Market Value, as the case may be, the good faith, reasonable and mutually agreeable determination of the Required Lenders shall be conclusive.
(f) (i) Concurrently with the delivery of the consolidated financial statements of the Borrower as of each fiscal year-end of the Borrower and for
the fiscal year then ended (beginning with the fiscal year ended December 31, 2006), pursuant to Section 6.1.2 and (ii) within twenty (20) Business Days of a date mutually selected by the Required Lenders that is reasonably satisfactory to the Independent Public Accountant (or within such other period of such date as may be reasonably required by the Independent Public Accountant for the preparation thereof), the Borrower shall cause the Independent Public Accountant to provide a report as of such fiscal year-end or such selected date, as the case may be, containing information and calculations with respect to the Borrowing Base and the aggregate outstanding liquidation preference of the Preferred Interests as of such fiscal year-end or such selected date, as the case may be, in a form acceptable to the Administrative Agent and the Required Lenders (an "Agreed-Upon Procedures Report") to the Administrative Agent, the Lenders, Moody's and S&P. The Borrower shall be responsible for the fees and expenses of the Independent Public Accountant for each Agreed-Upon Procedures Report as of each fiscal year-end of the Borrower and as of any one date selected by the Required Lenders during any fiscal year of the Borrower, and the Lenders shall be responsible for such fees and expenses for each Agreed-Upon Procedures Report as of any additional date selected by the Required Lenders during any such fiscal year.
(g) The Borrower shall furnish in writing to the Administrative Agent (which shall furnish to each Lender) from time to time such additional information regarding the determination of the Eligible Investments, Market Value, the Advance Amount or regarding Fund Investments or the financial position or business of the Borrower as the Administrative Agent may reasonably request.
Section 6.1.2 Information, etc. The Borrower shall promptly furnish to Moody's, S&P, the Custodian and the Administrative Agent, and the Administrative Agent shall furnish to the Lenders, copies of the following financial statements, reports and information:
(a) as soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower (beginning with the year ended December 31, 2006) a consolidated balance sheet of the Borrower as of the end of such fiscal year and the related consolidated statements of operations, members' equity and cash flows for such fiscal year (including a schedule setting forth all investments of the Borrower and the Market Value of each such investment at year end (regardless of whether such investments are then required under GAAP to be set forth), setting forth in comparative form the figures for the previous fiscal year, if any, reported on without material qualification by Independent Public Accountant, it being understood that a qualification relating only to valuation methodology shall not be deemed a material qualification if the Borrower has otherwise complied with Sections 6.1.1 and 6.1.18;
(b) as soon as available and in any event within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Borrower (beginning with the quarter ended September 30, 2006) a consolidated balance sheet of the Borrower as of the end of such fiscal quarter and the related consolidated statements of operations, members' equity and cash flows for such fiscal quarter and for the portion of the fiscal year ended at the end of such fiscal quarter (including a schedule setting forth all
investments of the Borrower and the Market Value of each such investment at quarter end (regardless of whether such investments are then required under GAAP to be set forth), setting forth in the case of each fiscal quarter ending on or after September 30, 2007 in comparative form the figures for the corresponding fiscal quarter and the corresponding portion of the previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by an Authorized Officer of the Borrower;
(c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, (A) a certificate of an Authorized Officer of the Borrower in the form of Exhibit H hereto (x) setting forth (i) Company Equity as of the last day of the fiscal quarter of the Borrower most recently ended; (ii) the aggregate amount of Restricted Payments made during such fiscal quarter; (iii) the aggregate principal amount of Debt of the Borrower described in clauses (ii), (iii) and (iv) of Section 6.2.2 in each case as of the last day of such fiscal year or quarter; and (v) the computations relating to the Borrower's compliance with Section 6.1.15; and (y) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the Independent Public Accountant which reported on such statements as to whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements and, if such a Default has come to their attention, a statement as to the nature thereof;
(e) promptly upon the execution thereof, copies of any amendment to any Transaction Document;
(f) from time to time, such other information or documents (financial or otherwise) as the Administrative Agent may reasonably request; and
(g) promptly upon obtaining actual knowledge thereof, any material correction, revision or restatement with respect to the information referred to above.
Section 6.1.3 Maintenance of Borrower's Existence, etc. The Borrower shall cause to be done at all times all things necessary to maintain and preserve its existence and the rights (statutory and other) and franchises (including licenses, authorizations and permits necessary to the operation of its businesses) used in the conduct of its business, including preservation of its status as a limited partnership in good standing under the laws of the State of Delaware.
Section 6.1.4 Foreign Qualification. The Borrower shall cause to be done at all times all things necessary to be duly qualified to do business and be in good standing in each jurisdiction where the failure so to qualify would have a Material Adverse Effect.
Section 6.1.5 Payment of Taxes and Other Claims. The Borrower shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments and other governmental charges levied or imposed upon the Borrower or upon any of its income, profits or property; provided, that the Borrower shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge, (i) the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves in accordance with GAAP have been made or (ii) the failure of which to pay or discharge could not have a Material Adverse Effect or a material adverse effect on the Collateral.
Section 6.1.6 Insurance. The Borrower shall maintain, directly or through an Affiliate, with reputable, financially sound insurance companies, insurance with respect to its properties and business against such liabilities and contingencies and of such types and in such amounts as is customary in accordance with prudent business practice in the case of similar businesses engaged in the activities described in Section 5.17, including fidelity bond coverage and director and officer (and manager) liability insurance and shall furnish to the Administrative Agent (which shall furnish to each Lender) on the Closing Date, and no later than January 31 of each year (commencing January 31, 2007), a certificate of an Authorized Officer of the Borrower setting forth the nature and extent of all insurance maintained by the Borrower (or such Affiliate) in accordance with this Section 6.1.6. The Borrower, directly or through an Affiliate, shall retain all the incidents of ownership of the insurance maintained pursuant to this Section 6.1.6 and shall not borrow upon or otherwise impair its right to receive the proceeds of such insurance.
Section 6.1.7 Notice of Default, Litigation, etc. The Borrower shall give prompt notice (with a description in reasonable detail of the nature and period of existence thereof and of the actions which the Borrower has taken and proposes to take with respect thereto) to Moody's, S&P and the Administrative Agent, who shall furnish a copy thereof to the Lenders, of:
(a) the occurrence of (i) any known Default and (ii) any known event of default (however denominated) or default which, with notice, the passage of time or both, would constitute such an event of default, under any Collateral Document;
(b) the receipt of any notice of any default which, with notice, the passage of time or both, would constitute an event of default under any Collateral Document;
(c) any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Administrative Agent or the Lenders which has been instituted or, to the knowledge of the Borrower, is threatened against the Borrower or to which any of its properties, assets or revenues is subject which (i) would be reasonably likely to have a Material Adverse Effect or (ii) relates to this Agreement, any Collateral Document, any other Credit Document or any transactions contemplated hereunder or thereunder;
(d) the occurrence of any other circumstance which has resulted, or will with the passage of time result, in a Trigger Event; and
(e) any material adverse development which shall occur in any litigation, arbitration or governmental investigation or proceeding previously disclosed by the Borrower to the Administrative Agent or the Lenders.
Section 6.1.8 Performance of Obligations. The Borrower shall (a) perform promptly and faithfully all of its Obligations under this Agreement, each Collateral Document and each Credit Document executed by it and (b) comply with the provisions of all other contracts or agreements to which it is a party or by which it is bound and pay all obligations which it has incurred or may incur pursuant to any such contract or agreement as such obligations become due except to the extent the failure to comply with such contracts and agreements could not reasonably be expected to result in a Material Adverse Effect.
Section 6.1.9 Audits; Books and Records. The Administrative Agent may (and, at the request of the Required Lenders, shall) conduct physical audits, using the Administrative Agent's own personnel and/or agents employed on the Administrative Agent's behalf, of the assets of the Borrower as often as the Administrative Agent may reasonably deem necessary or desirable, the results of which, in any case where such audit has been conducted by a third-party agent, the Administrative Agent shall (subject to the last proviso of this sentence) promptly report to the Lenders; provided, that, at any time prior to the occurrence of a Default, the Administrative Agent shall conduct not more than one physical audit in any one fiscal year of the Borrower; and provided, further, that upon the occurrence and during the continuance of a Default, the Administrative Agent may engage in any number of physical audits which the Administrative Agent or the Required Lenders deem necessary or desirable; and provided, further, that any of the CP Conduits, if an annual audit described above has not been conducted or if such audit does not satisfy the requirements of its internal guidelines with respect thereto (as so certified by such CP Conduit), may, at its own cost and expense if such audit is as a result of an audit not satisfying the requirements of its internal guidelines, request and conduct an audit satisfying such requirements. The Borrower shall keep proper books and records reflecting all of its business affairs and transactions in accordance with GAAP and permit the Administrative Agent and the Lenders, on reasonable notice and at reasonable times and intervals during ordinary business hours, to visit all of its offices and to discuss its financial matters with officers of the Borrower and its independent public accountants. The Borrower shall permit the Administrative Agent on reasonable notice and at reasonable times and intervals during ordinary business hours, to examine and make copies of any of the books or other records of the Borrower. The Borrower shall pay any reasonable fees of such independent public accountants or otherwise incurred in connection with the exercise by the Administrative Agent of its rights pursuant to this Section 6.1.9.
Section 6.1.10 Compliance with Laws, etc. The Borrower shall comply with all applicable statutes, rules, regulations, orders and restrictions of any governmental authority, department, commission, board, regulatory authority, bureau, agency and instrumentality, in respect of the conduct of its
business and the ownership of its properties, except such as are being contested in good faith and by appropriate proceedings in such manner as not to cause any Material Adverse Effect, and except for such non-compliance as shall not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the foregoing, the Borrower shall comply with Section 18 of the Investment Company Act or any successor provision thereto, and any applicable "asset coverage" maintenance requirements set forth therein.
Section 6.1.11 Environmental Matters. The Borrower shall use and operate all of the Borrower's real properties, if any, in compliance with all Environmental Laws.
Section 6.1.12 Maintenance of Property. The Borrower shall, at its expense:
(a) acquire and maintain the Fund Investments included or to be included in the Collateral in a manner that shall enable the Borrower to cause such property to be subject to the Liens of the Collateral Documents;
(b) obtain the consent or approval of any Person whose consent or approval is required in connection with the grant of Liens by the Borrower in any such property to or for the benefit of the Lenders; and
(c) maintain and keep its properties that are used or useful to its business in good repair, working order and condition, and from time to time make all necessary or desirable repairs, renewals and replacements, so that its businesses may be properly and advantageously conducted at all times.
Section 6.1.13 Delivery; Further Assurances. The Borrower shall, at its expense:
(a) execute and deliver any and all instruments necessary or as the Administrative Agent may reasonably request to grant and perfect a first priority Lien on all of the Collateral, except for Permitted Liens, and, without any request by the Administrative Agent or any Person, deliver or cause to be delivered promptly to the Custodian, or any designee thereof, in due form for transfer (duly endorsed in blank or, if appropriate, accompanied by duly executed blank stock or bond powers or any instrument or certificate accompanying or previously delivered to the Custodian permitting the Custodian to exercise the Borrower's rights of transfer when permitted hereunder or under the Pledge and Intercreditor Agreement) or issued in the name of the Custodian or its nominee or agent (or any designee of the Custodian), all certificated securities, chattel paper, instruments and documents of title, if any, at any time representing all or any of the Collateral, it being acknowledged by the parties hereto that such certificated securities, chattel paper, instruments and documents of title may be subject to restrictions on transfer either imposed by law or contained in their governing documents or any related documents; and
(b) upon request of the Administrative Agent, forthwith execute and deliver or cause to be executed by the Borrower and delivered to the Administrative Agent, in due form for filing or recording (and pay the cost of filing or recording the same in all public offices deemed necessary by the Administrative Agent), such assignments, security agreements, pledge agreements, consents, waivers, financing statements, stock or bond powers, and other documents, and do such other acts and things, all as the Administrative Agent may from time to time reasonably request, to establish and maintain to the reasonable satisfaction of the Administrative Agent valid perfected Liens of the first priority in all the Collateral in accordance with the Pledge and Intercreditor Agreement (free of all other Liens, claims, and rights of third parties whatsoever, except as and solely to the extent other Liens are permitted by Section 6.2.3).
Section 6.1.14 Investment Manager, etc.
(a) The Administrative Agent shall at all times be entitled to accept and act upon Borrowing Requests and payment instructions received from an Authorized Officer of the Borrower or the Investment Manager designated in a certificate of the Borrower to that effect provided from time to time to the Administrative Agent (in the form provided in Section 4.1.1(a)(ii)).
(b) The Borrower shall at all times maintain TCP as its primary investment manager, except as otherwise provided under the Investment Management Agreement.
(c) The Custodian shall at all times be the custodian of all of the Fund Investments and the Collateral, except as provided under the Custodial Agreement.
(d) The Borrower's auditors shall be a nationally recognized firm of independent public auditors that is reasonably acceptable to the Administrative Agent and the Required Lenders.
Section 6.1.15 Minimum Net Worth. The Company Equity shall, at the end of each fiscal quarter (determined on the date the related quarterly or annual financial statements are required to be delivered hereunder by reference to such related quarterly or annual financial statements), equal or exceed the greater of 60% of (x) Contributed Company Capital minus the sum of all Commitment Reduction Amounts and permanent reductions of the aggregate stated liquidation preference of the Preferred Interests and (y) $200,000,000.
Section 6.1.16 Affirmative Hedging Requirement. The Borrower shall, and/or shall cause the Hedging SPEs to, maintain at all times any interest rate or currency rate protection arrangements which, in the Borrower's good faith judgment, are advisable to reduce the Borrower's exposure to material interest rate or currency rate risk.
Section 6.1.17 Use of Proceeds. The proceeds of the Loans made hereunder will be used by the Borrower for the purpose of making investments in Fund Investments, entering into Secured Hedging Transactions, Defensive Hedge Transactions and other Hedging and Short Sale Transactions permitted hereunder,
paying dividends on, redeeming, repurchasing and paying any liquidation preference with respect to, Preferred Interests and Common Interests to the extent such payments are permitted hereunder, capitalizing Hedging SPEs and Investment Holding Subsidiaries, paying principal, interest, commitment fees and other amounts on Debt (including the repayment of the Debt of Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC in connection with the contribution of assets from such funds to the Borrower on the Closing Date) and paying, or reimbursing others for the payment of, fees and expenses incurred in connection with the formation and operation of the Borrower, the Hedging SPEs and the Investment Holding Subsidiaries, the arranging of the Loans and the execution, delivery and performance of this Agreement and the other Transaction Documents including, but not limited to, the payment of the fees payable to, and reimbursement of expenses of, the Investment Manager pursuant to the Investment Management Agreement and the Co-Manager pursuant to the Co-Management Agreement and the payment of premiums due to any insurer and the payment of other ongoing professional and administrative fees and expenses associated with the business and operation of the Borrower, incurred in the ordinary course of business, or as otherwise determined to be incurred by the Borrower, the Hedging SPEs and Investment Holding Subsidiaries. None of such proceeds will be used in violation of applicable law or, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock for purposes of the regulations of the FRS Board.
Section 6.1.18 Compliance with Over-Collateralization Test. Upon the occurrence of an Excess Date, the Borrower shall promptly notify the Administrative Agent (which shall provide a copy of such notice to each Lender), Moody's and S&P thereof and, at its option (provided, that it is required to take the actions described in clause (i) or clause (ii) below), within ten (10) Business Days of such Excess Date, either:
(i) prepay the Debt under this Agreement (as provided herein) in such amount or take such other actions as shall be necessary so that the sum of the aggregate outstanding principal amount of Senior Indebtedness shall be equal to or less than the Advance Amount then in effect; or
(ii) provide a written statement to the Administrative Agent (which shall provide a copy to each Lender) as of any date (a "Statement Date") showing projected compliance with the Over-Collateralization Test as of any subsequent date within such twenty (20) Business Days of such Excess Date (and continuing compliance with the Over-Collateralization Test during the remainder of such twenty (20) Business Day period) based upon reasonably expected settlements of all committed purchases and sales of Fund Investments pledged as Collateral, all anticipated additions to, and removals from, the Collateral of Cash and of Fund Investments that are not pledged as Collateral and all anticipated prepayments of its Debt (including sources of funds therefor) to be completed within such twenty (20) Business Days, calculated by reference to the Market Value, Market Value Prices, Over-Collateralization Test and Debt in effect or outstanding, as the case may be, as of such Statement Date.
The calculation of the Excess Amount, if any, is referred to herein as the "Over-Collateralization Test," and the Borrower will be deemed to be in compliance with such test so long as there is no positive Excess Amount. In the event that the Borrower fails to complete the transactions described in a statement delivered pursuant to clause (ii) above or otherwise come into compliance with the Over-Collateralization Test (including as a result of changes in the value of the Collateral) within the twenty (20) Business Day period specified therein, the Borrower shall make the prepayments required pursuant to clause (i) above not later than the last day of such twenty (20) Business Day period.
Section 6.1.19 Regulations T, U, and X. The Borrower shall provide a duly completed and executed Federal Reserve Form U-1 or Form G-3, as applicable, to each Person becoming a Lender after the Closing Date pursuant to the terms of this Agreement. If at any time the Borrower acquires any Margin Stock, the Borrower will take any and all actions as may be necessary, or as may be reasonably requested by the Administrative Agent, to establish compliance with Regulations T, U, and X of the FRS Board, including, without limitation, furnishing such information relating to such Margin Stock acquired as is required to register and file periodic reports with the FRS Board.
Section 6.1.20 Plan Assets. The Borrower and its ERISA Affiliates will do, or cause to be done, all things necessary to ensure that the Borrower will not be deemed to hold Plan Assets at any time.
Section 6.1.21 Key Individuals. The Borrower shall provide the Administrative Agent with an updated list of Key Individuals whenever the previously delivered list is no longer complete or accurate.
Section 6.1.22 Regulated Investment Company. The Borrower shall promptly notify the Administrative Agent (who shall provide a copy of such notice to each Lender, Moody's and S&P) when the Borrower elects not to be treated as, or becomes ineligible to be treated as, a regulated investment company for U.S. federal income tax purposes.
Section 6.1.23 Closed-end Company Status. The Borrower shall use commercially reasonable efforts to at all times maintain its classification as a Closed-end Company for purposes of the Investment Company Act and shall promptly notify the Administrative Agent (who shall provide a copy of such notice to each Lender) when it at any time fails to maintain its classification as a Closed-end Company.
Section 6.2 Negative Covenants. The Borrower agrees with the Administrative Agent and each Lender that, until all Commitments have been terminated and all principal and interest on the Loans and all other Obligations then due and payable have been paid and performed in full, the Borrower shall perform the Obligations set forth in this Section 6.2.
Section 6.2.1 No Other Business; Subsidiaries. The Borrower shall not engage in any business or activity other than (a) issuing the Lender Notes and incurring Loans pursuant to this Agreement, issuing, selling, redeeming and repurchasing Preferred Interests (including any permitted refinancings
thereof), issuing and selling Common Interests, issuing and selling
Subordinated Equity Securities, acquiring, owning, holding, selling,
exchanging, redeeming, pledging, structuring, negotiating, originating,
syndicating, contracting for the management of (including entering into the
Investment Management Agreement and the Co-Management Agreement) and otherwise
dealing with Fund Investments and other instruments and property in connection
therewith and in accordance with the terms hereof (including acquiring majority
or controlling interests in operating companies as a result of such activities)
and entering into Secured Hedging Transactions and Structured Product
Transactions, (b) issuing or incurring any other obligations permitted by
Section 6.2.2, (c) owning the Capital Stock of any Hedging SPEs or Investment
Holding Subsidiaries, (d) engaging in other activities permitted by the
Borrower Organization Agreement, including establishing investment committees
and investment policies, earning origination, management, funding, break-up and
similar fees with respect to Fund Investments, obtaining governance power with
respect to certain Fund Investments and co-investing with related parties and
other Persons and (e) engaging in any other activities which are necessary,
suitable or appropriate to accomplish the foregoing or are incidental thereto,
connected therewith or ancillary thereto. Notwithstanding anything to the
contrary contained in this Section 6.2.1 or elsewhere in this Agreement, the
Borrower shall have no Subsidiaries other than any Hedging SPEs or Investment
Holding Subsidiaries.
Section 6.2.2 Limitations on Debt or Equity Securities. The Borrower shall not, and shall not permit any Subsidiary (other than a Hedging SPE) to, create, incur, assume or suffer to exist or otherwise directly or indirectly become or be liable (collectively, "Incur" and, with correlative meanings, "Incurred" and "Incurrence") in respect of any Debt or issue any equity securities, other than:
(i) Debt in respect of the Loans and other Obligations in an aggregate principal amount not to exceed the Total Maximum Commitment (including refinancings, refundings or replacements thereof);
(ii) the Preferred Interests and the Common Interests;
(iii) any other equity securities which (1) are fully
subordinated and junior in right of payment (including upon
liquidation) to the Senior Indebtedness and the Preferred Interests;
(2) contain a Non-Petition Covenant by the holder thereof; and (3)
expressly provide that each holder thereof does not have recourse to
any Collateral pledged under the Pledge and Intercreditor Agreement
for amounts payable to such holder in respect of such equity
securities until all of the Obligations hereunder and the Preferred
Interests have been paid in full (an "Subordinated Equity Security");
(iv) Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, that such Debt is extinguished within five Business Days of its incurrence;
(v) with respect to any Fund Investment, any funding obligation of the Borrower to the issuer of such Fund Investment; and
(vi) in the case of Investment Holding Subsidiaries, equity securities issued to and held by the Borrower.
Section 6.2.3 Liens. The Borrower shall not, and shall not permit any Subsidiary (other than a Hedging SPE or Investment Holding Subsidiary) to, Incur any Lien upon any property or assets included in the Collateral, whether now owned or hereafter acquired, except the following (collectively, the "Permitted Liens"):
(i) Liens in favor, or for the benefit, of the Administrative Agent or the Lenders granted pursuant to this Agreement or any Collateral Document, including the Lien in favor of the Secured Parties Representative created by the Pledge and Intercreditor Agreement;
(ii) any Lien or other encumbrance for taxes, assessments or other governmental charges or levies not yet subject to penalties for non-payment or the validity, applicability or amount of which is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been established by the Borrower;
(iii) Liens of broker-dealers and clearing corporations Incurred in the ordinary course of business, but excluding Liens created in connection with the purchase of securities on margin, the short sale of securities on margin or Securities Lending Transactions (other than Securities Lending Transactions involving U.S. Government Securities incurred as Interest Rate Hedging Transactions); provided, that in the case of broker-dealer Liens relating to trades not settled in the ordinary course of business, such Liens shall be Permitted Liens under this clause (iv) only if such Liens are discharged within five (5) Business Days of the Borrower's obtaining actual knowledge thereof;
(iv) judgment Liens in existence less than thirty (30) days after the entry thereof or with respect to which execution has been stayed, in each case, so long as the aggregate amount of all such judgment Liens at any time does not exceed 1.5% of the Net Asset Value, or judgment Liens the payment of which is covered in full (subject to a customary deductible) by insurance; and
(v) any other Lien granted in favor of the Secured Parties Representative for its benefit and the benefit of the Lenders, the Custodian (and any subcustodian appointed by or on behalf of the Custodian), the Administrative Agent or the Hedging Representative and Secured Hedging Creditors (each as defined in the Pledge and Intercreditor Agreement) granted under the Pledge and Intercreditor Agreement, the Custodial Agreement or any Secured Hedging Agreement (as defined in the Pledge and Intercreditor Agreement).
Section 6.2.4 Performance of Obligations. The Borrower is hereby authorized to contract with other Persons, including the Investment Manager and the Co-Manager, for the performance of actions and obligations to be performed by 0the Borrower hereunder by such Persons and the performance of the actions and other obligations with respect to the Collateral by the Investment Manager of the nature set forth in the Investment Management Agreement. In such event, the performance of such actions and obligations by such Persons shall be deemed to be performance of such actions and obligations by the Borrower, except that, to the extent an officer's certificate is required to be delivered by or on behalf of the Borrower, an Authorized Officer of the Borrower must execute such officer's certificates on behalf of the Borrower.
Section 6.2.5 Limitations on Restricted Payments. The Borrower shall
not make any Restricted Payment; provided, that the Borrower may, at any time,
(i) make distributions (including dividends) to the Common Interest Holders or
repurchase, or make payments or distributions on account of the purchase,
redemption, retirement or acquisition of, the Common Interests in the Borrower
pursuant to and in accordance with the Borrower Organization Agreement or (ii)
make distributions to the Preferred Interest Holders or repurchase, or make
payments or distributions on account of the purchase, redemption, retirement or
acquisition of, the Preferred Interests or make similar payments or
distributions of their stated liquidation preference pursuant to and in
accordance with the Borrower Organization Agreement, in each case, so long as,
immediately after such payments, distributions or repurchases:
(x) no Default, Event of Default or violation of Section
6.1.18 (without giving effect to the grace periods provided for
therein) shall have occurred and be continuing under this Agreement,
(y) all representations and warranties in Article V hereof are true and correct in all material respects, and
(z) (1) Company Equity (after giving effect to any Subordinated Equity Security) shall be equal to or exceed the greater of (A) Adjusted Contributed Company Capital minus the sum of all Commitment Reduction Amounts and permanent reductions of the aggregate stated liquidation preference of the Preferred Interests and (B) $200,000,000, or (2) in the case of Company Tax Distributions, the Advance Amount exceeds 105% of the sum of the aggregate outstanding principal amount of Senior Indebtedness and the aggregate outstanding liquidation preference of the Preferred Interests (such excess amount, at any date of determination, the "Advance Amount Cushion"); provided that if, within 30 days from the date of any such Company Tax Distribution, the Advance Amount Cushion becomes less than zero following the acquisition by the Borrower of any loan, bond or other investment that is of the same tranche as any loan, bond or other investment sold by the Borrower within 30 days prior to such Company Tax Distribution, the Borrower shall not make any Company Tax Distribution under this Section 6.2.5 for a period of 180 days commencing from the date of such Company Tax Distribution;
provided, further that the Borrower may, in connection with the issuance of any
Subordinated Equity Securities, make distributions to its Common Interest
Holders and the holders of Subordinated Equity Securities in an amount which
does not exceed the net proceeds to the Borrower of such issuance of
Subordinated Equity Securities. Distributions (including dividends) or other
payments or distributions on account of the purchase, redemption, retirement or
acquisition of any Subordinated Equity Security may be made pursuant to and in
accordance with the Borrower Organization Agreement at any time only so long as
(x) all representations and warranties in Article V hereof are true and correct
in all material respects and (y) immediately after giving effect thereto, no
Default, Event of Default or violation of Section 6.1.18 (without giving effect
to the grace periods provided for therein) shall have occurred or be continuing
under this Agreement. For the avoidance of doubt, dividends on the Preferred
Interests shall not be treated as Restricted Payments and may be paid by the
Borrower at any time in accordance with the terms of the Borrower Organization
Agreement.
Notwithstanding the foregoing, in the event that any payment or other distribution (including, without limitation, any dividend) in respect of the Borrower's Common Interests would be required to be made in order to preserve the U.S. federal income tax status of the Borrower as a regulated investment company or to avoid the imposition of the excise tax under Section 4882 of the Code (e.g., because the requisite consents from the Common Interest Holders for a "consent dividend" (as defined in Section 565 of the Code) for U.S. federal income tax purposes have not been obtained by the Borrower in accordance with the terms of the Borrower Organization Agreement), such payment or distribution (a "RIC Distribution") may be distributed for the benefit of the Common Interest Holders and deposited into the Common Interest Holders' Escrow Account established pursuant to the Custodial Agreement. Funds deposited in the Common Interest Holders' Escrow Account shall not be released to the Common Interest Holders unless and until the Borrower shall have provided to the Administrative Agent a certificate stating that (x) such violation of the Over-Collateralization Test, occurrence of Default or Event of Default or breach of representation or warranty in Article V hereof, as applicable, has been cured and is no longer continuing and (y) Company Equity (including, for this purpose, any Subordinated Equity Security) is equal to or greater than Adjusted Contributed Company Capital. If the requisite consents from the Common Interest Holders for a "consent dividend" have been obtained, the Borrower shall be permitted to pay any U.S. withholding taxes ("RIC Withholding Taxes") arising in respect of such "consent dividend".
Section 6.2.6 Change of Name, etc. The Borrower shall not change (a) the location of its principal place of business, chief executive office, major executive office, chief place of business or its records concerning its business and financial affairs, (b) without the prior consent of the Required Lenders, its name or the name under or by which it conducts its business or (c) its jurisdiction of organization, in each case without first giving Moody's, S&P, the Administrative Agent, each Lender and the Secured Parties Representative thirty (30) days' prior written notice thereof and taking any and all actions that may be necessary, or which the Administrative Agent may reasonably request, to maintain and preserve all Liens granted pursuant to the Collateral Documents.
Section 6.2.7 Merger, Consolidation; Successor Entity Substituted. The Borrower shall not consolidate or merge with or into any other Person or sell, lease or otherwise transfer its respective properties and assets substantially as an entirety to any Person, including Special Value Continuation Fund, LLC, unless the Borrower provides ten (10) days' prior written notice thereof to the Administrative Agent (which shall provide a copy of such notice to each Lender), Moody's and S&P and unless:
(i) the Borrower shall be the surviving entity, or the Person (if other than the Borrower) formed by such consolidation or into which the Borrower is merged or to which the properties and assets of the Borrower are transferred substantially as an entirety shall be a Person organized and existing under the laws of the United States of America, any state thereof or the District of Columbia, and shall expressly assume, by an amendment or supplement, executed and delivered to the Administrative Agent and each Lender (with a copy to Moody's and S&P), in the case of a Person succeeding the Borrower, the due and punctual payment of the principal of and premium and interest on all Loans and other Obligations and, in the case of a Person succeeding the Borrower, the performance of every covenant and every other obligation or liability of this Agreement and the other Credit Documents on the part of the Borrower to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;
(iii) the Borrower shall have delivered to the Administrative Agent an officer's certificate stating that such consolidation, merger, conveyance or transfer and such amendment or supplement to this Agreement comply with this Section 6.2.7;
(iv) the Required Lenders shall have consented to such merger, consolidation, sale, lease or transfer (which consents shall not be unreasonably withheld, it being expressly acknowledged that under certain circumstances the Borrower currently intends to terminate its existence and in connection therewith transfer its properties and assets substantially as an entirety to Special Value Continuation Fund, LLC, a Delaware limited liability company, which shall become the Borrower hereunder);
(v) the Borrower shall have taken all steps necessary to preserve the effectiveness, perfection and priority of the Liens created under the Pledge and Intercreditor Agreement;
(vi) the Borrower shall have delivered to the Administrative Agent evidence satisfactory to them that the Rating Agency Condition shall be met; and
(vii) the Borrower shall have delivered to the Administrative Agent and each Lender an opinion of counsel concerning
such of the foregoing matters described in clauses (i) and (v) and such other matters as the Administrative Agent may reasonably require.
Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Borrower in accordance with this Section 6.2.7, the successor entity formed by such consolidation or into which the Borrower is merged or into which such sale, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower under this Agreement with the same effect as if such successor entity had been named as the Borrower herein.
Section 6.2.8 Investment Dispositions, etc. The Borrower shall not sell, transfer, lease or otherwise dispose of, or grant options, warrants or other rights with respect to, any of its assets to any Person, other than in compliance with the provisions of this Agreement, the other Transaction Documents and all Applicable Laws. The Borrower shall not transfer any Fund Investment or other asset from the Custodial Account to any Hedging SPE or Investment Holding Subsidiary, to any counterparty under a Structured Product Transaction or to any other account of the Borrower unless (i) after giving effect to such transfer, (x) the sum of the aggregate Outstanding Principal Amount of the Loans and the aggregate outstanding liquidation preference of the Preferred Interests would not exceed (y) the Advance Amount (calculated on a pro forma basis giving effect to such transfer) and (ii) the Borrower shall have delivered to the Administrative Agent a certificate evidencing its compliance with the foregoing clause (i).
Section 6.2.9 Modification of Certain Instruments, Organic Documents, Agreements, etc. The Borrower shall not:
(a) consent to any amendment, supplement, waiver, termination or other
modification of any of the terms or provisions of the Collateral Documents or
the Preferred Interests that would (x) change the scheduled mandatory
redemption date of any Preferred Interests to a date earlier than July 31,
2016, increase the amount of dividend or any other sum payable in respect of
any Preferred Interests after issuance or (y) adversely affect the Lenders, in
each case, other than any amendment, supplement or other modification which (i)
extends the date or reduces the amount of any required payment, repurchase or
redemption in respect of any Preferred Interests, (ii) is consented to or
approved by the Lenders (which consent or approval shall not be unreasonably
withheld or delayed), and as to which the Rating Agency Condition is met, or
(iii) with the consent of the Administrative Agent serves to correct manifest
error or inconsistencies that are otherwise not material; the Borrower will
give Moody's, S&P and the Administrative Agent (which shall provide a copy of
such notice to each Lender) ten (10) Business Days' prior written notice (or if
ten (10) Business Days' prior written notice is not reasonably practicable, the
maximum amount of prior written notice that is reasonably practicable) of any
such modification, supplement, waiver or termination; or
(b) to the extent permitted by the Investment Company Act, without the prior written consent of the Administrative Agent and the Lenders (which consent or approval shall not be unreasonably withheld or delayed) and unless
the Rating Agency Condition is met, (i) terminate the Investment Manager, appoint a replacement Investment Manager or consent to an assignment of the Investment Management Agreement (except in connection with (x) an assignment that results from a change in control (within the meaning of the Investment Advisers Act of 1940, as amended) or (y) an assignment to the Co-Manager or an Affiliate of the Investment Manager or the Co-Manager pursuant to the Investment Management Agreement) or (ii) consent to any material amendment, supplement or other modification of any of the terms or provisions of (A) its Organic Documents if such change would have a Material Adverse Effect, or (B) the Investment Management Agreement (except in connection with a change of Investment Manager that otherwise complies with clause (i) above).
Section 6.2.10 Agreements Restricting Liens. The Borrower shall not enter into any agreement which prohibits the creation or assumption of any Lien upon its properties, revenues or assets (other than Liens upon specific properties or assets that are not included in the Collateral), whether now owned or hereafter acquired, other than the Collateral Documents.
Section 6.2.11 Inconsistent Agreements. The Borrower shall not enter into any agreement containing any provision which would be violated or breached by the performance by the Borrower of its obligations under this Agreement or under any other Credit Document.
Section 6.2.12 Environmental Matters. Except with respect to violations which could not reasonably be expected to have a Material Adverse Effect, the Borrower shall not violate any Environmental Law. In any case, the Borrower shall not intentionally violate any Environmental Law.
Section 6.2.13 Pension and Welfare Plans. The Borrower shall not Incur any liability or obligation with respect to any Pension Plan or any Welfare Plan (other than with respect to a fully-insured Welfare Plan). The Borrower shall not maintain or contribute to (or become obligated to contribute to) any Pension Plan or Welfare Plan (other than a fully-insured Welfare Plan).
Section 6.2.14 Payment of Management or Advisory Fees. At any time after an Acceleration Notice, a Final Payment Default Notice or the occurrence of a Liquidation Acceleration under the Pledge and Intercreditor Agreement, the Borrower shall not pay, or cause or permit to be paid, any management or advisory fees (excluding expense reimbursements) of any type to the Investment Manager unless otherwise consented to by the Required Lenders pursuant to the terms of the Pledge and Intercreditor Agreement.
Section 6.2.15 Limitation on Bank Loans. The Borrower shall not hold Bank Loans that obligate the Borrower, whether currently or upon the happening of any contingency, to make any revolving extensions of credit to a borrower, unless the Borrower has at all times available to it, within the notification period specified by the documentation governing such Bank Loans for the making of any extensions of credit thereunder, any combination of (i) Cash, (ii) Cash Equivalents and (iii) availability under this Agreement such that the Borrower,
upon "regular way" settlement, will have funds that are sufficient to cover the amount of any such extensions of credit.
Section 6.2.16 Commodities; Real Estate. The Borrower shall not purchase or otherwise acquire or receive as a distribution any commodities or any fee interest in real property, except for such commodities or fee interest in real property as the Borrower shall have acquired or received as a distribution in connection with a workout, bankruptcy, foreclosure, restructuring or similar process or proceeding in respect of a Fund Investment; provided, that (i) the Borrower shall disclose such acquisition or receipt of any such commodities or fee interest in real property to the Administrative Agent promptly following the acquisition or receipt thereof and (ii) the Borrower shall dispose of such commodities or fee interest in real property as soon as practicable in a commercially reasonable manner.
Section 6.2.17 Margin Stock. The Borrower shall not use any of the proceeds of the Borrowings (i) to extend "purpose credit" within the meaning given to such term in Regulation U or (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing, otherwise acquiring or carrying any Margin Stock.
Section 6.2.18 Limitations on Hedging and Short Sale Transactions.
(a) The Borrower will not, and will not permit any Hedging SPE to, enter into or otherwise effect or permit to remain outstanding any Hedging and Short Sale Transaction except as follows: (i) Secured Hedging Transactions entered into, in the judgment of the Borrower, to hedge or mitigate interest rate or currency rate risks to which the Borrower is exposed in the conduct of its business or management of its liabilities; (ii) Structured Product Transactions entered into by the Borrower; (iii) Defensive Hedge Transactions entered into by the Borrower, intended to protect the Borrower against fluctuations in the market value of a Fund Investment; and (iv) other Hedging and Short Sale Transactions entered into by any Hedging SPE or, so long as the Borrower has no ongoing payment obligations thereunder, the Borrower.
(b) The Borrower will not, and will not permit any Hedging SPE to,
enter into any Hedging and Short Sale Transaction with any Person unless (i)
the documentation for such Hedging and Short Sale Transaction contains a
Non-Petition Covenant from such Person and (ii) (x) in the case of the
Borrower, unless such Hedging and Short Sale Transaction is a Defensive Hedge
Transaction or a Hedging and Short Sale Transaction under which the Borrower
has no ongoing payment obligations, such Person is an Eligible Counterparty and
(y) in the case of any Hedging SPE, the documentation for such Hedging and
Short Sale Transaction provides that the counterparty thereto does not have
recourse to the Borrower or the assets of the Borrower for amounts owing to
such counterparty thereunder.
(c) The Borrower will not enter into any Interest Rate Hedging Transaction if, as a result of entering into such transaction, the notional
amount of all Interest Rate Hedging Transactions would be greater than the aggregate Market Value of all Eligible Investments.
(d) The Borrower will not permit the aggregate liabilities of the Hedging SPEs under all Hedging and Short Sale Transactions (calculated with respect to each such Hedging and Short Sale Transaction net of the amounts payable to the Hedging SPE by the counterparty under that Hedging and Short Sale Transaction but without any reduction for any amounts payable to the Hedging SPE under any other Hedging and Short Sale Transactions) to exceed 2.0% of the Net Asset Value at any time.
Section 6.2.19 [Reserved]
Section 6.2.20 Limitations on Transactions with Affiliates. Except as expressly contemplated by the Transaction Documents (including the Borrower entering into and performing its obligations under the Investment Management Agreement and the Co-Management Agreement and establishing Hedging SPEs and Investment Holding Subsidiaries), the Borrower shall not, directly or indirectly: (i) make an investment in any of its Affiliates; (ii) sell, lease or otherwise transfer any assets to any of its Affiliates; (iii) purchase or acquire assets from any of its Affiliates; or (iv) enter into any other transaction directly or indirectly with or for the benefit of any of its Affiliates (including, without limitation, guarantees and assumptions of obligations of any of its Affiliates); provided, that the Borrower may, in compliance with the Investment Company Act, enter into any such transaction with any of its Affiliates or for the benefit of any of its Affiliates in the ordinary course of its business if (x) the monetary or business consideration arising therefrom are likely to be substantially as advantageous to the Borrower as the monetary or business consideration with which it could obtain in a comparable arm's length transaction with a Person not an Affiliate of the Borrower and (y) written notice of such transaction is provided to the Administrative Agent. Unless otherwise consented to by the Required Lenders, the Borrower shall not purchase, directly or indirectly, any securities issued by Special Value Bond Fund, LLC, Special Value Opportunities Fund, LLC, Special Value Expansion Fund, LLC or any other collateralized debt obligation vehicle managed by the Investment Manager or any of its Affiliates or by the Co-Manager.
Section 6.2.21 Limitation on Hedging SPEs' Debt. In addition to the limitations specified in Section 6.2.18, the Borrower shall not permit any of the Hedging SPEs to incur any Debt unless the documentation for such Debt (a) contains a Non-Petition Covenant by the applicable creditor and (b) provides that such creditor does not have recourse to the Borrower or the Collateral for amounts owing to such creditor thereunder.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1 Events of Default. The term "Event of Default" shall mean any of the events set forth in this Section 7.1.
Section 7.1.1 Non-Payment of Obligations. The Borrower shall default in (i) the payment when due (whether at stated maturity or by acceleration, mandatory prepayment or otherwise) of any principal hereunder, (ii) the payment when due of interest or fees in respect of any Loan and such default shall continue unremedied for a period of three (3) Business Days or more and (iii) the payment of any other Obligation and such default shall continue unremedied for three (3) Business Days or more after the Borrower's receipt of notice of such default from the Administrative Agent or any Lender.
Section 7.1.2 Over-Collateralization Test; Limitations on Hedging and Short Sale Transactions; Leverage.
(a) The Borrower shall fail to comply with its obligations under
Section 6.1.18.
(b) The Borrower shall fail to comply with its obligations under
Section 6.2.18 and such failure to comply shall continue unremedied for ten
(10) Business Days or more after the earlier of (x) notice thereof having been
given to the Borrower by the Administrative Agent or any Lender or (y) the
first date on which a portfolio manager, senior accounting officer or
controller of the Borrower or the Investment Manager had actual knowledge of
such default.
Section 7.1.3 Non Performance of Other Obligations. The Borrower shall
default in the due performance and observance of any covenant, obligation,
warranty or other agreement contained herein or in any other Credit Document
executed by it, and, if any such default does not otherwise constitute an Event
of Default under this Article VII, such default shall continue unremedied for a
period of thirty (30) days (or, in the case of any violation of Section 18 of
the Investment Company Act, or any successor provision thereto, and any
applicable "asset coverage" maintenance requirements set forth therein, a
period of ninety (90) days) or more after the earlier of (x) notice thereof
having been given to the Borrower by the Administrative Agent or any Lender or
(y) the first date on which a portfolio manager, senior accounting officer or
controller of the Borrower or the Investment Manager had actual knowledge of
such default.
Section 7.1.4 Breach of Warranty. Any representation or warranty of the Borrower hereunder (other than the representation and warranty relating to any violation of Section 18 of the Investment Company Act, or any successor provision thereto, and any applicable "asset coverage" maintenance requirements set forth therein) or of the Borrower in any other Credit Document or in any certificate delivered pursuant hereto or thereto is or shall be incorrect in any material respect when made or deemed made.
Section 7.1.5 [Reserved]
Section 7.1.6 Default, Acceleration on Other Debt, etc. An aggregate principal amount equal to or exceeding 0.80% of the Net Asset Value of any Debt
of the Borrower or any Subsidiary of the Borrower shall become due and payable (whether at maturity, by acceleration or otherwise) and not be paid or satisfied in full, or the holder of such Debt shall be entitled to require the Borrower or any such Subsidiary to repay, repurchase, redeem, defease or otherwise retire for value such Debt, in whole or in part, prior to its scheduled payment date (in each case, after giving effect to any grace periods applicable thereto).
Section 7.1.7 Secured Hedging Transaction Default. The Borrower shall default in the payment when due (whether at stated maturity or by acceleration, mandatory prepayment or otherwise) of any amount in excess of 3.0% of the Net Asset Value (after giving effect to any grace periods applicable thereto) required to be paid by it under any Secured Hedging Transaction (other than any such amount that is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on the Borrower's books), and such default shall continue unremedied for a period of ten (10) Business Days or more.
Section 7.1.8 Judgments. Any final judgments or orders (not subject to appeal) by one or more courts of competent jurisdiction for the payment of money in an aggregate amount in excess of 1.5% of the Net Asset Value (after giving effect to insurance, if any, available with respect thereto) shall be rendered against the Borrower, and the same shall remain unsatisfied, unvacated, unbonded or unstayed for a period of thirty (30) days after the date on which the right to appeal has expired.
Section 7.1.9 Bankruptcy, Insolvency, etc. The Borrower or the Investment Manager shall:
(a) become insolvent or generally fail to pay, or admit in writing its inability to pay, Debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or the Investment Manager, as the case may be, or any property of the Borrower or the Investment Manager, as the case may be, in any bankruptcy, reorganization, Debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower or the Investment Manager, as the case may be, or for a substantial part of the property of the Borrower or the Investment Manager, as the case may be, in any bankruptcy, reorganization, Debt arrangement or other case or proceeding under any bankruptcy or insolvency law, and such trustee, receiver, sequestrator or other custodian shall not be discharged within sixty (60) days;
(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, Debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower or the Investment Manager, as the case
may be, and, if such case or proceeding is not commenced by the Borrower or the Investment Manager, as the case may be, such case or proceeding shall be consented to or acquiesced in by the Borrower or the Investment Manager, as the case may be, or shall result in the entry of an order for relief or shall remain for sixty (60) days undismissed; or
(e) take any action authorizing, or in furtherance of, any of the foregoing.
Section 7.1.10 Failure of Valid, Perfected, First-Priority Lien. Any
Lien on any Collateral granted shall, at any time after delivery of the
respective Collateral Documents, cease to be fully valid and perfected as a
first-priority Lien, except (i) for Permitted Liens, (ii) Liens on Fund
Investments the Market Value of which if excluded from the Collateral would not
cause a violation of the Over-Collateralization Test or the covenant in Section
6.1.15 (in each case, without giving effect to any applicable grace period) or
(iii) as otherwise expressly permitted hereunder or under such Collateral
Documents.
Section 7.1.11 Investment Company Act. The Borrower ceases to be a registered "investment company" under the Investment Company Act for more than ninety (90) days.
Section 7.1.12 Dissolution or Termination of Borrower. The Borrower shall be dissolved or terminated, and not reconstituted substantially simultaneously therewith (and in no event later than the same day) in accordance with the Borrower Organization Agreement and in compliance with the provisions of Section 6.2.7.
Section 7.1.13 Removal of the Investment Manager; Trigger Event. The Investment Manager is removed or terminated pursuant to the Investment Management Agreement and the Required Lenders have not approved the new Investment Manager within thirty (30) days, or a Trigger Event shall have occurred and the Required Lenders shall not have approved a "Replacement Principal" or replacement in accordance with the Investment Management Agreement.
Section 7.2 Action if Bankruptcy. If any Event of Default described in
Section 7.1.9 shall occur with respect to the Borrower, then the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, and all the
Commitments shall be automatically terminated, without further notice, demand
or presentment, all of which are expressly waived.
Section 7.3 Action if Other Event of Default. If any Event of Default (other than any Event of Default described in Section 7.1.9) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent shall, upon the direction of the Required Lenders (or, solely in the case of an Event of Default under Section 7.1.3 relating to a default in the observance of the covenant set forth in Section 6.1.15 or a
violation of Section 18 of the Investment Company Act, or any successor provision thereto, and any applicable "asset coverage" maintenance requirements set forth therein, any Lender), by notice or demand to the Borrower, declare a Commitment Termination Event, declare the outstanding principal amount of the Loans and all other Obligations to be due and payable and terminate all Commitments, whereupon the full unpaid amount of such Loans and any and all other Obligations shall be and become immediately due and payable, without further notice, demand, or presentment, all of which are expressly waived.
Section 7.4 Notice of Default. If a Default occurs and is continuing, the Administrative Agent shall provide to the Lenders, Moody's and S&P written notice of the uncured Default promptly (and, in any event, within two (2) Business Days) after the Administrative Agent becomes aware of such Default.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.1 Appointment. The Lenders hereby designate Wachovia Capital Markets, LLC as Administrative Agent to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each Holder of any Lender Note by the acceptance of such Lender Note or any assignee or transferee of an interest under this Agreement pursuant to Sections 3.4.7 or 9.4 shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Credit Documents by or through its respective officers, directors, agents, employees or affiliates.
Section 8.2 Nature of Duties. The Administrative Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and the Collateral Documents. Neither the Administrative Agent nor any of its officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by it or them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the Holder of any Lender Note or Loan; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein.
Section 8.3 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Lender and the Holder of each Lender Note or Loan, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and, except as expressly provided in this Agreement, the Administrative Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender or the Holder of any Lender Note or Loan with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. Neither the Administrative Agent nor any of its Affiliates, directors, officers, agents, or employees shall be responsible to or have any duty to ascertain, inquire into or verify for any Lender, or the Holder of any Lender Note or Loan, any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the satisfaction of any of the conditions precedent set forth in Article IV or the financial condition of the Borrower or the existence or possible existence of any Default or Event of Default.
Without limiting the generality of the foregoing, the Administrative Agent shall not be responsible to any of the Lenders or the Holders of each Lender Note or Loan for any mistake, omission or error of judgment with respect to the value or valuation, genuineness, enforceability, existence, perfection or priority of any of the Collateral.
Section 8.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders, with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Lenders or all Lenders, as applicable, and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, none of any Lender or the Holder of any Lender Note or Loan shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.
Section 8.5 Reliance. The Administrative Agent (and each Lender) shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, e-mail, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent (or Lender, as applicable) believed to be the proper Person, and, with
respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent (which may be counsel for the Borrower).
Section 8.6 [Reserved]
Section 8.7 The Administrative Agent in Its Individual Capacity. With respect to its obligation to make Loans under this Agreement, the Administrative Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "Holders of Lender Notes" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any Affiliate as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.
Section 8.8 Holders of Lender Notes or Loans. The Administrative Agent may deem and treat the payee of any Lender Note or Loan as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the Holder of any Lender Note or Loan shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Lender Note or Loan or of any Lender Note or Lender Notes issued in exchange therefor.
Section 8.9 Resignation by the Administrative Agent.
(a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving thirty (30) Business Days' prior written notice to the Borrower, Moody's, S&P and the Lenders. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to Section 8.9(b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder (with notice of such appointment provided to Moody's and S&P), who shall be a commercial bank, investment bank, financial institution or trust company that is, unless an Event of Default has occurred and is continuing, reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent shall not have been so appointed within such thirty (30) Business Day period, the Administrative Agent, with (unless an Event of Default has occurred and is continuing) the consent of the Borrower (which consent shall not be unreasonably withheld), shall then appoint a successor Administrative Agent who shall serve as
Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant to Section 8.9(b) or (c) above by the thirtieth (30th) Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.
Section 8.10 Consultation with Experts. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts, in each case of nationally recognized standing, selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts and this Agreement.
Section 8.11 Administrative Agent's Fees. The Borrower shall pay to the Administrative Agent for the Administrative Agent's own account fees for its services (or those of its Affiliates) in administering this Agreement in the amounts and at the times heretofore mutually agreed by the Borrower and the Administrative Agent.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Payment of Expenses, etc. The Borrower agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses (A) of the Administrative Agent and the Arranger in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including the reasonable fees and disbursements of Skadden, Arps, Slate, Meagher & Flom LLP), (B) of the Administrative Agent in connection with third party contractors hired by the Administrative Agent to deliver reports, notices and other documents to the Lenders and (C) of the Administrative Agent and the Arranger and each of the Lenders (and, in the case of a Lender that is a Designated CP Conduit, its Designated CP Conduit Committed Lenders and, in each case of a Lender that is an Other CP Conduit, its Liquidity Providers) in connection with any Default under or the enforcement of the Credit Documents and the documents and instruments referred to therein (including the reasonable fees and disbursements of (1) one counsel for the Administrative Agent and the Arranger (which counsel shall be selected by the Administrative Agent) and (2) upon prior written notice to the Borrower, one counsel for all of the other Lenders); (ii) pay and hold each of the Lenders (and, in the case of a Lender that is a Designated CP Conduit, its Designated CP Conduit Committed Lenders and, in each case of a Lender that is an Other CP Conduit, its Liquidity Providers) and the Administrative Agent harmless from and against any and all
present and future stamp and other similar taxes with respect to the foregoing
matters and hold each of the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender and the Administrative Agent, their respective officers,
directors, employees, representatives and agents (and, in the case of a Lender
that is a Designated CP Conduit, its Designated CP Conduit Committed Lenders
and, in each case of a Lender that is an Other CP Conduit, its Liquidity
Providers) from and hold each of them harmless against any and all losses,
liabilities, obligations, penalties, actions, judgments, claims, damages, costs
or expenses incurred by any of them as a result of, or arising out of, or in
any way related to, or by reason of, (a) any investigation, litigation or other
proceeding (whether or not any Lender (or, in the case of a Lender that is a
Designated CP Conduit, its Designated CP Conduit Committed Lenders and, in each
case of a Lender that is an Other CP Conduit, its Liquidity Providers) is a
party thereto) related to the entering into and/or performance by the Borrower
of any Credit Document or the use by the Borrower of the proceeds of any Loans
hereunder or the consummation of any transactions contemplated in any Credit
Document or Loan Purchase Agreement, including the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified), (b) the
actual or alleged presence of Hazardous Materials in the air, surface water,
groundwater, surface or subsurface of any real property owned or at any time
operated by the Borrower, the generation, storage, transportation or disposal
of Hazardous Materials at any location whether or not owned or operated by the
Borrower, the noncompliance of any real property owned or at any time operated
by the Borrower with Federal, state and local laws, regulations, and ordinances
(including applicable permits hereunder) applicable to any such real property,
or any Environmental Claim asserted against the Borrower, or any such real
property, including, in each case, the reasonable disbursements of counsel and
other consultants incurred in connection with any such investigation,
litigation or other proceeding (but excluding in all cases any losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
the gross negligence or willful misconduct of the Person to be indemnified) or
(c) amounts payable by the Lenders pursuant to Section 8.6. To the extent that
the undertaking to indemnify, pay or hold harmless the Administrative Agent,
the Arranger or any Lender (or, in the case of a Lender that is a Designated CP
Conduit, its Designated CP Conduit Committed Lenders and, in each case of a
Lender that is an Other CP Conduit , its Liquidity Providers) set forth in the
preceding sentence may be unenforceable because it violates any law or public
policy, the Borrower shall make the maximum contribution to the payment and
satisfaction of each of the indemnified liabilities which is permissible under
applicable law. Neither the Borrower nor any indemnified Person shall be liable
for any indirect or consequential damages in connection with its activities
related to this Agreement or any other Credit Documents. The agreements in this
Section 9.1 shall survive repayment of the Loans and all other amounts payable
hereunder.
Section 9.2 Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, if an Event of Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Debt at any time held or owing by such Lender (including by branches and agencies of such Lender wherever located) to or for the credit or the account of the Borrower against and on account of the Obligations and liabilities of the Borrower to such Lender under this Agreement or under any of the other Credit Documents, including all interests in Obligations of the Borrower purchased by such Lender pursuant to Section 9.6(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured.
Section 9.3 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier or e-mail) and mailed, e-mailed, telecopied or delivered, if to the Borrower, Moody's, S&P, the Administrative Agent, and/or any Lender, at its address specified on Schedule 2 hereto (provided, that any notice provided for hereunder to a Person that is not in the United States shall be by facsimile or e-mail transmission if such Person has provided current facsimile or e-mail contact information) or, in the case of any Lender becoming party hereto after the Closing Date, the related Assignment Agreement; or, at such other address as shall be designated by any party in a written notice to the other parties hereto. Any such notice or communication shall be deemed to have been given or made as of: the date so delivered, if delivered personally or by overnight courier; when receipt is acknowledged, if telecopied or e-mailed; and five (5) calendar days after mailing if sent by registered or certified mail (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). The Borrower and the Administrative Agent hereby acknowledge that each CP Conduit has appointed a Funding Agent to act as its agent under this Agreement and, if applicable, the Loan Purchase Agreement or the Liquidity Agreement to which it is a party. Unless otherwise instructed by a CP Conduit, copies of all notices, requests, demands and other documents to be delivered to such CP Conduit pursuant to the terms hereof shall be delivered to the Funding Agent with respect to such CP Conduit at such address as has been notified in writing by such CP Conduit to the Borrower and the Administrative Agent.
Section 9.4 Benefit of Agreement.
(a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and assigns of the parties hereto to the extent permitted under this Section 9.4 and (to the extent explicitly set forth herein) the Liquidity Providers for each Lender that is an Other CP Conduit and Designated CP Conduit Committed Lenders for each Lender that is a Designated CP Conduit; provided, that, except as provided in Section 6.2.7, the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of each Lender, the Administrative Agent and the Arranger. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Lender
Notes or Loans to another financial institution or other Person (including any CP Conduit); provided, that (x) unless such grant is to a Lender or a special purpose corporation administered by a Lender, such Lender shall give notice to the Borrower of the identity of such participant and (y) in the case of any such participation (other than a participation to a Designated CP Conduit Committed Lender), the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 3.4.4 and 3.6 to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold; and provided, further, no Lender shall transfer, grant or assign any participation (other than to a Lender or a special purpose corporation administered by a Lender) under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Documents except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any Loan or Lender Note in which such participant is participating or waive any mandatory prepayment thereof, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant's participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or a mandatory prepayment, shall not constitute a change in the terms of any Commitment), (y) release all or substantially all of the Collateral (in each case except as expressly provided in the Credit Documents), or (z) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement (except as provided in Section 6.2.7).
(b) Notwithstanding the foregoing, with the consent of the Administrative Agent and, so long as no payment Default or Event of Default is then in existence, the consent of the Borrower (which consents shall not be unreasonably withheld or delayed), any Lender may assign all or a portion of its rights and obligations under this Agreement (including, such Lender's Commitment, Loans, Lender Note and other Obligations) to one or more commercial banks, savings and loan associations, insurance companies, investment companies, business development companies, other financial institutions or other corporations, business trusts, partnerships or funds not formed for the specific purpose of acquiring the Loans (including one or more Lenders); provided that, (i) in the event of an assignment by a Designated CP Conduit to its Designated CP Conduit Committed Lender or by an Other CP Conduit to its Liquidity Provider, no such consents shall be required, and (ii) in the event of an assignment by any Lender to a CP Conduit, such CP Conduit shall be an Approved Lender. No assignment pursuant to the immediately preceding sentence shall be in an aggregate amount less than (unless the entire Commitment and outstanding Loans of the assigning Lender is so assigned) (x) if to (I) an Affiliate of such Lender or (II) another Lender (or, in the case of a Lender that is a Designated CP Conduit, its Designated CP Conduit Committed Lenders or, in the case of a Lender that is an Other CP Conduit, its Liquidity Provider), $1,000,000 or (y) if to an institution other than (I) an Affiliate of such Lender or (II) another Lender, $10,000,000. If any Lender so sells or
assigns all or a part of its rights hereunder or under the Lender Notes or
Loans, any reference in this Agreement or the Lender Notes or Loans to such
assigning Lender shall thereafter refer to such Lender and to the respective
assignee to the extent of their respective interests and the respective
assignee shall have, to the extent of such assignment (unless otherwise
provided therein), the same rights and benefits as it would if it were such
assigning Lender. Each assignment pursuant to this Section 9.4(b) shall be
effected (other than in the case of an assignment by a Lender that is a
Designated CP Conduit to its Designated CP Conduit Committed Lenders or in the
case of an assignment by a Lender that is an Other CP Conduit to its Liquidity
Providers) by the assigning Lender and the assignee Lender executing an
Assignment Agreement (the "Assignment Agreement") substantially in the form of
Exhibit D (appropriately completed); provided, that in the case of any
assignment to a CP Conduit that is not already a Lender, the effectiveness of
such assignment shall be conditioned upon the execution and delivery of either
(I) in the case of an Other CP Conduit, a Liquidity Agreement supporting such
Other CP Conduit or (II) in the case of a Designated CP Conduit, a Loan
Purchase Agreement or a similar agreement pursuant to which the counterparty
thereof will be obligated to purchase such Designated CP Conduit's rights and
obligations under this Agreement in accordance with the terms therein. In the
event of (and at the time of) any such assignment, either the assigning Lender
or the assignee Lender shall pay to the Administrative Agent a nonrefundable
assignment fee of $3,500 (other than (i) in the case of an assignment by a
Lender that is a Designated CP Conduit to its Designated CP Conduit Committed
Lenders or in the case of an assignment by a Lender that is an Other CP Conduit
to its Liquidity Providers and (ii) in the case of an assignment to an
Affiliate of a Lender), and at the time of any assignment pursuant to this
Section 9.4(b), (i) this Agreement shall be deemed to be amended to reflect the
Commitment of the respective assignee (which shall result in a direct reduction
to the Commitment of the assigning Lender) and of the other Lenders, and (ii)
the Borrower shall, upon request, issue new Lender Notes to the respective
assignee and to the assigning Lender in conformity with the requirements of
Sections 3.2 and 9.16 and the Administrative Agent shall reflect such
assignment in the Register. No transfer or assignment under this Section 9.4(b)
(other than in the case of an assignment by a Lender that is a Designated CP
Conduit to its Designated CP Conduit Committed Lenders or an assignment by a
Lender that is an Other CP Conduit to its Liquidity Providers) shall be
effective until recorded by the Administrative Agent on the Register pursuant
to Section 9.16. To the extent of any assignment pursuant to this Section
9.4(b), the assigning Lender shall be relieved of its obligations hereunder
with respect to its assigned Commitments. At the time of each assignment
pursuant to this Section 9.4(b) to a Person which is not already a Lender
hereunder and which is not a United States person (as defined above) for
Federal income tax purposes, the respective assignee Lender shall provide to
the Borrower and the Administrative Agent the appropriate Internal Revenue
Service Forms (and, if applicable, a Tax Certificate) described in Section 3.6.
To the extent that an assignment of all or any portion of a Lender's
Commitments and related outstanding Obligations pursuant to Section 3.4.7 or
this Section 9.4(b) (other than an assignment by a Designated CP Conduit to its
Designated CP Conduit Committed Lender) would, at the time of such assignment,
result in increased costs under Sections 3.4.4, 3.4.5 or 3.6 which exceed those
being charged, if any, by the respective assigning Lender prior to such
assignment, then the Borrower shall not be obligated to pay such excess increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes giving rise to such increased costs after the date of the respective assignment). Each Lender and the Borrower agree to execute such documents (including amendments to this Agreement and the other Credit Documents) as shall be reasonably necessary to effect the foregoing. Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Lender Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section 9.4, any
transfer or assignment of the interests or obligations of any Lender hereunder
(other than any assignment by a Withdrawing Lender pursuant to Section 2.3.4)
or any grant of participation therein shall not be permitted and be absolutely
null and void and shall vest no rights in the purported transferee, assignee or
participant (such purported transferee, assignee or participant, a
"Disqualified Transferee"), if such transfer, assignment or grant (i) is
consummated or attempted to be consummated in compliance with the provisions of
this Section 9.4 on the basis of incorrect or false certifications by the
purported transferee, assignee or participant or (ii) would require the
Borrower to (x) file a registration statement with the Securities and Exchange
Commission or (y) qualify the Loans under the "Blue Sky" laws of any State. If
any Disqualified Transferee shall become a Lender or participant in violation
of the provisions of this Section 9.4, then, upon the discovery by or due
notification of the Administrative Agent that such transfer, assignment or
participation was not in fact permitted by this Section 9.4, the last preceding
Lender (that owned the interest purported to be owned by such Disqualified
Transferee) that would not be a Disqualified Transferee shall be restored to
all rights in such interest retroactively to the date of registration of
transfer, assignment or participation. Any action or non-action of a
Disqualified Transferee taken while such Disqualified Transferee was the holder
of such interest shall be without effect hereunder, but shall be deemed
ratified by the such last preceding Lender unless such last preceding Lender
objects, by a superseding notice to the Administrative Agent delivered within
five (5) Business Days of the later of (x) it being restored to its rights in
such interest as described in the preceding sentence or (y) its receipt of
notice of such action or non-action by the Disqualified Transferee. The
Administrative Agent shall be under no liability for any transfer, assignment
or participation that is not in fact permitted by this Section 9.4 or for
making any payments in respect of the interest the subject thereof or taking
any other action with respect to such transfer, assignment or participation,
unless the Administrative Agent had actual knowledge of the inaccuracy or
insufficiency of any certification or representation upon which such transfer,
assignment or participation was based. The Administrative Agent shall be
entitled to recover from any Disqualified Transferee all payments made to it in
respect of the interest in the obligations it acquired. Any such payments so
recovered by the Administrative Agent shall be paid and delivered by the
Administrative Agent to the last preceding Lender that would not be a
Disqualified Transferee as aforesaid. Without limiting the foregoing, any
Lender that made a purported transfer, assignment or participation to a
Disqualified Transferee shall be required to cause the retransfer of such of
the interest so transferred within three (3) Business Days after first becoming aware of such transfer, assignment or participation was to a Disqualified Transferee.
(d) Each Lender initially party to this Agreement hereby represents, and each Person that becomes a Lender pursuant to an assignment permitted by this Section 9.4 shall, upon its becoming party to this Agreement, represent that it is an Eligible Transferee (and, in the case of a CP Conduit, it is also an Eligible Transferee) which makes loans in the ordinary course of its business and that it shall make or acquire Loans for its own account in the ordinary course of such business; provided, that subject to the preceding Sections 9.4(a), (b) and (c), the disposition of any promissory notes or other evidences of or interests in Debt under this Agreement held by such Lender shall at all times be within its exclusive control.
(e) Each of the parties hereto acknowledges that each Lender which is a Designated CP Conduit may from time to time grant, or agree to grant, an assignment of its interests in its Loans, this Agreement and all of the other Transaction Documents, by way of collateral assignment or conveyance, to its respective Designated CP Conduit Committed Lenders, subject to the applicable requirements of this Section 9.4.
(f) Each of the parties hereto acknowledges that each Lender which is an Other CP Conduit and each SPC may from time to time grant, or agree to grant, an assignment of its interests in its Loans, this Agreement and all of the other Transaction Documents, by way of collateral assignment or conveyance, to its respective Liquidity Providers, subject to the requirement that any assignee thereof must be an Approved Lender.
(g) Each Designated CP Conduit hereby agrees that in the event such Designated CP Conduit or its Designated CP Conduit Committed Lender shall cease to be an Approved Lender, it will transfer pursuant to Section 9.4(b) all of its rights and obligations under this Agreement (and the applicable Loan Purchase Agreement) to an Approved Lender (which is also an Eligible Transferee) within 60 days after the date on which it first obtains knowledge that such Designated CP Conduit or its Designated CP Conduit Committed Lender, as the case may be, is not an Approved Lender, provided that no Designated CP Conduit or Designated CP Conduit Committed Lender shall be required to so transfer its rights and obligations unless its corresponding Designated CP Conduit Committed Lender or Designated CP Conduit is permitted to transfer simultaneously its rights and obligations hereunder.
(h) Each Other CP Conduit hereby agrees that in the event such Other
CP Conduit shall cease to be an Approved Lender, it will transfer pursuant to
Section 9.4(b) all of its rights and obligations under this Agreement to an
Approved Lender (which is also an Eligible Transferee) within 60 days after the
date on which it first obtains knowledge that such Other CP Conduits is not an
Approved Lender.
Section 9.5 No Waiver; Remedies Cumulative. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall entitle the Borrower or any other Person to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.
Section 9.6 Payments Pro Rata.
(a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of the Borrower in respect of any Obligations hereunder, it shall distribute such payment to the Lenders (other than (x) any Lender that has expressly waived its right to receive its pro rata share thereof or (y) solely with respect to payments to be made to withdrawing Lenders, any Lender that has agreed to the extension contemplated by Section 2.3) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations to such other Lenders in such amount as shall result in a proportional participation by all of the Lenders in such disproportionate sum received; provided, that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 9.6(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
Section 9.7 Calculations; Computations.
(a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied
throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders).
(b) All computations of interest hereunder shall be made on the actual number of days elapsed over a year of 360 days (or, in the case of any Loan bearing interest at the Base Rate, 365/366 days).
Section 9.8 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER IT, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER IT. EACH OF THE PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, OR BY HAND DELIVERY, AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 9.3, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY HERETO OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
SECTION 9.8(a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
(d) This Section 9.8 shall survive the termination of this Agreement and the payment of all obligations.
Section 9.9 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent.
Section 9.10 Effectiveness. This Agreement shall become effective on the Closing Date provided that the Borrower and each of the Lenders shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent or, in the case of the Lenders, shall have given to the Administrative Agent facsimile or e-mail transmission notice (actually received) at such office that the same has been signed and mailed to it.
Section 9.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
Section 9.12 Amendment or Waiver.
(a) Neither this Agreement or any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and, without duplication in the case of Designated CP Conduits and their respective Designated CP Conduit Committed Lenders, Lenders having, in the aggregate, a Voting Percentage of more than 50% of the total Voting Percentages of all the Lenders and unless the Rating Agency Condition is met; provided, that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) (with Obligations being directly affected thereby in the case of the following clause (i)), (i) extend any time fixed for the payment of any principal of the Loans (other than as provided in Section 2.3), or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or fees thereon, or reduce the principal amount thereof, or change the currency of payment thereof, (ii)
release all or a substantial portion of the Collateral (in each case except as
expressly provided in the Credit Documents), (iii) amend, modify or waive any
provision of Section 9.6 or this Section 9.12(a), (iv) reduce the percentage
specified in the definition of Required Lenders (it being understood that, with
the consent of the Required Lenders, additional extensions of credit pursuant
to this Agreement may be included in the determination of the Required Lenders
on substantially the same basis as the extensions of Commitments are included
on the Closing Date), (v) consent to the assignment or transfer by the Borrower
of any of its rights and obligations under this Agreement (except as permitted
by Section 6.2.7), (vi) waive any mandatory prepayment of Loans required
pursuant to Section 3.3.1(b) or (vii) amend, modify or waive any provision of
Section 9.20; provided, further, that no such change, waiver, discharge or
termination shall (x) increase the Commitments or (except as permitted
hereunder) change the ratable share of the Commitments of any Lender over the
amount thereof then in effect without the consent of such Lender (it being
understood that waivers or modifications (otherwise permitted hereunder) of
conditions precedent, covenants, Defaults or Events of Default shall not
constitute an increase of the Commitment of any Lender, and that an increase in
the available portion of any Commitment of any Lender shall not constitute an
increase in the Commitment of such Lender), (y) without the consent of the
Swingline Lender, amend, modify or waive any provision of this Agreement which
relates to the rights or obligations of the Swingline Lender in its capacity as
Swingline Lender or (z) without the consent of the Administrative Agent amend,
modify or waive any provision of Article VIII as same applies to the
Administrative Agent, or any other provision as same relates to the rights or
obligations of the Administrative Agent. In addition, any proposed change,
waiver, discharge or termination of any provisions of this Agreement or any
other Credit Document that would materially adversely affect any CP Conduit
shall, to the extent the program documents of such CP Conduit so require (as
notified to the Borrower and the Administrative Agent by such CP Conduit), be
subject to rating confirmation of such CP Conduit's commercial paper notes by
each of Fitch, Moody's and S&P to the extent it is then rating such commercial
paper notes; provided, that to the extent any such rating confirmation that is
so required is not obtained, such CP Conduit shall be deemed to be a
non-consenting Lender for purposes of Section 9.12(b) and (c). Any such waiver
and any such amendment, supplement or modification shall apply equally to each
of the Lenders and shall be binding upon the Borrower, the Lenders, the
Administrative Agent and all future holders of the Loans and the Lender Notes.
In the case of any waiver, the Borrower, the Lenders and the Administrative
Agent shall be restored to their former position and rights hereunder and under
the other Credit Documents, and any Default waived shall be deemed to be cured
and not continuing, to the extent so provided herein; but no such waiver shall
extend to any subsequent or other Default, or impair any right consequent
thereon.
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement or the Lender Notes as
contemplated by clauses (i) through (vi), inclusive, of the first proviso of
Section 9.12, the consent of the Required Lenders is obtained but the consent
of one or more of the other Lenders whose consent is required is not obtained,
then the Borrower shall have the right, subject to clause (d) below, to replace
each such non-consenting Lender or Lenders (so long as all non-consenting
Lenders are so replaced) with one or more Replacement Lenders pursuant to
Section 3.4.7 so long as at the time of such replacement, each such Replacement
Lender consents to the proposed change, waiver, discharge or termination;
provided, that the Borrower shall not have the right to replace a Lender solely
as a result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to the second or third proviso of
Section 9.12(a).
(c) If, in connection with any proposed amendment, modification, termination or waiver to any of the provisions of this Agreement or the Lender Notes as contemplated by clauses (i) through (vi), inclusive, of the first proviso of Section 9.12(a), the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right to terminate such non-consenting Lender's Commitment and repay in full its outstanding Loans and satisfy all other Obligations to such non-consenting Lender; provided, that the Borrower shall not have the right to terminate such non-consenting Lender's Commitment and repay in full its outstanding Loans pursuant to this Section 9.12(c) if, immediately after the termination of such Lender's Commitment, the Loans of all Lenders would exceed the Total Maximum Commitment. Any reduction in Commitments made pursuant to this Section 9.12(c) shall permanently reduce the amount resulting from each calculation of Total Maximum Commitment thereafter.
Section 9.13 Survival. All indemnities set forth herein including in Sections 3.4.4, 3.4.5, 3.6 and 9.1 shall survive the termination of this Agreement and the making and repayment of the Loans.
Section 9.14 Domicile of Loans. Subject to the limitations of Section 9.4, each Lender may transfer and carry its Loans at, to or for the account of any branch office, Subsidiary or Affiliate of such Lender; provided, that the Borrower shall not be responsible for costs arising under Sections 3.4.4 and 3.6 resulting from any such transfer (other than a transfer pursuant to Section 3.4.6) to the extent not otherwise applicable to such Lender prior to such transfer.
Section 9.15 Confidentiality.
(a) Subject to Section 9.4, each Lender shall (and shall cause its employees, directors, agents, attorneys, accountants and other professional advisors to) hold all non-public information obtained pursuant to the requirements of this Agreement, in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices, and in any event may make disclosure (i) reasonably required by any bona fide actual or potential transferee or participant in connection with this contemplated transfer of any Loans or participation therein or an Affiliate, Designated CP Conduit Committed Lender or Liquidity Provider of such Lender (including attorneys, legal advisors, accountants and consultants of such Lender, Affiliate, Liquidity Provider or Designated CP Conduit Committed Lender or any rating agency then rating the commercial paper notes of such Lender if it is a CP Conduit) (so long as such transferee, participant or Affiliate, Liquidity Provider or Designated CP Conduit Committed Lender agrees to be bound by the provisions of this Section
9.15), (ii) to such Lender's employees who have a need to know such
information, directors, agents, attorneys, accountants and other professional
advisors; provided that the confidential information shall be used solely for
the purpose of administrating this Agreement, including the evaluation of the
Borrower and its Affiliates, and such confidential information shall be used in
compliance with the legal and internal control requirements of such Lender,
(iii) which has been publicly disclosed other than in breach of this Agreement,
(iv) as required or requested by any governmental agency or representative
thereof or pursuant to any law, rule, regulation, direction, request or order
of any judicial, administrative, or regulatory authority, provided that unless
prohibited by applicable law or court order, such Lender shall make reasonable
efforts to inform the Borrower reasonably in advance of any such disclosure,
(v) pursuant to legal process or in any suit, action, proceeding or
investigation (whether in law or in equity or pursuant to arbitration)
involving any of the Credit Documents for the purpose of defending itself,
reducing its liability, or protecting or exercising any of its claims, rights,
remedies, or interests under or in connection with any of the Credit Documents,
provided that unless prohibited by applicable law or court order, such Lender
shall make reasonable efforts to inform the Borrower reasonably in advance of
any such disclosure, (vi) in connection with the exercise of any remedy
hereunder or (vii) of the existence of this Agreement; provided, that, in no
event shall any Lender, any Affiliate thereof or any Liquidity Provider be
obligated or required to return any materials furnished by the Borrower. A
Person that ceases to be a Lender shall continue to abide by the provisions of
this Section 9.15.
(b) Anything herein to the contrary notwithstanding, the Borrower hereby consents to the disclosure of any nonpublic information with respect to it to any rating agency, commercial paper dealer, administrator or provider of a surety, guaranty or credit or liquidity enhancement to a Lender and to any officers, directors, employees, outside accountants, advisors, and attorneys of any of the foregoing, provided each such Person has a reasonable need to know such information, uses such information solely for purposes of providing the aforementioned services or functions to such Lender and is informed of the confidential nature of such information.
Section 9.16 Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 9.16, to maintain a register (the "Register") on which it shall record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. A Lender may also request that its Voting Percentage be divided on a pro rata basis into two (or more) portions by written notice delivered to the Administrative Agent, in which case the Administrative Agent shall record the respective portions of such Lender's Voting Percentage in the Register; provided, however, that in the event that a Lender votes any portion of its Voting Percentage against any proposal requiring the Lenders' consent hereunder, the Borrower shall be entitled to treat such Lender as a non-consenting Lender for all purposes hereunder, including Section 9.12 hereof, for so long as any portion of such Lender's Voting Percentage remains in opposition to such proposal. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on,
any Loan made pursuant to such Commitments (other than in the case of any
transfer by a Lender that is a CP Conduit to its CP Conduit Committed Lenders
or Liquidity Provider) shall not be effective until such transfer is recorded
on the Register maintained by the Administrative Agent with respect to
ownership of such Commitments and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Commitments and Loans
shall remain owing to the transferor. The registration of assignment or
transfer of all or part of any Commitments and Loans (other than in the case of
any transfer by a Lender that is a CP Conduit to its CP Conduit Committed
Lenders or Liquidity Provider) shall be recorded by the Administrative Agent on
the Register only upon the receipt and acceptance by the Administrative Agent
of (i) a properly executed and delivered Assignment Agreement pursuant to
Section 9.4(b) and (ii) the assigning or transferor Lender's Lender Notes (if
any) whereupon one or more new Lender Notes (upon request) in the same
aggregate principal amount shall be issued to the assigning or transferor
Lender and/or the new Lender and the old Lender Notes shall be returned to the
Borrower marked "canceled". Subject to the third sentence of this Section 9.16,
the entries in the Register shall be conclusive in the absence of manifest
error and the Borrower, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.
Section 9.17 Lender Affiliate Securities.
(a) The Administrative Agent may from time to time give notice to the Borrower listing by name each person who is an affiliate of any Lender for purposes of Section 23A.
(b) The Borrower agrees that it shall not transfer any Affiliate Security as Collateral pursuant to the Pledge and Intercreditor Agreement. Promptly following the time it shall have learned that an Affiliate Security that should not have been transferred in accordance with the first sentence of this Section 9.17(b) has been transferred, the Borrower shall cause the Custodian to transfer such Affiliate Security to an account established by the Borrower pursuant to the Custodial Agreement that does not hold Collateral. Nothing in this Section 9.17(b) or in this Agreement shall be construed to designate as an Excluded Investment ineligible as Collateral under the Pledge and Intercreditor Agreement any investment that was not an Affiliate Security at the time it was delivered to the Administrative Agent pursuant to the Pledge and Intercreditor Agreement.
Section 9.18 Marshalling; Recapture. None of the Administrative Agent or any Lender shall be under any obligation to marshal any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent any Lender receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or Federal law, common law or equitable cause,
then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Borrower to such Lender as of the date such initial payment, reduction or satisfaction occurred.
Section 9.19 Lender Representations, etc.; Non-Recourse Obligations.
(a) By executing this Agreement or an Assignment Agreement, each Lender represents, warrants and covenants as of the Closing Date, with respect to Lenders party hereto on such date, or as of the date of the effectiveness of any assignment to such Lender, in the case of all other Lenders (either such date, the "Relevant Date"), as follows:
(i) neither it nor any of its representatives or agents has offered or shall offer any interest in the Agreement by means of a general solicitation or general advertising, including advertisements, articles, notices or other communications published in any newspaper, magazine or similar medium or broadcast over television or radio or publicized through the Internet, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;
(ii) as of the Relevant Date with respect to such Lender, it has not granted or transferred or agreed to grant or transfer, any participation or other interest in this Agreement to any person except in accordance with Section 9.4; and
(iii) its unsupported long-term senior debt obligations are
rated, or its claims paying or financial strength rating is, at least
(x)(1) "A2" by Moody's or (2) "A3" by Moody's and is placed on a
credit watch with positive implications by Moody's, and (y)(1) "A" by
S&P or (2) "A-" by S&P and is placed on a credit watch with positive
implications by S&P (or its obligations are guaranteed by entities
with such ratings), except in the case of an CP Conduit, in which case
its commercial paper notes have short term ratings of at least "P-1"
by Moody's and "A-1" by S&P.
(b) The Administrative Agent and the Lenders acknowledge and understand that in respect of the Obligations of the Borrower (including indemnification Obligations), such Persons shall have recourse only to the assets of the Borrower and that they shall have no recourse to the assets of any incorporator, director, officer, employee, agent, stockholder, manager or member of any holder of Preferred Interests, any Common Interest Holder, or any past, present or future manager or member of the Borrower, any past, present or future stockholder, manager, member or partner of any such member or any of their respective past, present or future incorporators, directors, officers, employees, agents, stockholders, managers, members or partners (including, without limitation, the Investment Manager or the Co-Manager or any of their respective Affiliates (other than the Borrower)), other than interests (or
investments) in the Borrower and its assets, and in no event shall any such Person be held liable, personally or otherwise, with respect to the indebtedness evidenced by the Lender Notes, the Loans or for any other obligations under this Agreement, whether by virtue of any statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being expressly waived and released by the Administrative Agent and each Lender; provided that nothing set forth herein shall limit any liability that the Investment Manager may have pursuant to the Investment Management Agreement.
(c) No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fee or any other obligations) of any Lender as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any administrator of such Lender or any incorporator, affiliate, stockholder, officer, employee or director of such Lender or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statue or otherwise; it being expressly agreed and understood that the agreements of such Lender contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of such Lender, and that no personal liability whatsoever shall attach to or be incurred by any administrator of such Lender or any incorporator, stockholder, affiliate, officer, employee or director of such Lender or of any such administrator, as such, or any other of them, under or by reason of any of the obligations, covenants or agreements of such Lender contained in this Agreement or in any other such instruments, documents or agreements, or that are implied therefrom, and that any and all personal liability of every such administrator of such Lender and each incorporator, stockholder, affiliate, officer, employee or director of such Lender or of any such administrator, or any of them, for breaches by such Lender of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statue or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, any Lender that is a CP Conduit shall not have any obligation to pay any amount required to be paid by it hereunder, including under Section 8.6, in excess of any amount available to such CP Conduit after paying or making provision for the payment of its commercial paper notes. All payment obligations of any such CP Conduit hereunder are contingent on the availability of funds in excess of the amounts necessary to pay its commercial paper notes; and each of the other parties hereto agrees that it will not have a claim under Section 101(5) of the Bankruptcy Code if and to the extent that any such payment obligation owed to it by such CP Conduit exceeds the amount available to such CP Conduit to pay such amount after paying or making provision for the payment of its commercial paper notes.
(e) The provisions of this Section 9.19 shall survive the termination of this Agreement.
Section 9.20 No Petition.
(a) Each of the parties hereto hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding commercial paper notes and other indebtedness for borrowed money of any CP Conduit or SPC, including the Swingline Lender if it is a CP Conduit or SPC, such Person shall not institute against, or join any other Person in instituting against, such CP Conduit or SPC, including the Swingline Lender if it is a CP Conduit or SPC, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings. This provision shall survive the termination of this Agreement and the making and repayment of the Loans.
(b) Each of the parties hereto (other than the Borrower) covenants and agrees that, prior to the date that is one year and one day after the payment in full of all Senior Indebtedness and Preferred Interests, no party hereto shall institute against the Borrower any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings. This provision shall survive the termination of this Agreement.
Section 9.21 Integration. This Agreement and the other Credit Documents represent the entire agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof or thereof not expressly set forth or referred to herein or in the other Credit Documents.
Section 9.22 Acknowledgment. The Borrower hereby acknowledges that none of the parties hereto has any fiduciary relationship with or fiduciary duty to the Borrower pursuant to the terms of this Agreement, and the relationship between the Lenders and the Administrative Agent, on the one hand, and the Borrower, on the other hand, in connection herewith is solely that of debtor and creditor.
Section 9.23 Judgment Currency.
(a) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in any currency (the "Original Currency") into another currency (the "Other Currency"), the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent or a Lender could purchase the Original Currency with such Other Currency in New York, New York on the Business Day immediately preceding the day on which any such judgment, or any relevant part thereof, is given.
(b) The obligations of the Borrower in respect of any sum due from it to the Administrative Agent or any Lender hereunder shall, notwithstanding any judgment in such Other Currency, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or any Lender of any sum adjudged to be so due in such Other Currency, the Administrative Agent or
any such Lender may in accordance with normal banking procedures purchase the Original Currency with such Other Currency; if the Original Currency so purchased is less than the sum originally due the Administrative Agent or any such Lender in the Original Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or any such Lender against such loss, and if the Original Currency so purchased exceeds the sum originally due to the Administrative Agent or any such Lender in the Original Currency, such Lender shall remit such excess to the Borrower.
Section 9.24 Collateral Valuation Schedule. The Moody's Collateral Valuation Schedule and S&P Collateral Valuation Schedule are hereby incorporated by reference in its entirety into this Agreement, and, by signing this Agreement, each party hereto hereby agrees to the terms and provisions of the Moody's Collateral Valuation Schedule and S&P Collateral Valuation Schedule, which shall apply to the parties hereto in all respects as set forth therein and in this Agreement.
Section 9.25 Consequences of Lender Ratings Downgrade. Notwithstanding any provision herein to the contrary, in the event that the unsupported long-term senior debt obligations or, if applicable, the claims paying or financial strength rating of any Lender (or, alternatively, if applicable, the guarantor of such Lender's obligations hereunder) is not, at least (x)(1) "A2" by Moody's or (2) "A3" by Moody's and on a credit watch with positive implications by Moody's, and (y)(1) "A" by S&P or (2) "A-" by S&P and on a credit watch with positive implications by S&P (or its obligations are not guaranteed by entities with such ratings) (or, in the case of a CP Conduit, its commercial paper notes do have short term ratings of at least "P-1" by Moody's and "A-1" by S&P), the Borrower may, at its option upon at least ten (10) Business Days' notice to the Administrative Agent and such Lender, replace such Lender as contemplated by, and in the manner provided in Section 3.4.7. The Administrative Agent shall notify Moody's and S&P as soon as practicable of such Lender or guarantor who fails to have or maintain the ratings described above.
[Signatures begin on the next page.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written.
SPECIAL VALUE CONTINUATION PARTNERS, LP,
as Borrower
By: SVCF/GP, LLC, its general partner
By: Tennenbaum Capital Partners,
LLC, its managing member
By: /s/ Howard M. Levkowitz
----------------------------------
Howard M. Levkowitz
Managing Partner
|
WACHOVIA CAPITAL MARKETS, LLC,
as Administrative Agent and Arranger
Title:
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Swingline Lender
Title:
[Signature Page to Credit Agreement]
VARIABLE FUNDING CAPITAL COMPANY LLC
By: Wachovia Capital Markets, LLC, as
attorney-in-fact
Title:
VERSAILLES ASSETS LLC
By: Global Securitization Services, LLC,
its Manager
Title:
NIEUW AMSTERDAM RECEIVABLES CORP.
Title:
[Signature Page to Credit Agreement]
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,"RABOBANK
INTERNATIONAL", NEW YORK BRANCH, as
Designated CP Conduit Committed Lender
to Nieuw Amsterdam Receivables Corp.
Title:
Title:
[Signature Page to Credit Agreement]
ANNEX X
DEFINITIONS
Any defined terms used herein shall have the respective meanings set forth herein.
"Acceleration Notice" means an Acceleration Notice under and as defined in the Pledge and Intercreditor Agreement.
"Account Property" shall have the meaning set forth in the Custodial Agreement.
"Adjusted Contributed Company Capital" means, at any date, Contributed Company Capital at such date minus Expensed Transaction Fees.
"Administrative Agent" means Wachovia Capital Markets, LLC, in its capacity as agent for the Lenders under this Agreement and under the other Credit Documents and any successor thereto in such capacity.
"Administrative Expenses" has the meaning set forth in the Pledge and Intercreditor Agreement.
"Advance Amount" means, at any date of determination, subject to
Section 1.8, the lower of (i) the Senior Advance Amount calculated using the
Moody's Valuation Procedures and (ii) the Senior Advance Amount calculated
using the S&P Valuation Procedures.
"Advance Amount Cushion" has the meaning set forth in Section 6.2.5.
"Affiliate" means, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with, such former Person, it being understood and agreed that TCP, TCO, the Investment Manager and their respective Affiliates shall constitute Affiliates of the Borrower. As used in this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
"Affiliate List" means a list of persons who are affiliates of any
Lender for purposes of Section 23A, as the same may from time to time be
delivered by the Administrative Agent to the Borrower in accordance with
Section 9.17.
"Affiliate Security" means any security issued by a Person who is (a) an affiliate of any Lender for purposes of Section 23A, and (b) listed in the most recent Affiliate List provided by the Administrative Agent to the Borrower.
"Aggregate Percentage" means, with respect to any Lender, a percentage equal to (x) the aggregate amount of such Lender's Revolving Commitment divided by (y) the aggregate of the Total Revolving Commitments.
"Agreement" is defined in the preamble.
"Applicable Law" with respect to any Person or matter means any law, rule, regulation, order, decree or other requirement having the force of law relating to such Person or matter and, where applicable, any interpretation thereof by any Person having jurisdiction with respect thereto or charged with the administration or interpretation thereof.
"Applicable Margin" means: (a) with respect to any LIBOR Loan, 0.375% per annum; (b) with respect to any Cost of Funds Rate Loan, 0.375%; and (c) with respect to any Swingline Loan, 0.375% per annum; provided, that in the event that the rating of the Loans hereunder has been withdrawn or downgraded to "Aa2" or lower by Moody's or "AA" or lower by S&P, the Applicable Margin for any such LIBOR Loan, Cost of Funds Rate Loan or Swingline Loan will increase to 0.44% per annum; provided, further, that following the occurrence and during the continuance of any Default, the Applicable Margin for any such LIBOR Loan, Cost of Funds Rate Loan or Swingline Loan, shall be 3.00% per annum.
"Approval" means each and every approval, consent, filing and registration by or with any Federal, state or other Governmental Authority necessary to authorize or permit the consummation of the transactions contemplated by the Transaction Documents, including the execution, delivery or performance of this Agreement or any other Credit Document or for the validity or enforceability thereof.
"Approved Counterparty" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Dealer" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Exchange" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Investment Banking Firm" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Lender" means a financial institution (including a securities broker-dealer or Affiliate thereof) or other institutional lender (including any CP Conduit) with (i) short-term ratings of at least "P-1" by Moody's and "A-1" by S&P or (ii) long-term ratings or, if applicable, claims paying or financial strength ratings of at least (x)(1) "A2" by Moody's or (2) "A3" by Moody's and is placed on a credit watch with positive implications by Moody's and (y)(1) "A" by S&P or (2) "A-" by S&P and is placed on a credit watch with positive implications by S&P (or, if such entity does not have debt which is rated by Moody's and S&P but such entity's obligations are
unconditionally and irrevocably guaranteed by entities with such ratings) or, in the case of a CP Conduit, a commercial paper note short-term rating of "P-1" by Moody's and at least "A-1" by S&P; provided that (a) in the case of an Approved Lender that is a Designated CP Conduit, such Designated CP Conduit's Commitments hereunder must be fully supported by one or more Designated CP Conduit Committed Lenders which is an Approved Lender, and (b) in the case of an Approved Lender that is an Other CP Conduit, such Other CP Conduit shall have entered into a Liquidity Agreement with a Liquidity Provider which is an Approved Lender.
"Approved Pricing Service" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Source" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Approved Third-Party Appraisal" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Arranger" is defined in the preamble.
"Asset Category" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Assignment Agreement" has the meaning set forth in Section 9.4(b).
"Authorized Officer" means, with respect to the Borrower, the Chief Executive Officer, the President, the Secretary, the Chief Financial Officer or another Person whose signatures and incumbency shall have been certified to the Lenders pursuant to Section 4.1.1 or such other representatives or agents as are thereafter certified in a similar manner from time to time and with respect to the Investment Manager, those of the Investment Manager's officers, managing members, members, representatives and agents whose signatures and incumbency shall have been certified to the Lenders pursuant to Section 4.1.1 or such other representatives or agents as are thereafter certified in a similar manner from time to time.
"Babson" means Babson Capital Management LLC, a Delaware limited liability company.
"Bank Loans" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Bankruptcy Remote Entity" means a special purpose entity formed under the laws of one of the States of the United States or the District of Columbia which is organized and operated in a manner designed to insulate it from the risk of becoming the subject of bankruptcy, reorganization, liquidation or other similar proceedings under any bankruptcy or insolvency law.
"Base Rate" means, for any period, the higher of (a) the Federal Funds Effective Rate for such period, plus 0.50% per annum, and (b) the Prime Lending Rate for such period, plus 0.375% per annum.
"Borrower" is defined in the preamble.
"Borrower Organization Agreement" means the Limited Partnership Agreement of the Borrower dated as of July 31, 2006, as the same may be amended, supplemented or otherwise modified from time to time pursuant to the terms thereof and Section 6.2.9.
"Borrowing" means (a) the Revolving Loans made by all Revolving Lenders on any Business Day and (b) the Swingline Loans made by the Swingline Lender on any Business Day, in each case in accordance with Section 3.1.
"Borrowing Base" means, at any date of determination, an amount equal to the Advance Amount as of such date (determined in accordance with Section 6.1.1 and determined after giving effect to the application of the proceeds of any Loan(s) requested on such date).
"Borrowing Request" means a loan request and certificate duly executed by the Borrower substantially in the form of Exhibit A.
"Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day except a Saturday, Sunday or other day on which commercial banks are authorized or obligated by law, regulation or executive order to close in Charlotte, North Carolina, Columbia, Maryland, Minneapolis, Minnesota, New York City or Los Angeles, California, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, LIBOR Loans, Cost of Funds Rate Loans and Swingline Loans, any day which is a Business Day described in clause (i) and which is also a day on which dealings in U.S. dollar deposits are carried on in the London interbank market.
"Capital Stock" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Cash" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Cash Equivalent" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq.
"Closed-end Company" means a "Closed-end company" as defined in
Section 5(a)(2) of the Investment Company Act.
"Closing Date" means July 31, 2006.
"Co-Management Agreement" means the Co-Management Agreement, dated as of the Closing Date, among the Borrower, the Investment Manager and the Co-Manager, as amended, supplemented or otherwise modified from time to time pursuant to the terms thereof.
"Co-Manager" means Babson, in its capacity as co-manager under the Co-Management Agreement, unless and until a replacement co-manager shall have become co-manager pursuant to the Co-Management Agreement, and thereafter "Co-Manager" shall mean such replacement co-manager.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" has the meaning set forth in the Pledge and Intercreditor Agreement.
"Collateral Documents" means the Pledge and Intercreditor Agreement, the Custodial Agreement and any other agreement, instrument or document executed and delivered by or on behalf of the Borrower in connection with the foregoing or pursuant to which a Lien is granted in accordance with the terms of the Pledge and Intercreditor Agreement as security for any of the Senior Lender Indebtedness.
"Collateral Valuation Schedule" means the Moody's Collateral Valuation Schedule and/or the S&P Collateral Valuation Schedule.
"Commitment" means each Revolving Commitment.
"Commitment Reduction Amount" is defined in Section 2.2.
"Commitment Reduction Date" is defined in Section 2.2.
"Commitment Reduction Premium" is defined in Section 2.2.
"Commitment Termination Date" means the earliest of (a) the Scheduled Commitment Termination Date (or, if an extension is made pursuant to Section 2.3.1, the applicable Extension Date), (b) the date of any termination of all of the Commitments in accordance with Section 2.2 and (c) the date of occurrence of any Commitment Termination Event.
"Commitment Termination Event" means the earlier of (a) automatically and without notice or further action, the occurrence of any Event of Default described in Section 7.1.9 with respect to the Borrower or (b) the occurrence and continuation of any other Event of Default under this Agreement and the
declaration of the Loans to be due and payable pursuant to Section 7.3 or, in the absence of such declaration, a direction from the Required Lenders to the Administrative Agent, to the extent permitted under this Agreement, to give notice to the Borrower of the termination of the Commitments of the Lenders.
"Common Interest Holder" means, at any date, with respect to any outstanding Common Interest, the record holder of such Common Interest as reflected in the register held by the Borrower.
"Common Interest Holders' Escrow Account" has the meaning set forth in the Custodial Agreement.
"Common Interests" means the common limited partner interests (or other form of common equity) issued by the Borrower pursuant to the Borrower Organization Agreement.
"Company Equity" means, at any date, the equity of the Borrower represented by the Common Interests (determined in accordance with GAAP as of such date); provided, that for purposes of Sections 6.1.15 and 6.2.5, Company Equity will not be reduced by Expensed Transaction Fees of the Borrower or by Interest Rate Hedging Transactions entered into pursuant to Section 6.1.16 and will be increased by the net contributions from any Subordinated Equity Security. For purposes of this Agreement, Company Equity shall be deemed to be the Company Equity as of the end of the most recently completed fiscal quarter for which financial statements are available as adjusted to give effect to any capital contributions and distributions that occurred after such fiscal quarter.
"Company Tax Distribution" means any distribution that the Borrower reasonably and in good faith estimates should be made by it to the Common Interest Holders and/or the Special Limited Partner (i) to provide such Persons funds to pay taxes in respect of the Preferred Interests or Common Interests held by such Persons or (ii) in order to preserve the U.S. federal income tax status of the Borrower as a regulated investment company.
"Computation Date" is defined in Section 3.8.
"Consent Notice" is defined in Section 2.3.1.
"Consent Period" is defined in Section 2.3.1.
"Continuing Lender" is defined in Section 2.3.1.
"Contractual Obligation" means, relative to any Person, any provision of any security issued by such Person or of any instrument, agreement or undertaking to which such Person is a party or by which it or any of its property is bound.
"Contributed Company Capital" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Cost of Funds Rate" means, with respect to a Cost of Funds Rate Loan, the rate determined pursuant to Section 3.4.1(i) (not to exceed LIBOR plus 0.20% per annum).
"Cost of Funds Rate Loan" means any Revolving Loan made by a Lender that is a CP Conduit or an SPC.
"CP Conduit" means a Lender which is a Bankruptcy Remote Entity, and which obtains a portion of its financing, either directly or indirectly, through the issuance of commercial paper notes.
"Credit Document" means this Agreement, the Lender Notes, the Collateral Documents, each Borrowing Request and any other agreement, instrument or document executed and delivered by or on behalf of the Borrower in connection with the foregoing.
"Custodial Account" has the meaning set forth in the Custodial Agreement.
"Custodial Agreement" means the custodial agreement dated as of the Closing Date among the Borrower, the Custodian, the Administrative Agent, and the Secured Parties Representative, as the same may be amended, modified or supplemented from time to time pursuant to the terms hereof and thereof.
"Custodian" means Wells Fargo Bank, National Association, acting in its capacity as Custodian under the Custodial Agreement and any successor thereto in such capacity.
"Debt" of any Person means, at any date, without duplication: (i) all
obligations of such Person for borrowed money; (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (iv) all obligations of such Person as lessee under capital
leases; (v) all non-contingent obligations of such Person to reimburse or
prepay any bank or other Person in respect of amounts paid under a letter of
credit, banker's acceptance or similar instrument; (vi) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; and (vii) all Debt of others Guaranteed by such Person,
it being acknowledged and understood that Debt shall in no event include any
obligations under any Hedging and Short Sale Transactions.
"Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived in accordance with the provisions of this Agreement, become an Event of Default; provided, that a "Default" shall not include a failure by the Borrower to comply with Section 6.1.18 of this Agreement so long as such failure is cured within the applicable grace period specified herein or therein.
"Defaulting Lender" means any Lender with respect to which a Lender Default is in effect.
"Defensive Hedge Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Designated CP Conduit" means any CP Conduit that is a party to a Loan Purchase Agreement.
"Designated CP Conduit Committed Lender" means an Approved Lender that has committed to purchase the Loans of a Designated CP Conduit and make Loans to the Borrower pursuant to Section 2.1 in lieu of such Designated CP Conduit in accordance with the terms of a Loan Purchase Agreement and any permitted successor or assign.
"Determination Date" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Disqualified Transferee" is defined in Section 9.4(c).
"Dollar" or "$" means dollars in lawful currency of the United States of America.
"Eligible Counterparty" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Eligible Investments" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Eligible Transferee" means and includes a commercial bank, savings and loan association, insurance company, investment company, business development company, other financial institution or other corporation, business trust, partnership or fund not formed for the specific purpose of acquiring the Loans.
"Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, administrative investigations or proceedings relating in any way to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials arising from alleged injury or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state, foreign or local statute, law, rule, regulation, ordinance, code, rule of common law or written and binding policy or guide, now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to the environment, health, safety or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 7401 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; and any applicable state and local or foreign counterparts or equivalents.
"Equity Capital Commitments" means commitments of the Common Interest Holders to provide an aggregate amount of $415,560,500 to be contributed as equity capital to the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" means each person (as defined in Section 3(9) of ERISA) which together with the Borrower would be deemed to be a "single employer" within the meaning of Section 414 of the Code.
"Event of Default" is defined in Section 7.1.
"Excess Amount" as of any Business Day, for purposes of this Agreement, means the amount, if any, by which the sum of the Outstanding Principal Amount of the Loans as of the close of business of such Business Day exceeds the Advance Amount as of such close of business.
"Excess Date" means any Business Day on which there is an Excess Amount. An Excess Date shall always follow a Business Day (i) that does not have an Excess Amount or (ii) on which the Borrower has satisfied the Over-Collateralization Test by complying with clause (i) of Section 6.1.18.
"Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and any successor statute thereto.
"Excluded Investments" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Expensed Transaction Fees" means, as of any date, all legal, tax, accounting software and systems, and other organizational expenditures incurred in connection with this Agreement or the issuance of the Preferred Interests, the formation and capitalization of the Borrower and related entities (including without limitation any special purpose vehicles that issue securities backed by or representing interests in the Common Interests approved by the Borrower) and the fees due to the initial purchasers in connection with the issuance of the Preferred Interests and to the agents and Lenders in connection with the placement of the Loans, to the extent such amounts have been expensed, or capitalized and amortized, whether or not any such amount is actually expensed, or capitalized and amortized, as approved by the Independent Public Accountant of Issuer, on or prior to such date.
"Extension Date" is defined in Section 2.3.1.
"Extension Notice" is defined in Section 2.3.1.
"Facility Commitment" means the aggregate amount of all Commitments of the Lenders from time to time. The original Facility Commitment is $266,000,000.
"Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the FRB, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.
"Fee Letter" means the fee letter dated as of the Closing Date from the Administrative Agent to the Borrower.
"Final Maturity Payment Default Notice" means a Final Maturity Payment Default Notice under and as defined in the Pledge and Intercreditor Agreement.
"FRS Board" means the Board of Governors of the Federal Reserve System and, as applicable, the staff thereof.
"Fund Investments" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Funding Agent" means, with respect to each CP Conduit, the bank or other financial institution acting as the agent of such CP Conduit under this Agreement and the Loan Purchase Agreement or the Liquidity Agreement to which such CP Conduit and such agent are parties.
"GAAP" means generally accepted accounting principles in effect from time to time in the United States of America.
"Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
"Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Materials" means (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contained, electric fluid containing levels of polychlorinated biphenyls, and radon gas; (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous waste," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority.
"Hedging and Short Sale Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Hedging SPEs" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"High Yield Bonds" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Holder" means, at any date, with respect to any outstanding Lender Note or Loan, the Lender registered with the Administrative Agent on the Register as the record owner of such Lender Note (or the Loans and Obligations represented by such Lender Note) or Loan.
"Incur," "Incurred" and "Incurrence" have the meaning set forth in Section 6.2.2 of this Agreement.
"Independent Public Accountant" means one of the four largest independent public accounting firms in the United States as of the Closing Date or any independent public accounting firm reasonably satisfactory to the Administrative Agent.
"Industry" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Interest Period" with respect to any LIBOR Loan or Cost of Funds Rate Loan means the Interest Period applicable thereto (which must be a whole number of months), as determined pursuant to Section 3.4.2.
"Interest Rate Hedging Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Investment Company Act" means the United States Investment Company Act of 1940, as amended.
"Investment Holding Subsidiaries" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Investment Management Agreement" means the Investment Management Agreement dated as of the Closing Date between the Borrower and the Investment Manager relating to the management of the investment portfolio of the Borrower, as may be amended, supplemented or otherwise modified from time to time pursuant to the terms thereof and Section 6.2.9.
"Investment Manager" means TCP, in its capacity as investment
manager under the Investment Management Agreement, unless terminated in
accordance with the Investment Company Act. In the event of any such
termination or otherwise "Investment Manager" shall mean a replacement
investment manager only if such replacement investment manager shall have
become investment manager pursuant to the Investment Management Agreement and
Section 6.2.9(b).
"IRS" means the Internal Revenue Service and any Governmental Authority succeeding to any of its principal functions under the Code.
"Key Individual" means any individual serving in high-level management capacities for the Investment Manager identified in the list delivered to the Administrative Agent and the Lenders pursuant to Section 4.1.16, as updated in accordance with Section 6.1.21.
"Lender" means (i) each financial institution or other
institutional lender (including any CP Conduit) listed on the signature pages
of this Agreement, (ii) each Designated CP Conduit Committed Lender upon making
or purchasing of the Loans requested of the related Designated CP Conduit, and
(iii) each Person which becomes an assignee pursuant to Section 9.4(b) and
their respective successors.
"Lender Default" means (i) the refusal (which has not been retracted) of a Lender to make available its portion of any incurrence of Loans or (ii) a Lender having notified the Administrative Agent and/or the Borrower that it does not intend to comply with its obligations under Section 2.1.1, in the case of either clause (i) or (ii) as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.
"Lender Note" means each Revolving Note and each Swingline Note.
"Lending Party" is defined in Section 3.6.
"LIBOR" means, with respect to each Interest Period, the rate determined by the Administrative Agent in accordance with the following provisions:
(i) LIBOR shall equal the rate, as determined by the Administrative Agent on each LIBOR Determination Date, for one-month U.S. dollar deposits which appears on the Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination Date, as reported by Bloomberg Financial Markets Commodities News.
(ii) If, on any LIBOR Determination Date, such rate does not appear on the Telerate Page 3750, the Administrative Agent shall determine the arithmetic mean of the offered quotations of the LIBOR Reference Banks to prime banks in the London interbank market for one-month U.S. dollar deposits by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date made by the Administrative Agent to the LIBOR Reference Banks. If, on any LIBOR Determination Date, at least two of the LIBOR Reference Banks provide such quotations, LIBOR shall equal such arithmetic mean. If, on any LIBOR Determination Date, only one or none of the LIBOR Reference Banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that the leading banks in New York City selected by the Administrative Agent (after consultation with the Borrower) are quoting on such LIBOR Determination Date for one-month U.S. dollar deposits to the principal London offices of leading banks in the London interbank market.
(iii) If the Administrative Agent is required but is unable to determine a rate in accordance with at least one of the procedures provided above, LIBOR shall be the Base Rate for each day during such Interest Period.
For the purposes of clause (ii) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one thirty second of a percentage point.
"LIBOR Determination Date" means the second London Banking Day prior to the first day of each Interest Period.
"LIBOR Loan" means a Loan (excluding, for the avoidance of doubt, any Cost of Funds Rate Loan or Swingline Loan) bearing interest at a rate of interest determined by reference to LIBOR.
"LIBOR Market Index Rate" with respect to any Swingline Rate Loan for any day, means the rate, as determined by the Administrative Agent, for Dollar deposits with maturities comparable to such Swingline Rate Loan as reported on Telerate page 3750 as of 11:00 a.m. London time, for such day, provided, if such day is not a London Banking Day, the immediately preceding London Banking Day (or if not so reported, then as determined by the Administrative Agent from another recognized source or interbank quotation).
"LIBOR Reference Banks" means four major banks in the London interbank market selected by the Administrative Agent.
"Lien" means, with respect to any asset, any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement relating to such asset).
"Liquidation Acceleration" means a Liquidation Acceleration under and as defined in the Pledge and Intercreditor Agreement.
"Liquidity Agreement" means each liquidity agreement, asset purchase agreement or other similar agreement entered into from time to time by a Lender which is an Other CP Conduit, one or more financial institutions parties thereto as Liquidity Providers, a liquidity agent, a collateral agent or such other persons as may be party thereto, if any, as the same may from time to time be amended, restated, supplemented or otherwise modified, providing for the Liquidity Providers parties thereto to make loans from time to time to the Other CP Conduit to support the making and/or maintaining of Loans by the Lender under this Agreement.
"Liquidity Provider" means any Person providing liquidity or credit enhancement support for an Other CP Conduit in connection with the transactions contemplated pursuant to this Agreement.
"Loan Purchase Agreement" means each loan purchase agreement, asset purchase agreement or other similar agreement entered into from time to time by one or more Lenders which are CP Conduits or SPCs, one or more Designated CP Conduit Committed Lenders, and the other parties thereto, pursuant to which such Designated CP Conduit Committed Lenders shall be committed to purchase, or acquire participation interests in, the Loans of such CP Conduit or SPCs and make Loans requested of such CP Conduit by the Borrower hereunder, as the same may from time to time be amended, restated, supplemented or otherwise modified.
"London Banking Day" means any Business Day on which dealings in U.S. dollar deposits are carried on in the London interbank market.
"Mandatory Borrowing" is defined in Section 3.1.1(c).
"Margin Stock" means "margin stock" as defined in Regulation U of the FRS Board, as amended from time to time.
"Market Value" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Market Value Price" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), a materially adverse effect on:
(a) the financial condition or operations of the Borrower taken as a whole;
(b) the ability of the Borrower to timely and fully perform any of its payment or other material obligations under this Agreement or any other Credit Document to which it is a party or under the Borrower Organization Agreement or the Preferred Interests; or
(c) the perfected security interest of the Secured Parties Representative in the Collateral, for the benefit of the Administrative Agent and the Lenders.
"Maximum Swingline Amount" means $40,000,000.
"Minimum Borrowing Amount" means, at any time, with respect to any commitment fee payable under Section 2.4.1, 40% of the Total Maximum Commitment.
"Moody's" means Moody's Investors Service, Inc. or any successor thereto.
"Moody's Collateral Valuation Schedule" shall mean the Moody's Collateral Valuation Schedule attached as Schedule 9 to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with this Agreement.
"Moody's Valuation Procedures" shall mean the procedures prescribed by Moody's for determining the Market Value of Fund Investments as set forth in the Moody's Collateral Valuation Schedule.
"Net Asset Value" means "Company Equity" as calculated in the definition thereof determined by the Borrower, at any date, based upon good faith estimates for accruals and expenses of the Borrower, which may, but need not, be fully compliant with GAAP.
"Non-Defaulting Lender" means each Lender other than a Defaulting Lender.
"Non-Petition Covenant" means a covenant by any Person to the effect that, prior to the date that is one year (or, if longer, the preference period then in effect under applicable federal and state law) and one day after the payment in full of all Senior Indebtedness and Preferred Interests, it will not commence or otherwise institute against the Borrower any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings.
"Obligations" means all obligations and liabilities of the Borrower to the Administrative Agent or any of the Lenders or any Designated CP Conduit Committed Lender or Liquidity Provider, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Loans, the Lender Notes, any other Credit Document or any Secured Hedging Transaction.
"Organic Documents" of any Person means its certificate of limited partnership or formation, limited partnership agreement, limited liability company agreement, operating agreement, memorandum and articles of association, charter and by-laws or similar constitutive documents and includes all agreements, voting trusts and similar arrangements with or among the holders of such Person's Capital Stock or other equity.
"Other CP Conduit" means any CP Conduit that is a Lender (other than a Designated CP Conduit).
"Outstanding Principal Amount" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Over-Collateralization Test" is defined in Section 6.1.18.
"Payment Office" means the office of the Administrative Agent located at 201 South College Street, NC0680, Charlotte, North Carolina 28244, or such other office as the Administrative Agent may designate to the Borrower and the Lenders from time to time.
"Pension Plan" means a "pension plan," as such term is defined in Section 3(2) of ERISA.
"Percentage" means, with respect to any Lender, such Lender's Revolving Percentage.
"Performing" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Permitted Liens" is defined in Section 6.2.3.
"Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof.
"Plan Assets" means such term within the meaning of the Department of Labor Regulation 29 CFR ss. 2510.3-101, as amended, and the advisory opinions and rulings issued thereunder.
"Pledge and Intercreditor Agreement" means the Pledge and Intercreditor Agreement dated as of the Closing Date, among the Borrower, the Custodian, the Administrative Agent and the Secured Parties Representative, as the same may be amended, modified or supplemented from time to time pursuant to the terms hereof and thereof.
"Portfolio Limitations" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Preferred Interest Holder" means, at any date, with respect to any outstanding Preferred Interest, the record holder of such Preferred Interest as reflected in the register of the Borrower.
"Preferred Interests" means any preferred limited partner interests (or other form of preferred equity) issued by the Borrower pursuant to the Borrower Organization Agreement.
"Prime Lending Rate" means the rate which Wachovia Bank, National Association announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes, or if such bank ceases to exist or is not quoting a prime lending rate, such other major money center commercial bank in New York City as is selected by the Administrative Agent. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Wachovia Bank, National Association may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.
"Proceeding" means the making of a trust, mortgage or assignment for the benefit of creditors; the voluntary or involuntary dissolution, winding up, total or partial liquidation, reorganization, bankruptcy, insolvency, receivership or marshalling of assets or liabilities of the Borrower; or any other statutory, common law or contractual proceeding or arrangement for the postponement or adjustment of all or a substantial part of the liabilities of the Borrower.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(l) of the UCC and, in any event shall include, without
limitation, all interest, dividends or other earnings, income or distributions
from or in respect of, or investments or reinvestments of, the Cash and Cash
Equivalents from time to time on deposit in the Custodial Account and the
Pledged Investments (as defined in the Pledge and Intercreditor Agreement) and
all other proceeds of Collateral (whether the same arise or are acquired before
or after commencement of a Proceeding in which the Borrower is a debtor).
"Quarterly Date" means the 20th calendar day of each January, April, July and October, commencing in October of 2006, or, if any such day is not a Business Day, the next succeeding day that is a Business Day.
"Rating Agency" means a nationally recognized statistical rating organization in the United States selected by the Borrower that will be substituted for Moody's or S&P (or their respective successors) if any such entity is no longer in the business of rating securities.
"Rating Agency Condition" means, with respect to any specified action, that (a) each of Moody's and S&P shall have been given prior written notice thereof and (b) each of Moody's and S&P shall have notified the Borrower in writing that such action will not result at that time in a downgrading or withdrawal of its then current ratings of the Debt under this Agreement or the Preferred Interests, as applicable.
"RCRA" means the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et seq.
"Register" is defined in Section 9.16.
"Regulation D" means, unless otherwise indicated, Regulation D of the FRS Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.
"Related Contract" has the meaning set forth in the Pledge and Intercreditor Agreement.
"Related Person" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Relevant Date" is defined in Section 9.19(a).
"Replaced Lender" is defined in Section 3.4.7.
"Replacement Lender" is defined in Section 3.4.7.
"Reporting Date" means the last Business Day of each calendar week, commencing August 4, 2006.
"Required Lenders" means, at any time and without duplication in the case of Designated CP Conduits and their respective Designated CP Conduit Committed Lenders, Lenders having, in the aggregate, a Voting Percentage of more than 50% of the total Voting Percentages of all the Lenders at such time.
"Restricted Payment" means
(i) any payment or other distribution (including, without limitation, dividends) to any Common Interest Holder of the Borrower in respect of its Common Interests;
(ii) any payment or other distribution on account of the purchase, redemption, retirement or acquisition of any Common Interest, Preferred Interest or other equity interest in the Borrower; or
(iii) any payment in respect of any Subordinated Equity Securities.
For the avoidance of doubt, dividends on the Preferred Interests shall not be treated as Restricted Payments and may be paid by the Borrower at any time in accordance with the terms of the Borrower Organization Agreement.
"Revolving Commitment" has the meaning set forth in Section 2.1.1(a).
"Revolving Lender" means each Lender that has a Revolving Commitment.
"Revolving Loan" is defined in Section 2.1.1(a).
"Revolving Note" is defined in Section 3.2.
"Revolving Percentage" of any Lender means, at any time: (a) with respect to the aggregate amount of Revolving Commitments of all Lenders to make Revolving Loans of any Type at such time, the percentage which such Lender's Revolving Commitment to make Revolving Loans, if any, is of the aggregate amount of Revolving Commitments of all Lenders to make Revolving Loans at such time; and (b) with respect to the aggregate amount of Revolving Loans which are outstanding at such time, the percentage which the aggregate principal amount of such Lender's Revolving Loans of such Type is of the total principal amount of Revolving Loans of such Type at such time; in each case as shown on the Schedule 1 to this Agreement (or, in the case of any Lender which becomes a Lender pursuant to any Assignment Agreement, as provided in such Assignment Agreement) and in all cases as changed from time to time as a consequence of Assignment Agreements pursuant to Section 9.4(b) and as reflected in the books and records of the Administrative Agent at such time.
"RIC Distribution" is defined in Section 6.2.5.
"RIC Withholding Taxes" is defined in Section 6.2.5.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a New York corporation, or any successor thereto.
"S&P Collateral Valuation Schedule" means Schedule 10 to this Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with this Agreement.
"S&P Valuation Procedures" means the procedures prescribed by S&P for determining the Market Value of Fund Investments as set forth in the S&P Collateral Valuation Schedule.
"Section 23A" means Section 23A of the Federal Reserve Act, 12 USC 371c, and any regulations, interpretations, rulings and opinions of the FRS Board.
"Secured Hedging Advance Amount" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Secured Hedging Net Exposure" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Secured Hedging Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Secured Parties Representative" means Wachovia Capital Markets, LLC, as Secured Parties Representative under the Pledge and Intercreditor Agreement, and any successor thereto in such capacity.
"Securities" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Securities Act" means the United States Securities Act of 1933, as amended.
"Securities Lending Transactions" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Senior Advance Amount" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Senior Indebtedness" means all Debt and other payment obligations (including, without limitation, interest that would accrue but for the filing of a petition initiating a Proceeding, whether or not a claim for such interest is allowed in the Proceeding) of the Borrower arising under or in respect of this Agreement, the other Credit Documents, the Loans or the Secured Hedging Transactions, whether outstanding on the Closing Date or thereafter created or incurred, including obligations owing to the Custodian under the Custodial Agreement, to the Administrative Agent under this Agreement and to the Secured Parties Representative under the Pledge and Intercreditor Agreement; provided, however, that Senior Indebtedness shall not include any Debt or such other obligations incurred in violation of this Agreement.
"Senior Lender Indebtedness" means all Debt and other payment obligations (including, without limitation, interest that would accrue but for the filing of a petition initiating a Proceeding, whether or not a claim for such interest is allowed in the Proceeding) of the Borrower arising under or in respect of this Agreement, the Loans, the Lender Notes or the Secured Hedging Transactions, whether outstanding on the Closing Date or thereafter created or incurred.
"SPC" is defined in Section 3.8.
"Special Limited Partner" means SVCF MM, as the Special Limited Partner of the Borrower, and any successor thereto in such capacity designated in accordance with the Borrower Organization Agreement.
"Statement Date" is defined in Section 6.1.18.
"Structured Product Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Subordinated Equity Securities" means any equity securities issued by the Borrower following the Closing Date which are permitted pursuant to Section 6.2.2(iii).
"Subsidiary" means at any time, with respect to any Person (the "parent"), any corporation, association, partnership or other business entity (a) of which securities or other ownership interests representing more than 50% of the ordinary voting power to elect the board of directors, general partner, manager or comparable body of such corporation, association, partnership or other business entity (irrespective of whether at the time securities or other ownership interests of any other class or classes of such corporation, association, partnership or other business entity shall or might have voting power solely upon the occurrence of any contingency) are, at such time owned directly or indirectly by the parent, by one or more Subsidiaries of the parent or by the parent and one or more Subsidiaries of the parent and (b) which is also required at such time under GAAP to be consolidated with the parent. Notwithstanding the foregoing, with respect to the Borrower, any corporation, association, partnership or other business entity that otherwise meets the definition of "Subsidiary" shall not constitute a Subsidiary of the Borrower, if the securities or other ownership interests representing more than 50% of the ordinary voting power to elect the board of directors, general partner, manager or comparable body of such corporation, association, partnership or other business entity are obtained by the Borrower upon foreclosure or exercise of remedies or in connection with a bankruptcy, reorganization, restructuring or similar proceeding of the issuer or obligor of such Fund Investment.
"SVCF MM" means SVCF MM, LLC, a Delaware limited liability company.
"Swap Transaction" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Swingline Expiry Date" means the date which is ten (10) Business Days prior to the Commitment Termination Date or such later date as agreed to in writing by the Swingline Lender from time to time.
"Swingline Lender" means Wachovia Bank, National Association, and its successors and assigns, in its capacity as the lender of Swingline Loans.
"Swingline Loans" is defined in Section 2.1.1(d).
"Swingline Note" is defined in Section 3.2.
"Swingline Rate" means, for any period, the LIBOR Market Index Rate; provided, that following the occurrence and during the continuance of any Default, the Swingline Rate shall be LIBOR.
"Swingline Rate Loan" means a Loan bearing interest at a fluctuating rate per annum determined by reference to the Swingline Rate.
"Tax Certificate" is defined in Section 3.6(b).
"Taxes" is defined in Section 3.6.
"TCO" means Tennenbaum & Co., LLC.
"TCP" means Tennenbaum Capital Partners, LLC, a Delaware limited liability company.
"Telerate Page 3750" means the display page currently so designated on the Bridge Telerate Market Report (or such other page as may replace such page on such service for the purpose of displaying comparable rates).
"Total Capitalization" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Total Maximum Commitment" means, at any date of determination, (a) on and after the Closing Date and prior to the Commitment Termination Date, $266,000,000 and (b) on and after the Commitment Termination Date, zero; provided, that (1) the calculations in this definition shall be made after giving effect to all issuances, payments and other transactions contemplated on the applicable date; and (2) the Total Maximum Commitment may be reduced as provided in Sections 2.2, 2.3.5 and 9.12(c).
"Total Revolving Commitments" means the sum of the Revolving Commitments of each of the Lenders.
"Transaction Documents" means this Agreement, the other Credit Documents, the Investment Management Agreement, the Co-Management Agreement, the Notes, the Preferred Interests, the Borrower Organization Agreement and any other agreement, instrument or document executed and delivered by the Borrower in connection with the foregoing.
"Trigger Event" means any event specified in Section 11(b) or 11(c) of the Investment Management Agreement pursuant to which a "Replacement Principal" or replacement may be appointed in accordance with the terms of the Investment Management Agreement.
"Type" means any type of Loan determined with respect to the interest rate option applicable thereto (i.e., a Cost of Funds Rate Loan, a LIBOR Loan or a Swingline Rate Loan).
"UCC" means, with respect to any jurisdiction, the Uniform Commercial Code as from time to time in effect in such jurisdiction.
"United States" or "U.S." means the United States of America, its 50 States, the District of Columbia and the Commonwealth of Puerto Rico.
"Unquoted Investment" means any Fund Investment other than Cash or Cash Equivalents for which the Market Value has not been obtained from an Approved Source.
"Unutilized Commitment" means, at any time, the amount, if any, by which the Total Maximum Commitment exceeds the then aggregate outstanding principal amount of Revolving Loans.
"U.S. Government Securities" has the meaning assigned to such term in the applicable Collateral Valuation Schedule.
"Valuation Statement" is defined in Section 6.1.1(b).
"Voting Percentage" of any Lender means, at any time:
(i) prior to the first Borrowing, the percentage which such Lender's aggregate Commitments at such time is of the total aggregate Commitments of all the Lenders at such time; and
(ii) on and after the first Borrowing, the percentage which
(i) the sum of the outstanding principal amount of such Lender's Loans (other
than Swingline Loans) plus such Lender's aggregate unused Commitments at such
time is of (ii) the sum of the outstanding principal amount of all Loans (other
than Swingline Loans) plus the aggregate amount of all unused Commitments at
such time, in each case as shown in the Register;
provided that a Lender may divide its Voting Percentage in accordance with
Section 9.16. If the Borrower or any Affiliate thereof or of TCP holds any
Loans or Commitments, (x) neither the Borrower nor any such Affiliate shall be
included as a Lender for purposes of this definition, and (y) the amount of
such Loans or Commitments shall be subtracted from the total amounts of such
Loans and Commitments based on which the calculation of Voting Percentages are
made.
"Welfare Plan" means a "welfare plan," as such term is defined in section 3(l) of ERISA.
"Withdrawal Notice" is defined in Section 2.3.2.
"Withdrawing Lender" is defined in Section 2.3.2.
"Yield-to-Worst" has the meaning set forth in the Collateral Valuation Schedule.
Exhibit R
CONSOLIDATED CODE OF ETHICS
OF
SPECIAL VALUE OPPORTUNITIES FUND, LLC,
SPECIAL VALUE EXPANSION FUND, LLC,
SPECIAL VALUE CONTINUATION FUND, LLC,
SPECIAL VALUE CONTINUATION PARTNERS, LP,
TENNENBUAM OPPORTUNITIES FUND V, LLC,
TENNENBAUM CAPITAL PARTNERS, LLC,
SVIM/MSM, LLC,
SVIM/MSM II, LLC,
SVAR/MM, LLC, and
SVOF/MM, LLC
Pursuant to
Rule 17j-l(c) Under the Investment Company Act of 1940 and Rule 204A-1(a) Under the Investment Advisers Act of 1940
Tennenbaum Capital Partners, LLC ("TCP"), its affiliated advisors (together with TCP, the "Advisors"), and the Registered Funds TCP advises set high ethical and professional standards for employee conduct. Indeed, the reputation of the Registered Funds and the Advisors for integrity is one of their most important assets. Each employee -- whatever his or her position -- is responsible for upholding these standards.
Accordingly, this Code of Ethics has been adopted by the Registered Funds and the Advisors in accordance with Rule 17j-1(c) under the Investment Company Act of 1940 (the "40 Act") and Rule 204A-1(a) under the Investment Advisers Act of 1940 (the "Advisers Act"). The purpose of this Code of Ethics is to provide the Registered Funds and the Advisors with regulations and procedures designed to comply with the 40 Act and the Advisers Act, and in particular, Rule 17j-1(b) under the 40 Act, which generally proscribes fraudulent or manipulative practices with respect to an investment company by persons associated with such investment
company. Rule 17j-1(b) states (defined terms used below in paragraph (a) of this section 1 have the meaning given to such terms in Rule 17j-1(a)):
(a) It is unlawful for any affiliated person of or principal underwriter for a Fund, or any affiliated person of an investment adviser of or principal underwriter for a Fund, in connection with the purchase or sale, directly or indirectly, by the person of a security held or to be acquired by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading;
3. To engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
This Code of Ethics also proscribes securities transactions involving insider trading (as described below) as well as possible conflicts of interest.
Any violation of this Code of Ethics must be reported promptly to the Compliance Officer.
(a) This Code of Ethics applies to the "access persons" of the Registered Funds and the Advisors (as such term is defined in Section 3 below). Each access person must read, acknowledge receipt of, annually certify compliance with and retain a copy of this Code of Ethics.
(b) TCP will maintain a list of the access persons of the Registered Funds and the Advisors, will provide each such access person with a copy of this Code of Ethics and all amendments hereto, and will obtain from each officer, director, partner, employee or other person who provides investment advice on behalf
of an Advisor and is subject to supervision and control by an Advisor a written acknowledgement of receipt of this Code of Ethics and each such amendment.
For the purposes of this Code of Ethics, the following definitions shall apply:
(a) "Access person" means any, director, officer, employee or "advisory person" (as defined below in subparagraph (b)) of a Registered Fund, an Advisor or any other investment adviser to a Registered Fund. Notwithstanding the foregoing, the designated representative of Babson and Babson's directors, officers, employees and advisory persons shall not be considered an access person of the Registered Funds if Babson certifies on a quarterly basis to the Registered Funds that (i) such representative is subject to a comprehensive code of ethics of Babson, (ii) the person making such certification has reviewed such representative's reports to Babson and the portfolio listing of the Registered Funds and such representative has not reported any purchase or sale during the covered period of any security appearing on the Registered Funds' portfolio listings and (iii) Babson has not utilized any information gained by such representative regarding the Funds to make recommendations to its clients except as authorized by the Registered Funds' Compliance Officer.
(b) "Advisors" shall mean, collectively, the registered investment advisers set forth from time to time in the title on the first page of this Consolidated Code of Ethics, and "Advisor" shall mean each of the Advisors individually.
(c) "Advisory person" of a Fund or an Advisor means (i) any employee of the Fund, an Advisor or any other investment adviser to the Fund or any employee of any company in a control relationship to any such entity who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a security by a Fund, or whose functions related to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person, if any, in a control relationship to the Fund who obtains information concerning recommendations made to a Fund with regard to the purchase or sale of a security.
(d) A security is "being considered for purchase or sale" when, in the case of a potential purchase, a Fund has commenced or completed due diligence
and has not determined not to seek to acquire such security and, in the case of a sale, a Fund has commenced formal consideration of whether to sell such security and has not determined not to seek to sell it.
(e) "Beneficial ownership" means an interest in securities, the financial benefits of which are enjoyed, directly or indirectly, by the person in question by reason of ownership or any contract, understanding, relationship, agreement, or other arrangement, and by reason of which such person should be regarded as the true owner. It is not relevant whether such securities are registered or standing on the books of the issuer in the name of such person or some other person. Thus, for example, securities held for a person's benefit in the names of others, such as nominees, trustees and other fiduciaries, securities held by any partnership of which a person is a partner, and securities held by any corporation which is controlled by a person (directly or through intermediaries), would be deemed to be beneficially owned by said person. Similarly, a person ordinarily obtains benefits equivalent to ownership from, and thus is generally regarded as the "beneficial owner" of, securities held in the name of a spouse, a minor child, or an immediate family member living in the same household or substantially dependent on such person for support. Other illustrations of benefits substantially equivalent to those of ownership include application of the income derived from securities to maintain a common home and application of the income derived from securities to meet expenses which the person otherwise would meet from other sources. In some cases a fiduciary, such as a trustee, may have beneficial ownership by having or sharing voting or investment power with respect to such securities even if such person does not have a financial interest in the securities.
(f) "Compliance Officer" means the designated chief compliance officer of a Registered Fund or an Advisor, as appropriate.
(g) "Control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.
(h) "Fund" means any investment company, privately offered investment vehicle or separate account managed by an Advisor, including the Registered Funds.
(i) "Independent director", means a director of a Registered Fund who is not an "interested person" of the Registered Fund within the meaning of
Section 2(a)(l9) of the 40 Act. A director is not deemed an interested person of the Registered Fund solely by reason of such person being a member of the Board of Directors or an owner of shares of a Fund.
(j) "Investment personnel" means portfolio managers or other employees of an Advisor who participate in making investment recommendations to a Fund, as well as persons in a control relationship to a Fund who obtain information about investment recommendations, including any other investment adviser to the Fund except as expressly provided herein.
(k) "Insider Trading" generally means trading in a security on the basis of material non-public information in violation of a duty to the marketplace, the issuer, the person's employer or client or the like. Passing Material Non-public Information to another person in violation of such a duty may also be treated as Insider Trading. The circumstances in which such a duty exists are not easily defined. An access person of a Fund or an Advisor who has Material Non-public Information about a security should assume that he or she has such a duty unless the Compliance Officer makes a contrary determination.
(l) "Material Non-public Information" is information that is both material and non-public. For this purpose, information is considered material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to act. If the information has influenced a person's investment decision, it would be very likely to be considered material. In addition, information that, when disclosed, is likely to have a direct effect on the stock's price should be treated as material. Examples include information concerning impending mergers, sales of subsidiaries, significant revenue or earnings swings, dividend changes, impending securities offerings, awards of patents, technological developments, impending product announcements, impending financial news and other major corporate events. Information is non-public when it has not been disseminated in a manner making it available to investors generally. Information is public once it has been publicly disseminated, such as when it is reported in widely disseminated news services and/or publications, and investors have had a reasonable time to react to the information. Once the information has become public, it may be traded on freely.
(m) "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security or entering into or terminating any contract (such as a swap) the value or payout of which varies with the value of such security.
(n) "Registered Funds" shall mean, collectively, the Funds set forth from time to time in the title on the first page of this Consolidated Code of Ethics, and "Registered Fund" shall mean each of the Registered Funds individually.
(o) "Security" shall have the meaning set forth in Section 2
(a)(36) of the 40 Act. In general, the term includes any interest or instrument
commonly known as a security and, with respect to any security, includes any
related or derivative securities, except that it shall not include securities
issued by the Government of the United States, bankers acceptances, bank
certificates of deposit, commercial paper or shares of registered open-end
investment companies and such other high quality money market instruments as
may be designated by the Compliance Officer of a Fund or an Advisor.
(a) Except as permitted by Sections 5(a)-(f) and (h)-(i), no access person shall purchase or sell, directly or indirectly, any security in which such person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership and which to such person's actual knowledge at the time of such purchase or sale:
(i) is being held by a Fund
(ii) is being considered for purchase or sale by a Fund; or
(iii) is being purchased or sold by a Fund.
(b) No access person shall reveal to any other person (except in the normal course of his or her duties on behalf of a Fund) any confidential information regarding securities transactions by a Fund or consideration by a Fund or an Advisor of any securities transaction; provided that such disclosure may be made to any other investment adviser to a Fund. The Funds and the Advisors consider all information concerning their investment activities to be confidential, unless such information has been publicly disclosed. When an access person serves as a director or officer of a portfolio company, such person shall coordinate any disclosures made by such person with the Compliance Officer.
(c) No access person shall make recommendations concerning the purchase or sale of securities by a Fund without disclosing any interest such access person has in the securities or issuer thereof, including, without limitation:
(i) any direct or indirect beneficial ownership of any securities of such issuer;
(ii) any contemplated transaction by such person in such securities;
(iii) any position with such issuer or its affiliates; and
(iv) any present or proposed business relationship with such issuer or its affiliates on the one hand, and such person or any party in which such person has a significant interest, on the other;
(d) No access person of a Fund or an Advisor shall participate in any securities transactions on a joint basis with a Fund in violation of applicable law.
(e) No access person shall engage in "Insider Trading" whether for his or her own benefit or the benefit of a Fund, an Advisor or others.
(f) No investment personnel shall participate in Initial Public Offerings or in private placements of securities unless the Compliance Officer reviews and approves such participation. In determining whether such prior approval shall be granted, the Compliance Officer shall take into account whether the opportunity to purchase such Covered Securities is being offered to such investment personnel because of his or her position with the Funds or an Advisor, and whether the opportunity to purchase such security should be reserved for clients of the Advisor. Note that the term investment personnel generally does not include independent directors, who may accordingly generally acquire securities in initial public offerings and private placements without prior written approval. Approval will only be granted if the Compliance Officer determines the investment does not cause a conflict of interest between the investment personnel, an Advisor and a Fund. The Compliance Officer's decision, and the rationale supporting his or her decision, will be retained in the records of the Advisor and the Funds.
(g) Advisory persons are prohibited from receiving any gift or other things of more than de minimis value (generally less than $200) from any person or entity that does business with or on behalf of the Funds, except as approved by the Compliance Officer. Gifts received in excess of $100 must be listed on each employee's quarterly compliance statement.
(h) Advisory persons are prohibited from being the beneficiary of entertainment (including meals and travel) of more than de minimis value (generally less than $200 per event) provided by any broker, dealer, or investment bank with which investment transactions are made or likely will be made on behalf of a client, except as approved by the Compliance Officer.
(i) Advisory persons must have prior written authorization of a Managing Partner of TCP to serve as an officer of or on the board of directors of any outside companies other than charitable and non-profit organizations and foundations and other than (at the request of TCP) any company in which a Fund has an investment.
(j) No access person may sell short any security issued by a Fund or take a short equivalent position in any related security.
The prohibitions of Section 4(a) of this Code of Ethics shall not apply to:
(a) Purchases or sales effected in any account over which the access person has no direct or indirect influence or control or in any account of the access person which is managed on a discretionary basis by a person other than such access person and with respect to which such access person does not in fact influence or control such transactions
(b) Purchases or sales effected in any account in which the Access Person does not have direct or indirect beneficial ownership of the holdings of such account (such as mutual funds).
(c) Purchases or sales which are non-volitional on the part of either the access person or a Fund (such as a merger).
(d) Transactions effected pursuant to an automatic investment plan.
(e) Purchases which are part of an automatic dividend reinvestment plan, if any.
(f) Purchases effected upon the exercise of rights issued by an issuer, pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer.
(g) Purchases or sales of any security (including any related or derivative security) of an issuer or affiliated issuer not on a list maintained by the Compliance Officer at the time the access person in question determines to make such purchase or sale. The Compliance Officer or his designee shall maintain and continuously update such list, which shall contain all issuers whose securities are held by portfolios managed by an Advisor or whose securities are being considered for purchase or sale by any portfolio managed by an Advisor.
(h) Purchases or sales of securities by an independent director that are not prohibited by Section 4(a) of this Code of Ethics.
(i) Purchases or sales of securities which receive the prior written approval of the Compliance Officer (or other designee) (such approving officer having no personal interest in such purchases or sales) because such purchases or sales are not likely to have any economic impact on a Fund or on its ability to purchase or sell securities of the same class or other securities of the same issuer. Any pre-clearance will be valid for seven days unless otherwise stated in the written waiver, subject to termination at any time during such period by the Compliance Officer.
The Funds and the Advisors consider all information concerning their investment activities and the operations of those private companies in which they primarily invest to be confidential, unless such information has been publicly disclosed. Access Persons may not communicate such confidential information to others who (i) do not need to know that information in the interests of the business of the Funds and/or the Advisors or (ii) are not permitted to receive such information under the confidentiality agreements of the Funds and/or the Advisors with the
companies in which they invest or consider investing. Further, Access Persons may not trade in a security while in possession of material confidential information regarding the issuer of that security or the activities of the Funds and/or the Advisers with respect to such issuer.
If an access person believes he has learned Material Non-public Information about a public company in which a Fund has or is considering acquiring an investment interest, he should contact the Compliance Officer immediately so that the Fund can address the insider trading issues and preserve the integrity of the Fund's activities. Such access person may not trade on the information or discuss the possible Material Non-public Information with any other person at or outside a Fund or an Advisor.
If the Compliance Officer, after consultation with senior management, concludes that such access person may in fact have received Material Non-public Information, the Fund or the Adviser will either (1) abstain from trading in the securities of that issuer, (2) publicly disclose the information, or (3) establish an information barrier so that other persons at the Company do not learn the Material Non-public Information, provided that an information barrier will not be established except pursuant to procedures approved by nationally recognized securities counsel. Further, securities of the issuer in which Material Non-public Information was acquired will be placed on the restricted list maintained by the Compliance Officer until further determination.
The following are steps that can be taken to preserve the confidentiality of confidential information and Material Non-public Information:
(a) Material Non-public Information should be communicated only when there exists a justifiable business reason to do so. Before such information about a public company is communicated to persons outside a Fund or an Advisor, the access person must consult with the Compliance Officer.
(b) Access persons should not discuss confidential matters in elevators, hallways, restaurants, airplanes, taxis, or any place where they might be overheard.
(c) Access persons should not leave sensitive memoranda on their desk or in other places where others can read them. Access persons should not leave a computer terminal without exiting the file upon which they are working.
(d) Access persons should not read confidential documents in public places or discard them where others can retrieve them. Access persons should not carry confidential documents in an exposed manner.
(e) Access persons should not discuss confidential business
information with spouses or other relatives or with friends.
(f) Access persons should not permit clients or other visitors to a Fund or an Advisor to wander freely.
(g) Access persons should avoid even the appearance of an impropriety. Serious repercussions may follow Insider Trading and the law proscribing Insider Trading is constantly changing.
(h) Access persons should assume that all confidential information about the Registered Funds and any public company is Material Non-public Information, the use or dissemination of which for other than a legitimate business purpose would be wrong.
Access persons are further bound by the provisions of TCP's Insider Trading Policy.
(a) Every access person, subject to the exception in paragraph
(b) below for independent directors, shall report to the Compliance Officer the
information described in Section 7(c) of this Code with respect to (i)
transactions in any security in which such access person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security and (ii) holding of all securities, on an initial and annual basis, in
which such access person has direct or indirect beneficial ownership; provided,
however, that an access person shall not be required to make a report with
respect to transactions effected in any account over which such person does not
have any direct or indirect influence or control or in any account which is
managed on a discretionary basis by a person other than such access person and
with respect to which such access does not in fact influence or control such
transactions. The Compliance Officer shall maintain such reports and such other
records as are required by Rule l7j-l under the 40 Act and Rule 204-2 of the
Advisers Act and set forth in Section 8 below.
(b) An independent director of a Registered Fund need only report to the Compliance Officer a transaction if such director at the time of such transaction knew or, in the ordinary course of fulfilling his or her official duties as a director of the Registered Fund, should have known that during the 15-day period immediately preceding or after the date of such transaction by such director the security is or was purchased or sold by a Registered Fund or such security was being considered for purchase or sale by a Fund or an Advisor. Independent directors are not required to make the initial or annual holdings reports set forth in Section 7(c)(i) below, or the quarterly reporting requirements set forth in Section 7(c)(ii) below (unless a transaction described in this paragraph has occurred in such quarter). (a)
(c) Every report shall be in writing and shall be delivered not later than (i) 10 days after the day the individual becomes an access person and within 45 days after each January 1 thereafter and (ii) within 30 days after the end of each calendar quarter during which such person is an access person and shall contain the following information:
(1) For reports due under clause (i) with respect to holdings as of a date within 45 days prior to the date of the report, the title and type of security, and, as applicable, the exchange ticker or CUSIP number, the number of shares, and the principal amount of each security involved; and the name of any broker, dealer or bank with which such access person maintains an account in which any securities are held for such access person's direct or indirect benefit;
(2) For reports due under clause (ii) with respect to transactions during the preceding quarter, the date of each transaction; the nature of each transaction (i.e., purchase, sale or other type of acquisition or disposition); the title, and as applicable, the exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares, and principal amount of each security; the price at which each transaction was effected; and the name of the broker, dealer or bank with or through which each transaction was effected; and
(3) With respect to any account established by an access person during the quarter in which any securities were held during the quarter for the direct or indirect benefit of the access person:
a. name of the broker, dealer or bank;
b. date account was established; and
c. date that report is submitted to the Compliance
Officer.
(d) In lieu of the required report, so long as the information in the report required by 7(c) above is provided (including, for example, with respect to gifts), an access person may instruct every brokerage firm at which such access person has an account to send duplicate confirmations of all securities transactions and monthly brokerage statements to the Compliance Officer. The annual report required by paragraph 7(c)(i) above can be made by confirming in writing the information accumulated through the year.
(e) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that such person has any direct or indirect beneficial ownership in the security to which the report relates.
(f) All reports furnished pursuant to this Code will be reviewed by the Compliance Officer for compliance with these procedures. Such reports will be kept confidential, subject to the right of inspection by the Board of Directors of the Fund, the Advisor and the Securities and Exchange Commission.
(g) Each access person (including each independent director) must annually certify that such person has read this Code of Ethics, understands its requirements regarding such person and has complied with such requirements throughout the previous year. Such report shall be submitted to the Compliance Officer not later than February 14 of each year.
(h) No less frequently than annually, TCP must furnish to the Board of Directors and the Board of Directors must consider, a written report that: (i) describes any issues arising under the Code of Ethics or procedures since the last report to the Board of Directors, including but not limited to, information about
material violations of the code or procedures and sanctions imposed in response to the material violations; and (ii) certifies that each Registered Fund and the respective Advisors have adopted procedures reasonably necessary to prevent Access Persons from violating this Code of Ethics.
The Compliance Officer shall maintain and cause to be maintained in an easily accessible place, the following records:
(a) A copy of any code of ethics adopted by an Advisor or a Registered Fund pursuant to Rule 17j-1 or 204A-1 which is or has been in effect during the past five years;
(b) A list of all persons who are, or within the preceding five years have been, access persons of each Advisor and each Registered Fund;
(c) A copy of each written acknowledgement required by Section 2(b) of this Code of Ethics for each person who is, or within the past five years was, subject to such requirement;
(d) A copy of each report made pursuant to Rule 17j-1 or 204A-1 and this Code within the preceding five years, including the Compliance Officer's reports to the Board of Directors;
(e) A copy of any decision and reasons supporting such decision to approve a pre-clearance transaction pursuant to this Code, made within the past five years preceding the beginning of the fiscal year in which such approval is granted; and
(f) A copy of any record or report of violation of this Code and any action taken as a result of such violation.
Upon discovering a violation of this Code, the Board of Directors of a Registered Fund or an Advisor, as applicable, may impose such sanctions as it deems appropriate, including, among other things, a letter of censure or suspension or termination of the employment of the violator.
CERTIFICATION FORM
This is to certify that I have read and understand the Consolidated Code of Ethics dated October 1, 2006 and that I recognize that I am subject to the provisions thereof and will comply with the policy and procedures stated therein.
This is to further certify that I have complied with the requirements of such Code of Ethics and that I have reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of such Code of Ethics.
Please sign your name here: _____________________________
Please print your name here: ____________________________
Please date here: ____________________________
Please sign two copies of this Certification Form, return one copy to Compliance Officer and retain the other copy, together with a copy of the Code of Ethics, for your records.
Exhibit S
TENNENBAUM CAPITAL PARTNERS, LLC
PROXY VOTING POLICY
This policy has been adopted by Tennenbaum Capital Partners, LLC to facilitate the voting of proxies relating to portfolio securities of clients with respect to which Tennenbaum Capital Partners, LLC or any of its affiliates that are subject to the Investment Advisers Act of 1940 (collectively "Tennenbaum") provide investment advisory services. In connection with these investment advisory services, Tennenbaum exercises voting responsibilities for its clients through its corporate proxy voting process.
Special Value Opportunities Fund, LLC, Special Value Expansion Fund, LLC, Special Value Continuation Fund, LLC, and Special Value Continuation Partners, LP have delegated to Tennenbaum the authority to vote proxies relating to their respective portfolio securities in accordance with this policy.
This policy is intended by Tennenbaum (i) to constitute "written policies and procedures" as described in Rule 206(4)-6 under the Investment Advisers Act of 1940 (the "Advisers Act") and (ii) to constitute proxy voting policies and procedures referred to in Item 18 of Form N-2 adopted under the Investment Company Act of 1940 (the "1940 Act").
INDEX
Definitions................................................................3 Objectives.................................................................3 Resolutions of Conflicts of Interest.......................................4 Proxy Voting Coordinator...................................................5 Assembling Voting Information..............................................6 Portfolio Managers.........................................................6 Accumulating Voting Results................................................6 Communicating Votes........................................................7 Record of Voting Delegation................................................7 Annual Review of Policy Function...........................................7 Disclosure and Comments on Voting..........................................8 Joining Insurgent or Voting Committees.....................................8 Social Issues..............................................................8 Recordkeeping..............................................................8 |
DEFINITIONS
"Client" means any person with whom Tennenbaum has a contract to perform discretionary investment management services and for whom Tennenbaum is authorized by the contract or required by applicable law to vote or consider voting securities held in the Client's account.
"Compliance Officer" means the Chief Compliance Officer, Tennenbaum Capital Partners, LLC.
"Conflict of Interest" means, as to any Client, any conflict between a pecuniary interest of Tennenbaum or any of its affiliates (other than such Client, if deemed an affiliate) and the duties of Tennenbaum to the Client.
"Investment Committee" means the Investment Committee of Tennenbaum or such committee to which it shall have delegated the functions of the Investment Committee hereunder.
"Portfolio Manager" means, with respect to a Client, the particular Tennenbaum entity providing investment advisory services to such Client and the senior personnel responsible for such entity's investment decisions.
"Proxy Voting Coordinator" means the individual appointed from time to time by Investment Committee to perform the proxy voting coordination functions described in this policy.
"Registered Fund" means any Client registered as an investment company under the 1940 Act.
"Social Issues" means any issue presented for a vote of holders of any security which is held in an account on behalf of a Client which may reasonably be interpreted as (i) unrelated in any substantial respect to the voting objective of this policy and (ii) intended to promote directly or indirectly the interests of persons who are not holders of the relevant security.
"Tennenbaum" means Tennenbaum Capital Partners, LLC and each of its affiliates that is subject to registration under the Advisers Act or is otherwise subject to the rules and regulations thereunder generally, including, specifically, Rule 206(4)-6.
"Voting Results" means the specific information described under the caption "Accumulating Voting Results."
OBJECTIVES
This policy defines procedures for voting securities held on behalf of each Client in respect of which Tennenbaum has the discretionary authority to vote, to ensure that such securities are voted for the benefit of and in the best interest of the Client. The primary objective of voting a security in each case under this policy is to seek to enhance
the value of the investment which the security represents or to reduce the potential for a decline in the value of the investment which the security represents. In appropriate cases a related objective will be to obtain or maintain influence or control over management of a company.
This policy does not prescribe specific voting requirements. Instead, this policy provides procedures for (i) assembling voting information and applying the informed expertise and judgment of Tennenbaum's personnel on a timely basis in pursuit of the above stated voting objectives and (ii) addressing conflicts of interest.
A further element of this policy is that while voting on all issues presented should be considered, voting on all issues is not required. Some issues presented for a vote of security holders are not relevant to this policy's voting objectives, or it is not reasonably possible to ascertain what effect, if any, a vote on a given issue may have on the value of an investment. Accordingly, Tennenbaum may abstain from voting or decline a vote in those cases where, in Tennenbaum's judgment (i) there is no relationship between the issue and the enhancement or preservation of an investment's value or (ii) the achievement of the Client's investment objectives are not reasonably likely to be a function of the outcome of decisions or issues presented by the vote.
Resolutions of Conflicts of Interest
It is unlikely that conflicts of interest will arise in the context of Tennenbaum's proxy voting, because Tennenbaum does not engage in investment banking, the advising of public companies or, except in cases where it exercises control, the managing of public companies.
In addition, insofar as Tennenbaum refers discretionary votes to its portfolio managers, Tennenbaum's Compliance Department monitors all relationships between portfolio managers and their immediate families, on the one hand, and issuers soliciting proxies from Tennenbaum's Clients, on the other hand. If a portfolio manager conflict is identified with respect to a given proxy vote, the Investment Committee will remove such vote from the conflicted portfolio manager and will instead consider and cast the vote, refer the vote to an independent third party or abstain from voting.
In the event a privately-placed security as to which Tennenbaum or its affiliated adviser entities negotiated more than price related terms is held by a Registered Fund and is the subject of a proxy solicitation or other voting or consent solicitation, and any unregistered fund or separate account managed by Tennenbaum or its affiliated adviser entities also owns securities of the same class as the security held by the Registered Fund that is the subject of the proxy, vote or consent, then Tennenbaum will vote such security in the same manner, at the same time and in amounts proportionate to each such entity's or account's investment in such security; provided that if Tennenbaum or its affiliated adviser entities believes that the foregoing policy is not in the best interests of a particular Client in a particular situation, Tennenbaum or its affiliated adviser entities shall be permitted to deviate from the foregoing policy only if it has (i) submitted a proposal to the boards of directors of each applicable Registered Fund explaining the basis for such
deviation and (ii) received the approval of a majority of those directors of the Registered Fund who (a) during the previous two years have had no material business or professional relationship with any of the Registered Fund or any other entity or separate account managed by Tennenbaum or its affiliated adviser entities (other than as a director of the Registered Fund) and (b) have no direct or indirect financial interest in the proxy solicitation, vote or consent other than through an investment in one or more of the Registered Fund or any other entity or separate account managed by Tennenbaum or its affiliated adviser entities.
In the event that a potential material conflict of interest does arise and is not addressed by the foregoing procedures, the primary means by which Tennenbaum avoids a material conflict of interest in the voting of proxies for its clients is by casting such votes solely in the interests of its Clients and in the interests of maximizing the value of their portfolio holdings.
Proxy Voting Coordinator
The Investment Committee shall appoint a Proxy Voting Coordinator. The Proxy Voting Coordinator shall discharge the following functions in effectuating this policy:
(i) Collecting and assembling proxy statement and other communication pertaining to proxy voting, together with proxies or other means of voting or giving voting instructions, and providing those materials to the appropriate portfolio managers to permit timely voting of proxies;
(ii) Collecting recommendations, analysis, commentary and other information respecting subjects of proxy votes, from service providers engaged by Tennenbaum and other services specified by portfolio managers, and providing this information to the appropriate portfolio managers to permit evaluation of proxy voting issues;
(iii) Providing to appropriate portfolio managers any specific voting instructions from Clients that are entitled to provide such instructions under the applicable investment advisory agreement;
(iv) Collecting proxy votes or instructions from portfolio managers, and transmitting the votes or instructions to the appropriate custodians, brokers, nominees or other persons (which may include proxy voting services or agents engaged by Tennenbaum);
(v) Accumulating Voting Results as set forth below in this policy and transmitting that information to the Compliance Officer in a timely manner; and
(vi) Participating in the annual review of the policy function as set forth in this policy.
THE PROXY VOTING COORDINATOR MAY, WITH THE INVESTMENT COMMITTEE'S APPROVAL, DELEGATE ANY PORTION OR ALL OF ANY ONE OR MORE OF THESE FUNCTIONS TO ONE OR MORE OTHER INDIVIDUALS EMPLOYED BY TENNENBAUM. ANY PORTION OR ALL OF ANY ONE OR MORE OF THESE FUNCTIONS MAY BE PERFORMED BY SERVICE PROVIDERS ENGAGED BY TENNENBAUM.
Assembling Voting Information
The Proxy Voting Coordinator shall obtain proxy statements and other communications pertaining to proxy voting, together with proxies or other means of voting or giving voting instructions to custodians, brokers, nominees, tabulators or others in a manner to permit voting on relevant issues in a timely manner. Tennenbaum may engage service provides and other third parties to assemble this information, digest, abstract the information where necessary or desirable, and deliver it to the individuals assigned by Tennenbaum to evaluate proxy voting issues.
Portfolio Managers
The Portfolio Manager responsible for a particular Client is responsible for the timely voting (or determining not to vote in the appropriate cases) of proxies relating to the securities held on behalf of such Client in accordance with this policy. The Portfolio Manager may, to the extent not prohibited by agreement(s) setting forth its contractual obligations to such Client, and consistent with its fiduciary duties, delegate voting responsibilities to one or more other Portfolio Managers or other individuals. Portfolio managers are authorized to consider voting recommendations and other information and analysis provided by service providers (including proxy voting services) engaged by Tennenbaum.
Accumulating Voting Results
The Proxy Voting Coordinator is responsible for reporting the following information respecting the voting of each proxy to the Compliance Officer, as to each matter relating to a portfolio security held for a Client, considered at a shareholder meeting, and with respect to which the Client was entitled to vote:
(i) The name of the issuer of the portfolio security;
(ii) The exchange ticker symbol of the portfolio security;
(iii) The CUSIP number for the portfolio security;
(iv) The shareholder meeting date;
(v) A brief identification of the matter voted on;
(vi) Whether a vote was cast on the matter;
(vii) How the vote was cast on the matter (e.g., for or against the proposal, or abstain, etc.);
(viii) Whether a vote was cast for or against management.
The foregoing information must be delivered to the Compliance Officer no later than July 31, for each 12 month period ending on the preceding June 30 commencing July 31, 2004 with respect to the period ending June 30, 2004. Tennenbaum may use third party service providers to record, accumulate and deliver the foregoing information to the Compliance Officer. The Proxy Voting Coordinator may, with the Investment Committee's approval, delegate any portion or all of this function to one or more other individuals employed by Tennenbaum.
Communicating Votes
The Proxy Voting Coordinator shall communicate decisions on proxy votes to the custodian or to other persons who transmit or record votes on portfolio securities held by or for each Client in a timely manner. The Proxy Voting Coordinator may, with the Investment Committee's approval, delegate any portion or all of this function to one or more individuals employed by Tennenbaum. Tennenbaum may engage one or more service providers to facilitate timely communication of proxy votes. Tennenbaum is not responsible for voting proxies that are not forwarded on a timely basis. Tennenbaum does not control the setting of record dates, shareholder meeting dates or the timing of distribution of proxy materials and ballots relating to shareholder votes as a general matter.
Record of Voting Delegation
The Compliance Officer shall maintain a list of all Clients with a specification as to each Client whether or not Tennenbaum is authorized to vote proxies respecting the Client's portfolio securities.
Annual Review of Policy Function
The Compliance Officer shall conduct a periodic review, no less often than annually, which shall comprise the following elements:
(i) Review samples of the record of voting delegation maintained by the Compliance Officer against Voting Results to determine if Tennenbaum is exercising its authority to vote proxies on portfolio securities held on behalf of the selected Clients;
(ii) Request and review voting data to determine if timely communication of proxy votes is reasonably accomplished during the relevant period;
(iii) Meet with the Proxy Voting Coordinator to review the voting of proxies, communication of proxy votes, accumulation of Voting Results and the general functioning of this policy; and
(iv) Prepare a written report to the Investment Committee respecting the foregoing items and, if requested to do so by the Investment Committee, prepare a written report to the board of any Registered Fund.
Disclosure and Comments on Voting
Tennenbaum will provide a copy of these policies and procedures to Clients upon request. Clients may also obtain information on how portfolio securities held on their behalf were voted by written request and addressed to Tennenbaum, Proxy Voting Coordinator. It is the policy of Tennenbaum not to comment on specific proxy votes with respect to securities held for a Client in response to inquiries from persons who are not specifically or authorized representative of such Client. The Investment Committee may authorize comments in specific cases, in its discretion.
Joining Insurgent or Voting Committees
It is the policy of Tennenbaum, for itself and its Clients, not to join any insurgent or voting committee or similar group unless doing so is consistent with the Client's investment objective. The Investment Committee may, in other circumstances, approve participation in any such committee or group in its discretion, and shall advise the authorized representative of the Client of any such action.
Social Issues
It is the presumption of this policy that proxies shall not be voted on Social Issues, unless the advisory agreement with the Client provides otherwise. The Investment Committee may approve voting of any security held on behalf of a Client on any Social Issue.
Recordkeeping
The Compliance Officer shall maintain the following records:
(i) Copies of this policy as from time to time revised or supplemented;
(ii) A copy of each proxy statement that Tennenbaum receives regarding Client securities;
(iii) Voting Results for each Client;
(iv) A copy of any document created by Tennenbaum that was material to making a decision on how to vote proxies on behalf of a Client;
(v) A copy of each written Client's request for information on how Tennenbaum voted proxies on behalf of the Client and Tennenbaum's response thereto;
(vi) Communications to Client respecting Conflicts of Interest; and
(vii) All written reports arising from annual reviews of policy function.
The Compliance Officer shall maintain and preserve in his office the foregoing records for a period of not less than five years from the end of Tennenbaum' fiscal year during which the last entry was made on the record the first two years in an appropriate office of Tennenbaum. The Compliance Officer may use the Securities and Exchange Commission's EDGAR database for the items referred to in item (ii) above, and the Investment Committee may authorize the Compliance Officer to engage one or more service providers to perform any portion of this recordkeeping function provided (1) the function is performed in compliance with applicable governmental regulations and (2) each service provider provides a written undertaking to furnish the records to Tennenbaum promptly upon request.
Adopted by SVOF June 18, 2004
Adopted by SVEF August 19, 2004