__________________________________________________
AGREEMENT OF
LIMITED PARTNERSHIP OF
@VENTURES III, L.P.
__________________________________________________
August 7, 1998
<PAGE>
AGREEMENT OF
LIMITED PARTNERSHIP OF
@VENTURES III, L.P.
TABLE OF CONTENTS
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I. DEFINITIONS ................................................ 1
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II. FORMATION .................................................. 12
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Section 2.1 Purpose .................................................... 12
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Section 2.2 Name ....................................................... 13
----
Section 2.3 Principal Place of Business ................................ 13
---------------------------
Section 2.4 Registered Agent ........................................... 13
----------------
Section 2.5 Term ....................................................... 13
----
III. CAPITAL CONTRIBUTIONS; PARTNERS' ACCOUNTS .................. 13
-----------------------------------------
Section 3.1 Capital Commitments and Contributions ...................... 13
-------------------------------------
Section 3.2 Capital Accounts ........................................... 14
----------------
Section 3.3 Review or Modification of Capital Commitments .............. 15
---------------------------------------------
Section 3.4 Default in Capital Commitment .............................. 16
-----------------------------
IV. BRIDGE FINANCING ........................................... 18
----------------
Section 4.1 Extension of Bridge Financing .............................. 18
-----------------------------
Section 4.2 Funding of Bridge Financing ................................ 18
---------------------------
Section 4.3 Permanent Bridge Financing ................................. 18
--------------------------
V. DISTRIBUTIONS; WITHHOLDING; VALUATION; ALLOCATIONS ......... 19
--------------------------------------------------
Section 5.1 Withdrawal of Capital ...................................... 19
---------------------
Section 5.2 Distributions Prior to Liquidation ......................... 19
----------------------------------
Section 5.3 Distributions Upon Liquidation ............................. 21
------------------------------
Section 5.4 Distributions of Securities in Kind ........................ 22
-----------------------------------
Section 5.5 Withholding ................................................ 23
-----------
Section 5.6 Valuation .................................................. 24
---------
Section 5.7 Allocations of Operating Income and Loss
----------------------------------------
and Investment Gain and Loss ............................... 25
----------------------------
Section 5.8 Special Provisions ........................................ 26
------------------
Section 5.9 Special Provisions in the Event of Borrowings
---------------------------------------------
or a Section 754 Election .................................. 28
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VI. MANAGEMENT; PAYMENT OF EXPENSES ............................ 28
-------------------------------
Section 6.1 Description of General Partner ............................. 28
------------------------------
Section 6.2 Management by the General Partner .......................... 29
---------------------------------
Section 6.3 Powers of Limited Partners ................................. 31
--------------------------
Section 6.4 Continuity Mode ............................................ 32
---------------
Section 6.5 Payment of Fees and Expenses ............................... 32
----------------------------
VII. OTHER ACTIVITIES OF PARTNERS; CO-INVESTMENT OBLIGATION ..... 34
------------------------------------------------------
Section 7.1 Commitment of General Partner .............................. 34
-----------------------------
Section 7.2 Opportunity to Participate in Future Investment Vehicles ... 35
--------------------------------------------------------
Section 7.3 Dealings with Limited Partners ............................. 35
------------------------------
Section 7.4 Co-Investment Obligation ................................... 36
------------------------
Section 7.5 Other Co-Investment Rights ................................. 36
--------------------------
Section 7.6 Foreign Fund Co-Investment ................................. 37
--------------------------
Section 7.7 Co-investments by the Other Participating Funds ............ 37
-----------------------------------------------
VIII. ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS ........... 38
------------------------------------------------
Section 8.1 Admission of Additional General Partner .................... 38
---------------------------------------
Section 8.2 Admission of Additional Limited Partners ................... 38
----------------------------------------
Section 8.3 Assignment of Partnership Interest ......................... 39
----------------------------------
Section 8.4 Restrictions on Transfer ................................... 40
------------------------
Section 8.5 Removal of General Partner ................................. 40
--------------------------
Section 8.6 Withdrawals ................................................ 41
-----------
Section 8.7 ERISA Matters .............................................. 42
-------------
IX. LIABILITY OF PARTNERS; INDEMNIFICATION ..................... 46
--------------------------------------
Section 9.1 Liability of General Partner ............................... 46
----------------------------
Section 9.2 Liability of Limited Partners .............................. 47
-----------------------------
Section 9.3 Indemnification of the General Partner and Limited Partners 47
-----------------------------------------------------------
Section 9.4 Payment of Expenses ........................................ 47
-------------------
X. ACCOUNTING FOR THE PARTNERSHIP; REPORTS ................... 48
---------------------------------------
Section 10.1 Accounting for the Partnership ............................. 48
------------------------------
Section 10.2 Books and Records .......................................... 48
-----------------
Section 10.3 Reports to Partners ........................................ 48
-------------------
Section 10.4 Annual Meeting ............................................. 49
--------------
XI. DISSOLUTION AND WINDING UP ................................. 49
--------------------------
Section 11.1 Termination ................................................ 49
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Section 11.2 Winding Up ................................................. 50
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Section 11.3 Liquidating Trust .......................................... 50
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XII. MISCELLANEOUS .............................................. 51
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Section 12.1 Registration of Securities ................................. 51
--------------------------
Section 12.2 Entire Agreement ........................................... 51
----------------
Section 12.3 Voting; Amendments ......................................... 51
------------------
Section 12.4 Severability ............................................... 52
------------
Section 12.5 Notices .................................................... 52
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Section 12.6 Heirs and Assigns; Execution ............................... 52
----------------------------
Section 12.7 Waiver of Partition ........................................ 53
-------------------
Section 12.8 Power of Attorney .......................................... 53
-----------------
Section 12.9 Headings ................................................... 53
--------
Section 12.10 Further Actions ............................................ 53
---------------
Section 12.11 Gender, Etc................................................. 53
------------
Section 12.12 Tax Matters Partner ........................................ 53
-------------------
Section 12.13 Applicable Law ............................................. 54
--------------
Schedule 1 .................................................................. 56
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iii
<PAGE>
AGREEMENT OF
LIMITED PARTNERSHIP OF
@VENTURES III, L.P.
AGREEMENT OF LIMITED PARTNERSHIP dated as of August 7, 1998 (the
"Agreement"), by and among @Ventures Partners III, LLC (referred to as the
"General Partner") and the undersigned limited partners (together with any other
limited partner which may hereafter be admitted referred to as the "Limited
Partners"). The General Partner and the Limited Partners are sometimes
collectively referred to herein as the "Partners" and individually as a
"Partner". Definitions of certain terms used in this Agreement are contained
in Article I.
AGREEMENT
---------
In consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
I.
DEFINITIONS
-----------
As used herein, the following terms have the following meanings:
@Ventures III:
-------------
@Ventures Partners III, LLC, a Delaware limited liability company, or any
successor general partner of the Partnership.
Accredited Investor:
-------------------
An investor which qualifies as an "accredited investor" as defined in
Regulation Section 230.501 of Regulation D promulgated under the Securities
Act.
Act:
---
The Delaware Revised Uniform Limited Partnership Act, as amended from time
to time.
Adjusted Capital Account Deficit:
--------------------------------
With respect to any Partner, the deficit balance, if any, in such Partner's
Capital Account as of the end of the relevant fiscal year or other
accounting period determined after (i) crediting to such Capital Account
any amounts which such Partner is obligated to restore thereto hereunder or
is deemed to be obligated to restore thereto pursuant to the penultimate
sentences of
<PAGE>
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations and
(ii) debiting to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations. The
foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
Affiliates:
----------
With respect to any person, any officer, director, employee or general
partner of, or any person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with,
such person. The General Partner and its individual members shall all be
deemed Affiliates of one another.
Assignee:
--------
As defined in Section 8.3.
Break-up Fee:
------------
Any fee, reimbursement or other form of compensation payable by a third
party as a result of the failure to consummate an investment.
Bridge Financing:
----------------
As defined in Section 4.1.
Business Day:
------------
Any day, excluding Saturday, Sunday and any other day on which commercial
banks in Boston, Massachusetts are authorized or required by law not to be
open for business.
CMGI:
----
CMG Information Services, Inc., a Delaware corporation.
CMGI Funds:
----------
The Prior Funds and any other corporation, partnership or limited liability
company organized by CMGI in order to facilitate its co-investment
obligation under Section 7.4 hereof.
2
<PAGE>
Capital Account:
---------------
As defined in Section 3.2.
Capital Commitment:
------------------
As defined in Section 3.1.
Capital Contribution:
--------------------
As defined in Section 3.1.
Capital Contribution Allocable to Liquidated Portfolio Securities:
-----------------------------------------------------------------
With respect to any Partner or class of Partners as of any time of
determination, that portion of the Capital Contributions of such Partner or
Partners equal to the cost basis of Portfolio Securities that have been
liquidated or otherwise disposed of. Capital Contributions Allocable to
Liquidated Portfolio Securities shall include (i) the unreimbursed cost to
the Partnership of acquiring, holding and selling Portfolio Securities,
(ii) any Deemed Portfolio Loss and (iii) that portion of the expenses of
the Partnership described in Section 6.5.A(1) that is equal to the ratio of
the cost basis of such liquidated Portfolio Security to the total Capital
Commitments of the Partnership (provided, however, that in the case of the
last investment by the Partnership in a Portfolio Security, any such
expenses that have not previously been allocated shall be allocated in
their entirety to such last investment for purposes of determining the
Capital Contribution of the Partners allocable to such Portfolio Security).
For the purposes of Section 5.2B(1) Capital Contributions Allocable to
Liquidated Portfolio Securities shall be reduced by any Deemed Portfolio
Loss previously distributed with respect to that security pursuant to
Section 5.2B(1).
Capital Contribution Allocable to Portfolio Securities:
------------------------------------------------------
With respect to any Partner or class of Partners as of any time of
determination, (i) that portion of the Capital Contributions of such
Partner or Partners that have been invested in Portfolio Securities,
including the unreimbursed cost to the Partnership of acquiring, holding
and selling Portfolio Securities (to the extent not paid by break-up and
other fees as provided in Sections 6.5.E and 6.5.F), and (ii) that portion
of the expenses of the Partnership described in Section 6.5.A(1) that is
equal to the ratio of the cost basis of Portfolio Securities to the total
Capital Commitments of the Partnership (provided, however, that in the case
of the last investment by the Partnership in a Portfolio Security, any such
expenses that have not previously been allocated shall be allocated in
their entirety to such last investment for purposes of determining the
Capital Contribution of the Partners allocable to such Portfolio Security).
3
<PAGE>
Code:
----
The Internal Revenue Code of 1986, as amended.
Co-investment Obligation:
------------------------
As defined in Section 7.4.
Committed Investment:
--------------------
An investment in Portfolio Securities in which the Partnership had an
obligation to invest as of the last day of the Commitment Period pursuant
to either (i) a commitment to make an initial investment in a Portfolio
Company or (ii) a commitment made at the time of the initial investment in
a Portfolio Company.
Commitment Period:
-----------------
The period from the Initial Closing Date to four years from such date.
Continuity Mode:
---------------
Status which the Limited Partners can impose upon the Partnership in the
event of a Triggering Event as described in Section 6.4.
Deemed Portfolio Loss:
---------------------
As defined in Section 5.2.D.
Defaulting Partner:
------------------
As defined in Section 3.4.
Dissolution Sale:
----------------
Sales and liquidations by or on behalf of the Partnership of all or
substantially all of its assets in connection with or in contemplation of
the winding up of the Partnership.
DOL Regulations:
---------------
The United States Department of Labor Regulations as in effect from time to
time.
4
<PAGE>
Eighty Percent (80%) in Interest of the Limited Partners:
--------------------------------------------------------
At any time, those Limited Partners whose aggregate Percentage of
Contributed Capital equals or exceeds eighty percent (80%).
ERISA:
-----
The Employee Retirement Income Security Act of 1974 as amended.
ERISA Affiliate:
---------------
Any "plan sponsor" (within the meaning of Section 3(16)(B) of ERISA) with
respect to an ERISA Partner, and any other persons that would be aggregated
with any plan sponsor and treated as a single employer for purposes of
Section 414 of the Code or Title I of ERISA.
ERISA Partner:
-------------
A Limited Partner that is either (a) an employee benefit plan as defined in
Section 3(3) of ERISA which is subject to Title I of ERISA (after taking
into account Section 4 of ERISA), or (b) a plan described in Section
4975(e)(1) of the Code (after taking into account Section 4975(g) of the
Code).
Escrow Account:
--------------
As defined in Section 5.2.F.
Financial Institution:
---------------------
A bank, savings institution, trust company, insurance company, pension or
profit sharing trust, or similar entity which is a member of any group of
such persons having assets of at least $100 million, or other entity (other
than an individual) a substantial part of whose business consists of
investing in, purchasing or selling the securities of others.
Follow-on Investment:
--------------------
An investment, other than a Committed Investment, in Portfolio Securities
of a Portfolio Company in which the Partnership holds, immediately prior
thereto, Portfolio Securities.
Foreign Fund:
------------
Any limited partnership or other investment vehicle formed or organized by
the General Partner or an Affiliate of the General Partner and designed for
investors formed or organized in a
5
<PAGE>
jurisdiction other than the United States or any state, district or
territory thereof, which will coinvest with the Partnership in the
acquisition of Portfolio Securities.
General Partner:
---------------
@Ventures Partners III, LLC or any successor general partner of the
Partnership.
Incentive Distributions:
-----------------------
As defined in the last paragraph of Section 5.2.B.
Indemnitees:
-----------
As defined in Section 9.3.
Initial Closing Date:
--------------------
The first date on which any Limited Partner, other than the Initial Limited
Partner, is admitted to the Partnership.
Investment Company Act:
----------------------
The Investment Company Act of 1940, as amended.
Investment Gain:
---------------
For any fiscal year or other accounting period of the Partnership, the
amount, if any, by which the Partnership's gross taxable income and gains
with respect to interests in Portfolio Companies exceed the Partnership's
gross taxable deductions and losses with respect to such interests in
Portfolio Companies. The following amounts shall be included in
determining Investment Gain: (i) any interest, dividend or similar
distribution with respect to Portfolio Securities, and (ii) any and all
payments arising out of the disposition of Portfolio Securities, including
without limitation any option payment, lump sum payment, principal or
interest paid or imputed under any promissory note, and any payment made
pursuant to a royalty or earn-out arrangement or similar form of contingent
payment. Calculations of Investment Gain shall be consistent with
calculations made for federal income tax purposes, except that Investment
Gain shall be determined (w) by taking into account unrealized gains and
losses with respect to Portfolio Securities that are revalued pursuant to
the penultimate sentence of Section 3.2 or distributed in kind hereunder,
(x) with reference to the book value rather than the adjusted tax basis of
any Portfolio Security that has been revalued pursuant to the penultimate
sentence of Section 3.2, (y) without regard to any amounts that are
specially allocated pursuant to
6
<PAGE>
Sections 5.8. and 5.9, and (z) without giving effect to any adjustments
made pursuant to Sections 743 or 734 of the Code. Notwithstanding the
foregoing, Investment Gain shall not include (i) interest or dividends
received from, or gain received upon the disposition of, Temporary Bridge
Financing or Permanent Bridge Financing, (ii) the amount of any fees paid
to the Partnership pursuant to Section 6.5.E, and (iii) the amount of any
fees paid to the Partnership pursuant to Section 6.5.F.
Investment Loss:
---------------
For any fiscal year or other accounting period of the Partnership, the
amount, if any, by which the Partnership's gross taxable deductions and
losses with respect to interests in Portfolio Companies exceed the
Partnership's gross taxable income and gains with respect to interests in
Portfolio Companies. Calculations of Investment Loss shall be consistent
with calculations made for federal income tax purposes and with the
calculation of Investment Gain.
Investment Receipts:
-------------------
Amounts received by the Partnership with respect to (including payments and
distributions on and proceeds of dispositions of) interests in and assets
of Portfolio Companies, net of amounts necessary to pay all expenses, debts
and obligations of the Partnership or to establish reserves therefor.
Investment Receipts shall exclude (i) interest or dividends received from,
or gain received upon the disposition of, Temporary or Permanent Bridge
Financing, (ii) the amount of any fees paid to the Partnership pursuant to
Section 6.5.E, and (iii) the amount of any fees paid to the Partnership
pursuant to Section 6.5.F.
Liabilities:
-----------
As defined in Section 9.3.
Liquidated Portfolio Securities:
-------------------------------
Portfolio Securities that have been liquidated or otherwise disposed of.
Limited Partners:
----------------
As defined in the recitals.
7
<PAGE>
Majority in Interest of Limited Partners:
----------------------------------------
At any time, those Limited Partners whose aggregate Percentage of
Contributed Capital exceeds fifty percent (50%).
Management Company:
------------------
@Ventures Management, LLC, a Delaware limited liability company.
Management Contract:
-------------------
The management contract with the Management Company in the form attached
hereto as Exhibit A.
---------
Management Fee:
--------------
The management fee payable by the Partnership to the Management Company
pursuant to the Management Contract.
Marketable Securities:
---------------------
Securities (i) that are freely tradeable pursuant to a registration under
the Securities Act of 1933, as amended, or an exemption therefrom, (ii)
that immediately after giving effect to their distribution will not be
subject to any contractual restriction on transfer, (iii) that will be
traded on a national securities exchange or reported through the National
Association of Securities Dealers Automated Quotation System, and (iv) that
may be sold without regard to volume limitations.
Net Investment Gain:
-------------------
As of any time of determination, the amount, if any, by which the sum of
the Investment Gains for all fiscal years and other accounting periods of
the Partnership exceeds the sum of the Investment Losses for all fiscal
years and other accounting periods of the Partnership.
Net Operating Income:
--------------------
As of any time of determination, the amount, if any, by which the sum of
the Operating Income for all fiscal years and other accounting periods of
the Partnership exceeds the sum of the Operating Losses for all fiscal
years and other accounting periods of the Partnership.
8
<PAGE>
Operating Income (Loss):
-----------------------
For any fiscal year or other accounting period of the Partnership the
excess (deficiency) of all income and gains of the Partnership, from
whatever source derived, over the losses and expenses borne by the
Partnership (including the Management Fee), including any income, gain,
losses or expenses relating to Temporary Bridge Financing or Permanent
Bridge Financing but excluding Investment Gain (Loss) all as calculated for
federal income tax purposes, except that Operating Income (Loss) shall be
computed with the following adjustments: (i) income of the Partnership
that is exempt from federal income tax and that is not otherwise taken into
account in computing income or loss shall be added to Operating Income
(Loss); (ii) expenditures of the Partnership that are neither deductible
for Federal income tax purposes nor allowable as additions to the basis of
Partnership property (or that are so treated pursuant to Section 1.704-
1(b)(2)(iv)(i) of the Treasury Regulations) shall be subtracted from such
taxable income or loss; and (iii) there shall not be taken into account any
items that are specially allocated pursuant to Sections 5.8.A, 5.8.C, 5.8.D
and 5.9.
Operating Receipts:
------------------
All amounts received by the Partnership other than Investment Receipts, net
of amounts necessary to pay all expenses, debts and obligations of the
Partnership or to establish reserves therefor.
Partners:
--------
As defined in the recitals hereof.
Partnership:
-----------
@Ventures III, L.P., a Delaware limited partnership.
Percentage of Contributed Capital:
---------------------------------
In the case of each Partner, except as provided in Sections 3.3 and 3.4,
the Capital Contributions of such Partner divided by the sum of the Capital
Contributions of all Partners.
Permanent Bridge Financing:
--------------------------
As defined in Section 4.3.
9
<PAGE>
Portfolio Companies:
-------------------
Companies in which the Partnership makes investments in accordance with the
provisions of this Agreement.
Portfolio Securities:
--------------------
Equity and equity-related securities of Portfolio Companies in which the
Partnership invests in accordance with the provisions of this Agreement.
Temporary Bridge Financing and Permanent Bridge Financing shall not be
considered to be Portfolio Securities except for the purpose of calculating
the amount of Investment Receipts to be distributed and allocated pursuant
to Sections 5.2.B(2) and 5.7.B(4).
Prior Funds:
-----------
CMG@Ventures I, LLC and CMG@Ventures II, LLC.
Prohibited Transaction:
----------------------
A non-exempt prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code).
Removal Date Securities:
-----------------------
As defined in Section 8.5.
Securities Act:
--------------
The Securities Act of 1933, as amended.
Special Limited Partner:
-----------------------
As defined in Section 8.5.
Substitute Limited Partner:
--------------------------
As defined in Section 8.3.
Subscription Agreement:
----------------------
Each of the several Subscription Agreements between the Partnership and the
Limited Partners.
10
<PAGE>
Target Allocation:
-----------------
With respect to any Partner as of the close of any fiscal year or other
accounting period of the Partnership for which an allocation of Investment
Loss is to be made pursuant to Section 5.7.C(1), the amount of Net
Investment Gain that would then be allocated to such Partner if (i) the Net
Investment Gain for all periods through the close of such fiscal year or
other period were equal to the Net Investment Gain as of the close of the
immediately preceding fiscal year or other accounting period of the
Partnership less the amount of Investment Loss to be then allocated
pursuant to Section 5.7.C(1) and (ii) the Net Investment Gain as then
calculated pursuant to clause (i) were then allocated to the Partners
pursuant to Sections 5.7.B(3), 5.7.B(4) and 5.7.B(5) as if there had been
no prior allocations of Investment Gain or Investment Loss.
Tax Exempt Partner:
------------------
Any individual retirement account or trust formed as part of a Keogh or
corporate pension or profit-sharing plan qualified under Section 401(a) of
the Code, any organization described in Section 501(c) of the Code and any
governmental entity tax-exempt under Section 115 of the Code, or any entity
which has ninety percent (90%) or more of its equity interests owned by one
or more entities of the type referred to above.
Temporary Bridge Financing:
--------------------------
Bridge Financing that has not been converted into Permanent Bridge
Financing pursuant to Section 4.3.
Temporary Investments:
---------------------
(i) Investments in direct obligations of the United States of America,
or obligations of any instrumentality or agency thereof payment of principal and
interest of which is unconditionally guaranteed by the United States of America,
all of such obligations having a final maturity not more than one year from the
date of issue thereof;
(ii) Investments in certificates of deposit or repurchase agreements
having a final maturity not more than one year from the date of acquisition
thereof issued by any bank or trust company organized under the laws of the
United States of America or any state thereof having capital and surplus of
at least $100 million;
(iii) Investments in money market funds, provided that such funds
invest primarily in government securities described in subparagraph (i) or
in municipal obligations
11
<PAGE>
that receive a rating of AAA or AA, or Aaa or Aa from a nationally
recognized financial rating service such as Standard & Poor's Corporation
or Moody's Investors Service, Inc., respectively;
(iv) Investments in interest-bearing accounts of Financial
Institutions; and
(v) Commercial paper payable on demand or having a final maturity not
more than one year from the date of acquisition thereof which has the
highest credit rating by either Standard & Poor's Corporation or Moody's
Investors Service, Inc.
Treasury Rate:
-------------
An interest rate calculated quarterly at the average of the ninety (90) day
United States Treasury Bill weekly auction rates for the preceding quarter.
Treasury Regulations:
--------------------
Income Tax Regulations promulgated from time to time under the Code.
References to specific sections of the Treasury Regulations shall be to
such sections as amended, supplemented or superseded by Treasury
Regulations currently in effect.
Triggering Event:
----------------
As defined in Section 6.4.
Two-Thirds in Interest of the Limited Partners:
----------------------------------------------
Those Limited Partners whose aggregate Percentage of Contributed Capital
equals or exceeds sixty-six and two-thirds percent (66 2/3%).
UBTI:
----
Unrelated business taxable income as defined in Section 512 of the Code and
including unrelated debt-financed income as defined in Section 514 of the
Code.
Venture Capital Operating Company:
---------------------------------
A venture capital operating company as defined in the United States
Department of Labor regulation published at Section 2510.3-101 of Title 29
of the Code of Federal Regulations or corresponding provisions of
subsequent laws or regulations.
12
<PAGE>
II.
FORMATION
---------
Section 2.1 Purpose.
-------
Pursuant to the Act, the Partners hereby agree to form the Partnership as a
limited partnership for the principal purpose of making equity and equity-
related investments in Portfolio Companies, managing, supervising and disposing
of such investments, receiving the profits and losses therefrom, and engaging in
activities necessarily incidental or ancillary thereto.
Section 2.2 Name.
----
The name of the Partnership will be "@VENTURES III, L.P." or such other
name or names as the General Partner may from time to time designate.
Section 2.3 Principal Place of Business.
---------------------------
The principal office of the Partnership will be located at 100 Brickstone
Square, Andover, Massachusetts 01801, or such other location in the United
States as the General Partner may from time to time determine. The General
Partner shall give prompt notice of any change in the principal office of the
Partnership to each Limited Partner.
Section 2.4 Registered Agent.
----------------
The initial address of the Partnership's registered office in Delaware is
1209 Orange Street, Wilmington, County of New Castle, and its initial registered
agent at such address for service of process is The Corporate Trust Company.
Section 2.5 Term.
----
The Partnership shall continue in full force and effect until July 31,
2006, unless extended or until earlier terminated pursuant to Section 11.1.
13
<PAGE>
III.
CAPITAL CONTRIBUTIONS; PARTNERS' ACCOUNTS
-----------------------------------------
Section 3.1 Capital Commitments and Contributions.
-------------------------------------
Subject to the provisions of Sections 3.3 and 3.4, each Partner hereby
commits and agrees to make cash contributions to the capital of the Partnership
in the amount set forth opposite its name on Schedule 1 attached hereto. The
----------
amount of such commitment, reduced by any portion of the commitment which is
released pursuant to Section 3.3 and increased or decreased by any amount
pursuant to Section 3.4, is referred to herein as a "Capital Commitment". With
respect to each Partner, the amount of capital contributed pursuant to such
Capital Commitment and, after the end of the Commitment Period, amounts
proportional to the Partner's Percentage of Contributed Capital that are
reserved from Operating Receipts or Investment Receipts and invested in Follow-
on Investments or Committed Investments, are referred to as "Capital
Contributions". On any date when a Limited Partner makes a Capital Contribution
to the Partnership, the General Partner shall contribute to the capital of the
Partnership cash in such amount as is sufficient to cause the General Partner's
Capital Contribution to equal one percent (1%) of the aggregate Capital
Contributions of all Partners. Except as set forth in the Subscription
Agreement, five percent (5%) of each Partner's Capital Commitment shall be paid
in upon admission to the Partnership. The General Partner shall call for
payment of the balance of each Partner's Capital Commitment as needed to fund
the Partnership's investments in Portfolio Companies and other permitted uses
under this Agreement; provided, however, that no call may be made at any time
subsequent to the Commitment Period except to the extent necessary to (i)
provide for the expenses of the Partnership including the Management Fee, (ii)
make Committed Investments pursuant to Section 6.2.M or (iii) make Follow-on
Investments pursuant to Section 6.2.L. All such calls shall be made in writing
to all Partners pro rata in proportion to their respective Capital Commitments
and shall specify the intended use of such called capital, including in the case
of a capital call to invest in a Portfolio Company the name of the Portfolio
Company. Such calls shall be made at least ten (10) Business Days before the
date on which the installment payable in response to that call is due. The
Capital Contributions of a Partner shall not in any case exceed the Capital
Commitment of such Partner. No Capital Contribution returned to a Partner,
other than a Capital Contribution that is allocable to a Temporary Bridge
Financing which has been sold, refinanced or otherwise disposed of, shall be
callable by the General Partner pursuant to this Section 3.1 again.
Section 3.2 Capital Accounts.
----------------
The Partnership shall establish and maintain a Capital Account for each
Partner. A Partner's Capital Account shall be (i) increased by (a) the amount
of such Partner's Capital Contributions, (b) such Partner's allocations of
Operating Income and Investment Gain pursuant to Sections 5.7.A and 5.7.B, and
(c) items of income or gain specially allocated to such Partner pursuant to
Section 5.8 or 5.9, (ii) decreased by (x) the amount of money and the fair
market value of any property distributed to such Partner by the Partnership, (y)
such Partner's allocations of Operating Loss and Investment Loss pursuant to
Sections 5.7.A and 5.7.C and (z) items of loss, deduction or expenditure
specially allocated to such Partner pursuant to Section 5.8 or 5.9, and (iii)
adjusted to reflect any liabilities that are assumed by such Partner or the
Partnership or that are secured by property contributed by or distributed to
such Partner, all in accordance with Sections 1.704-1(b)(2)(iv) and 1.704-2 of
the Treasury Regulations. Except as otherwise provided in the Treasury
Regulations, a transferee of an
14
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interest in the Partnership shall succeed to the Capital Account of its
transferor to the extent allocable to the transferred interest. Notwithstanding
any provision of this Agreement other than Section 5.4, the General Partner
shall revalue Partnership properties, and make corresponding adjustments to the
Partners' Capital Accounts, as prescribed by Section 1.704-1(b)(2)(iv)(f) of the
Treasury Regulations in connection with any contribution to or distribution by
the Partnership of more than a de minimis amount of money or other property in
exchange for an interest in the Partnership unless the General Partner
reasonably determines that such revaluations and adjustments are not necessary
to reflect the economic interests of the Partners in the Partnership. In
addition, the book values of Partnership properties shall be increased or
decreased, as the case may be, to reflect any adjustments to the adjusted tax
bases of such properties pursuant to Section 734(b) or Section 743(b) of the
Code to the extent that such basis adjustments are taken into account in
determining Capital Account balances pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m) and have not been reflected in adjustments to the
book values of such properties pursuant to the preceding sentence of this
Section 3.2.
Section 3.3 Review or Modification of Capital Commitments.
---------------------------------------------
Each Partner acknowledges that it is currently lawful for it to invest in
the Partnership. Notwithstanding this acknowledgment and the provisions of
Sections 3.1 and 3.4, no Partner shall be obligated to make any contribution of
its Capital Commitment if at the time such contribution is due (i) such Partner
is substantially likely to be prohibited from making investments in the
Partnership under any applicable federal or state law or regulations thereunder
then in effect, including ERISA, or is substantially likely to subject itself or
an ERISA Affiliate to a tax for a Prohibited Transaction, (ii) if such Partner
is a Tax Exempt Partner, the proposed investment in a Portfolio Company would
result in such Partner having UBTI, or (iii) if such Partner is a bank holding
company, it has a significant, pre-existing and continuing relationship with a
Portfolio Company in which the Partnership has proposed to invest (in each case,
a "Modification Event"). Prior to making an investment in a Portfolio Company
which would result in a Partner having UBTI, the General Partner will advise the
Partners in writing as to the investment and the circumstances giving rise to
UBTI. In the case of a Modification Event, the affected Partner shall advise
the General Partner of the specific terms of the Modification Event within five
(5) Business Days of receiving the call notice pursuant to Section 3.1. The
General Partner shall promptly notify all other Partners of the alleged
Modification Event. Unless (x) in the case of a Modification Event set forth in
clauses (i) or (ii) above, the Partner asserting such Modification Event shall,
at the request of the General Partner, have delivered to the General Partner an
opinion from counsel reasonably satisfactory to the General Partner confirming
the existence of such Modification Event or (y) in the case of a Modification
Event set forth in clause (iii) above, the affected Partner shall have provided
the General Partner with such information and material, including, at the
request of the General Partner an opinion of counsel reasonably satisfactory to
the General Partner confirming, in the sole discretion of the General Partner,
the existence of this Modification Event, the General Partner may, as of the
date on which the contribution at issue was due and upon fifteen (15) days
notice to the affected Partner, reduce the Capital Account and percentage of
Contributed Capital of such Partner by one fourth
15
<PAGE>
and correspondingly increase the Capital Account and Percentage of Contributed
Capital of each other Partner in a manner similar to that provided in Section
3.4.B; provided, that the Partner asserting the prohibition shall not be deemed
a Defaulting Partner, as defined in Section 3.4, for purposes of the provisions
thereof. Such reduction shall be the exclusive remedy against a Limited Partner
which fails to make a contribution of its Capital Commitment because of such an
alleged prohibition or Prohibited Transaction. The Partner who asserted the
prohibition or Prohibited Transaction may sue the Partnership to recover the
amount of reduction to its Capital Account and Percentage of Contributed Capital
made in accordance with this Section 3.3; provided, that the amount of its
recovery shall be limited to the amount of such reduction and the reasonable
costs and expenses (including reasonable fees of attorneys) incurred in bringing
such suit. However, if a Partner loses such a suit brought against the
Partnership, and the applicable period in which the decision in such suit can be
appealed has passed, such Partner shall reimburse the Partnership for the
reasonable costs and expenses (including reasonable fees of attorneys) incurred
by the Partnership in defending such suit or any prior unsuccessful suit brought
against the Partnership alleging the same cause of action; provided, however,
that such Partner shall not be required to reimburse the Partnership for
expenses of any prior unsuccessful suit with respect to which the Partnership
has previously been reimbursed by a Partner pursuant to this Section 3.3.
Notwithstanding the provisions of this Agreement, the General Partner may
refuse to permit a Limited Partner to participate in an investment in a
Portfolio Company if, in the sole discretion of the General Partner, such
Limited Partner's participation would impair the ability of the Partnership or
the General Partner or make it impractical or inadvisable as a result of
regulatory or competitive considerations or otherwise to consummate or to
maintain the investment in the Portfolio Company. In this event, at the time of
providing call notices to the Limited Partners, the General Partner shall notify
the affected Limited Partner of its non-participation in the proposed investment
and give such Partner such information and material as the General Partner
determines is sufficient to warrant the non-participation of such Partner in the
investment. The decision of the General Partner to refuse a Limited Partner the
opportunity to participate in an investment shall be in the sole discretion of
the General Partner.
Section 3.4 Default in Capital Commitment.
-----------------------------
Except as provided in Section 3.3, in the event a Partner fails to fund
its Capital Commitment as required under Section 3.1 in a timely manner, and
such failure continues for ten (10) Business Days after written notice of such
failure from the General Partner (or for such longer period (not to exceed
twenty (20) business days) as the General Partner may in its sole discretion
permit under extraordinary circumstances), then such Partner which failed to
make payment shall be a Defaulting Partner, and the following provisions of this
Section 3.4 shall apply:
A. Whenever the vote, consent or decision of the Partners is required
or permitted pursuant to this Agreement, any Defaulting Partner shall not be
entitled to participate in such vote or
16
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consent, or to make such decision, and such vote, consent or decision shall be
made as if such Defaulting Partner were not a Partner. Notwithstanding this
prohibition, any such vote, consent or decision shall be binding upon such
Defaulting Partner.
B. The Defaulting Partner shall not be required to make any further
Capital Contributions to the Partnership and there shall be released that
portion of a Defaulting Partner's unfunded Capital Commitment (provided that
such Defaulting Partner shall remain fully liable to the creditors of the
Partnership to the extent of the installment of the Capital Commitment with
respect to which the default occurred). Thereafter, the Defaulting Partner's
Percentage of Contributed Capital in all investments made by the Partnership in
Portfolio Companies after the date of default shall be zero, and the Percentages
of Contributed Capital of the remaining Partners shall be adjusted accordingly.
C. Except as set forth in this Section 3.4.C, the Defaulting Partner
shall not be entitled to receive any distribution of Operating Receipts or
Investment Receipts until the termination of the Partnership. The General
Partner shall establish a separate escrow account with a Financial Institution
into which will be deposited all of the distributions of Operating Receipts and
Investment Receipts that the Defaulting Partner would otherwise be entitled to
receive. Upon the liquidation of the Partnership, the Defaulting Partner will
be entitled to receive from the separate escrow account an amount equal to the
lesser of (i) seventy-five percent (75%) of the distributions it was otherwise
entitled to receive with respect to investments in Portfolio Companies that were
consummated prior to the date of the Defaulting Partner's default (without the
addition of interest that accrued on the amounts held in the separate escrow
account), and (ii) its aggregate Capital Contributions to the Partnership
reduced by all distributions made to the Defaulting Partner prior to the date of
default. Any amounts remaining in the separate escrow account, including all
interest earned on such amounts, shall thereafter be distributed to the General
Partner to compensate the General Partner for any damages incurred as a result
of the default and then to the non-defaulting Limited Partners in proportion to
their respective Percentages of Contributed Capital recalculated as if the
Defaulting Partner were not a Partner of the Partnership. The Defaulting
Partner shall be allocated Operating Income and Loss and Investment Gain and
Loss only with respect to investments in Portfolio Companies that were
consummated prior to the date of the Defaulting Partner's default.
D. The provisions of Sections 3.4.B and C shall not apply more than
once to any Defaulting Partner.
E. No Defaulting Partner shall be entitled to assign its interest in
the Partnership in accordance with Section 8.3 without the consent of the
General Partner, which it may withhold in its sole discretion.
F. No right, power or remedy available to the General Partner in this
Section 3.4 shall be exclusive, and each such right, power or remedy shall be
cumulative and in addition to any other right, power or remedy available at law
or in equity. No course of dealing between the General Partner
17
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and any Defaulting Partner, and no delay in exercising any right, power or
remedy shall operate as a waiver or otherwise prejudice the exercise of such
right, power or remedy.
IV.
BRIDGE FINANCING
----------------
Section 4.1 Extension of Bridge Financing.
-----------------------------
Solely in order to facilitate the making of investments in Portfolio
Securities as expeditiously as practicable with the most favorable pricing
reasonably available, the Partnership may from time to time provide interim
financing ("Bridge Financing") to one or more Portfolio Companies until
permanent financing is arranged. All such Bridge Financing shall be designated
as such by the General Partner at the time it is first provided. All Bridge
Financing will be senior to the permanent investment of the Partnership in such
Portfolio Company, and bear interest or carry other compensation at rates not
less favorable to the Partnership than those available from an unaffiliated
Financial Institution. The General Partner will use its best efforts to cause
Bridge Financing to be converted into Portfolio Securities, and if not so
converted, to be sold or refinanced as promptly as practicable, and in any event
will use its best efforts to cause such conversion, sale or refinancing to occur
within one year after such Bridge Financing is first provided by the
Partnership. Bridge Financing may be provided to any single Portfolio Company
only to the extent that the sum of the Partnership's investment in such
Portfolio Company, including Portfolio Securities, Bridge Financings and the
amount of any guarantees, shall not exceed the lesser of (i) thirty-five percent
(35%) of the Partnership's aggregate Capital Commitments, or (ii) the remaining
unfunded Commitments as of the date of such Bridge Financing.
Section 4.2 Funding of Bridge Financing.
---------------------------
The Partnership may fund Bridge Financing by borrowing pursuant to
Section 6.2.Q from one or more Financial Institutions, by calling upon the
Partners' Capital Commitments, or by guarantying indebtedness incurred by the
Portfolio Company, in each case solely in order to facilitate the making of
investments in Portfolio Securities as expeditiously as practicable with the
most favorable pricing reasonably available. The proceeds of the sale,
refinancing or other disposition of Temporary Bridge Financing which has been
funded by the call of Capital Commitments shall, to the extent of the Partners'
Capital Contributions allocable thereto, be returned to the Partners in
proportion to such Partners' Capital Contributions allocable to such investment
within five (5) days after the receipt thereof by the Partnership. The
Partners' Capital Commitments remaining to be called shall thereafter include
that portion of such allocable Capital Contributions returned.
18
<PAGE>
Section 4.3 Permanent Bridge Financing.
--------------------------
If and to the extent that Temporary Bridge Financing is not converted
into Portfolio Securities or sold or refinanced within one year after it is
provided, it promptly shall be converted as of the end of such one year period
into financing ("Permanent Bridge Financing") on terms and in proportions not
less favorable to the Partnership, than those most recently offered by the
Partnership to prospective investors during the period that the financing
remained outstanding pursuant to Temporary Bridge Financing. If the Temporary
Bridge Financing was funded through borrowings by a Portfolio Company guaranteed
by the Partnership, the Partnership, shall purchase its portion of the Permanent
Bridge Financing as if it were a permanent investment in a Portfolio Company.
V.
DISTRIBUTIONS; WITHHOLDING; VALUATION; ALLOCATIONS
--------------------------------------------------
Section 5.1 Withdrawal of Capital.
---------------------
No Partner shall have the right to withdraw capital from the Partnership
or, except as otherwise set forth in this Agreement, to receive any distribution
or return of its Capital Contribution.
Section 5.2 Distributions Prior to Liquidation.
----------------------------------
A. Subject to Sections 5.3 and 5.4, and except to the extent deemed
necessary by the General Partner to reserve for Follow-on Investments pursuant
to Section 6.2.L and for Committed Investments pursuant to 6.2.M, Operating
Receipts for each fiscal year (or fractional portion thereof) shall be
distributed to the Partners in proportion to their respective Percentages of
Contributed Capital. Such distributions shall be made by the General Partner
within ninety (90) days after the close of each fiscal year and at such other
time or times as the General Partner shall determine.
B. Subject to Sections 5.3 and 5.4, and except to the extent deemed
necessary by the General Partner to reserve for Follow-on Investments pursuant
to Section 6.2.L and for Committed Investments pursuant to 6.2.M, the General
Partner shall determine from time to time (but not less often than annually) the
amount of Investment Receipts that are available for distribution, and shall
distribute such Investment Receipts as follows:
(1) First, to the Partners in proportion to their Percentages of
-----
Contributed Capital, until such Partners have received from all
distributions then or theretofore made pursuant to this Section
5.2.B(1), on a cumulative basis, an amount of distributions equal
to the sum of (i) their Capital Contributions Allocable to
Liquidated Portfolio Securities and (ii) all Management Fees that
have been paid out of the Capital Contributions of the Limited
Partners to the Management Company as of any date on which a
distributions pursuant to this Section 5.2 will be made;
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<PAGE>
(2) Second, twenty percent (20%) to the Partners in proportion to
------
their Percentages of Contributed Capital and eighty percent (80%)
to the General Partner until the General Partner has received
pursuant to this Section 5.2.B(2) an amount of distributions
equal to twenty percent (20%) of the sum of (x) amounts
distributed to the Partners in proportion to their Percentages of
Contributed Capital pursuant to (A) clause (i) of Section
5.2.B(1), but only to the extent of the amount of Capital
Contributions Allocable to Portfolio Securities attributable to
expenses set forth in Sections 6.5.A(1) and (4) that have been
allocated to a particular Portfolio Security and (B) clause (ii)
of Section 5.2.B(1), and (y) amounts distributed pursuant to this
Section 5.2.B(2); and
(3) Third, thereafter, eighty percent (80%) to the Partners in
-----
proportion to their Percentages of Contributed Capital and twenty
percent (20%) to the General Partner.
For purposes of this Agreement, all amounts distributed to the General Partner
pursuant to Sections 5.2.B(2) and 5.2.B(3) (other than in proportion to its
Percentage of Contributed Capital) shall be referred to herein as Incentive
Distributions.
C. In addition to any other obligations hereunder, the General Partner
shall endeavor (if practical and reasonable to do so in light of the
circumstances of the Partnership) to distribute, if available, sufficient
amounts of Operating Receipts and/or Investment Receipts to the Partners in
accordance with this Article V to enable them to make timely payment of any
Federal, state, local and foreign income tax liabilities incurred by them or
their principals as a result of their participation in the Partnership.
D. As of any date on which the General Partner determines to make a
distribution of Investment Receipts, the General Partner shall determine,
pursuant to Section 5.6, the fair market value of each investment in a Portfolio
Company which has not been sold or disposed of. The extent to which the
aggregate fair market values of all such investments are less than the aggregate
cost bases of all such investments for book purposes shall constitute a "Deemed
Portfolio Loss". That portion of each Liquidated Portfolio Security equal to
the amount of Deemed Portfolio Loss allocated with respect thereto shall, upon
the deemed or actual sale of that Liquidated Portfolio Security, be deemed to
have been sold for an amount equal to the amount of Deemed Portfolio Loss and
shall be deemed to have a tax basis of zero, and the tax basis of the remaining
portion of the Liquidated Portfolio Security shall include the amount of such
Deemed Portfolio Loss.
E. If upon the liquidation of the Partnership the General Partner shall
have received as Incentive Distributions under Section 5.2B(3) (that have not
been recontributed to the Partnership pursuant to Section 5.3) an aggregate
amount in excess of the amount the General Partner would have received
20
<PAGE>
as Incentive Distributions pursuant to Section 5.2B(3), including liquidating
distributions, had the entire amount of Investment Receipts actually received by
the Partnership been received by the Partnership on the date of liquidation of
the Partnership, then the General Partner shall, to the extent of all
distributions received as Incentive Distributions pursuant to Section 5.2B(3)
(that have not been recontributed to the Partnership pursuant to Section 5.3),
pay to the Partners in proportion to their Percentages of Contributed Capital
such excess.
F. The General Partner shall establish in its name, but for the benefit
of the Partners, a separate bank account at a Financial Institution (the "Escrow
Account"), in which it will maintain an amount equal to the lesser of (i)
twenty-five percent (25%) of all Incentive Distributions paid to the General
Partner, and (ii) the amount required to be added to the fair market value of
the existing Portfolio Securities of the Partnership, determined pursuant to
Section 5.6, so that the resulting total exceeds the total amount of Capital
Contributions allocable to such investments by twenty-five percent (25%). Upon
the liquidation of the Partnership, the General Partner shall distribute to the
Partners from the Escrow Account, in proportion to their Percentages of
Contributed Capital, that portion of the escrowed funds equal to the General
Partner's required payment under Section 5.2.E, or if such required payment is
in excess of such escrowed funds, the total amount held in such Escrow Account
plus an amount, paid directly by the General Partner, that when added to the
escrowed funds equals the General Partner's required payment pursuant to Section
5.2.E. Any funds held in the Escrow Account upon liquidation of the Partnership
and after the required payment pursuant to this Section and Section 5.2.E shall
be distributed immediately to the General Partner. The General Partner will
direct the investment of amounts held in the Escrow Account, which shall in any
event be made solely in investments qualifying as Temporary Investments. All
income earned on the amounts retained in the Escrow Account shall be distributed
at the end of each calendar quarter immediately to the General Partner.
Section 5.3 Distributions Upon Liquidation.
------------------------------
Upon the liquidation of the Partnership, the assets of the Partnership
shall first be applied to the payment of, or the establishment of adequate
reserves or other provision for the payment of, the debts and obligations of the
Partnership. Thereafter, there shall be made a final allocation of Operating
Income or Loss and Investment Gain or Loss, as the case may be, and other items
to the Partners' Capital Accounts in accordance with Section 5.7. If the
General Partner has a negative balance in its Capital Account after such final
allocation, it shall contribute to the Partnership an amount of cash equal to
the excess of such negative balance over the amount that it is required to pay
to the Partners pursuant to Section 5.2.E. Notwithstanding the foregoing, the
General Partner's obligation to pay such excess pursuant to this Section 5.3
shall not inure to the benefit of, or be invoked or enforced by or for the
benefit of, any creditor who has otherwise contractually obligated itself to
look solely to all or a part of the assets of the Partnership and not to the
assets of any Partner for satisfaction of any debt owed or owing to that
creditor by the Partnership. The assets of the Partnership, including any
Portfolio Securities, whether or not such securities are Marketable Securities
(or the proceeds of sales or other
21
<PAGE>
dispositions in liquidation of assets of the Partnership) remaining after the
payment or other provision for the Partnership's debts and obligations shall
then be distributed to the Partners in proportion to the positive balances in
their Capital Accounts, determined after the final allocation of Operating
Income or Loss and Investment Gain or Loss, and of other items to Capital
Accounts has been made; provided that the name of the Partnership shall be
transferred with a value of $1.00 ascribed thereto, to the General Partner. For
purposes of making this distribution, such assets shall be valued pursuant to
Section 5.6. Amounts reserved or set aside, in connection with the Partnership's
liquidation, for the payment of Partnership debts and obligations, which are not
utilized for such payment, shall be distributed to the Partners in the same
proportions that such amounts would have been distributed hereunder if
distributed upon the Partnership's liquidation, as soon as practicable.
Section 5.4 Distributions of Securities in Kind.
-----------------------------------
A. The General Partner shall distribute to the Partners as an
Investment Receipt any Portfolio Securities that become Marketable Securities
promptly upon their becoming Marketable Securities, unless the General Partner
determines that a distribution of such securities would not serve the best
interests of the Partnership. Factors to be considered by the General Partner
in making such a determination shall include (i) the fiduciary obligations owed
to the stockholders of the issuer of such Marketable Securities by any Affiliate
of the General Partner who may serve as a director of such issuer, and (ii)
whether retention of such Marketable Securities shall serve the best interests
of the Partnership by maintaining control of or influence over the issuer of the
securities, stabilizing the market for such securities until such time as the
securities are either distributed to the Partners pursuant to this Section 5.4
or are sold or otherwise disposed of or facilitating subsequent offerings by the
issuer which shall include such Marketable Securities. The General Partner
shall notify the Limited Partners each time a Portfolio Security becomes a
Marketable Security. The General Partner shall not distribute Portfolio
Securities that are not Marketable Securities at any time other than upon the
liquidation of the Partnership.
B. With respect to securities distributed in kind to the Partners in
liquidation or otherwise, (i) any unrealized appreciation or unrealized
depreciation in the values of such securities shall be deemed to be realized by
the Partnership immediately prior to the liquidation or other distribution
event; and (ii) such appreciation or depreciation shall be allocated to the
Partners as part of the allocation of Investment Gain or Loss, as the case may
be, for the year of the distribution in accordance with Section 5.7 hereof, and
treating any property so distributed as a distribution of an amount in cash
equal to the fair market value of the property determined pursuant to Section
5.6. For the purposes of this Section 5.4.B, "unrealized appreciation" or
"unrealized depreciation" shall mean the difference between the fair market
value of such assets and the adjusted basis of such assets for federal income
tax purposes (or, in the case of any asset that is reflected on the books of the
Partnership at a value that is different from the Partnership's federal tax
basis in such asset in compliance with the Treasury Regulations, the value of
such asset as shown on the Partnership's books). This Section 5.4.B is merely
intended to provide a rule for allocating unrealized gains and losses upon
liquidation or other
22
<PAGE>
distribution event, and nothing contained in this Section 5.4.B or elsewhere in
this Agreement is intended to treat or cause such distributions to be treated as
sales for value.
C. If any Partner would otherwise receive a distribution of an amount
of any securities that would cause such Partner to own or control in excess of
the amount of such securities that it may lawfully own or control or which, by
reason of any legal or contractual restriction, the General Partner may not
distribute to such Partner, the Partner shall, solely for purposes of this
Agreement, be treated as if it had received such securities as a distribution in
kind pursuant to Section 5.4.B. The General Partner shall, at the written
request of such Partner and to the extent it is practicable to do so, dispose of
all or any portion of such securities on behalf of and as the agent for such
Partner and distribute the proceeds of such disposition to such Partner;
provided that such Partner shall bear all of the reasonable expenses (including,
without limitation, underwriting costs) of such disposition. In the
alternative, at the request of such Partner, the General Partner shall use
reasonable efforts to recapitalize the Portfolio Company so as to distribute to
such Partner non-voting securities. In either event, any discrepancy between the
actual gain or loss recognized upon the sale or other disposition of Portfolio
Securities (including Marketable Securities) and the unrealized appreciation or
unrealized depreciation in the values thereof as determined under Section 5.4.B,
shall constitute gain or loss of the Partner to whom the securities were
constructively distributed, and shall in no event constitute gain or loss to the
Partnership.
D. The General Partner may cause certificates evidencing any securities
to be distributed to be imprinted with legends as to such restrictions on
transfers that it may deem necessary, including legends as to applicable federal
or state securities laws or other legal or contractual restrictions, and may
require any Partner to which securities are to be distributed to agree in
writing that such securities will not be transferred except in compliance with
such restrictions and applicable law.
Section 5.5 Withholding.
-----------
Each Partner hereby authorizes the Partnership to withhold and to pay
over any withholding taxes payable by the Partnership, to the extent required by
applicable law, as a result of such Partner's status as a Partner hereunder. If
and to the extent that the Partnership shall be required under applicable law to
withhold any such taxes, such Partner shall be deemed for all purposes of this
Agreement to have received a payment from the Partnership as of the time such
withholding is required to be paid, which payment shall be deemed to be a
distribution to the extent that the Partner is then entitled to receive a
distribution. The amount of any distribution to which such Partner would
otherwise be entitled shall be reduced by the amount of such deemed
distribution. To the extent that the aggregate of such payments to a Partner
for any period exceeds the distributions to which such Partner is entitled for
such period, the amount of such excess shall be considered a loan from the
Partnership to such Partner, with interest at the Treasury Rate, until
discharged by such Partner by repayment, which may be made out of distributions
to which such Partner would otherwise be subsequently entitled. The
withholdings referred to in this Section 5.5 shall be made at the maximum
statutory rate applicable to
23
<PAGE>
such Partner under the applicable tax law unless the General Partner shall have
received either (i) an opinion of counsel, satisfactory to the General Partner,
to the effect that a lower rate is applicable, or that no withholding is
applicable, or (ii) any form authorized by the relevant taxing authority signed
by a Partner that establishes that no withholding is required for such Partner.
Section 5.6 Valuation.
---------
For purposes of this Agreement, except as specifically provided in
Sections 3.4.C, and 8.5, securities and other property of the Partnership shall
be valued as follows:
A. The Portfolio Securities of the Partnership shall be valued by the
General Partner pursuant to subparagraphs B, C, D and E hereof (i) at the time
of any distribution pursuant to Section 5.2 in order to determine the amount of
any Deemed Portfolio Loss, (ii) at the time of any distribution pursuant to
Section 5.4, (iii) upon the distribution of Partnership assets in liquidation
pursuant to Section 5.3 and (iv) annually pursuant to Section 10.3.
B. Marketable Securities shall (i) if traded on a national securities
exchange, be valued at the average of their last sales prices on such exchange
on which such Marketable Securities shall have traded on the last ten (10)
trading days on which such Marketable Securities were traded immediately
preceding the date of determination, or (ii) if the trading of such Marketable
Securities is reported through the National Association of Securities Dealers
Automated Quotation System, such Marketable Securities shall be valued at the
average of the last closing "bid" prices as shown by the National Association of
Securities Dealers Automated Quotation System on the last ten (10) trading days
on which such Marketable Securities were traded immediately preceding the date
of determination.
C. Except as provided in subparagraph E below, all property other than
Marketable Securities shall be valued by the General Partner in such manner as
it may determine in good faith. Factors considered in valuing individual
securities will include purchase price, prices received in recent significant
private placements of securities of the same issuer, prices of securities of
comparable public and private companies engaged in similar businesses and
changes in the financial condition and prospects of the issuer.
D. If within thirty (30) days after receipt of notice of any valuation
made pursuant to subparagraph C above Two-Thirds in Interest of the Limited
Partners shall so request, the General Partner shall obtain at the expense of
the Partnership a valuation of any securities (other than Marketable Securities
subject to valuation under subparagraph B) or other property from an independent
firm of investment bankers of nationally recognized standing selected by the
General Partner and approved by Two-Thirds in Interest of the Limited Partners,
such approval not to be unreasonably withheld. The decision of such firm shall
be binding on all Partners. Each distribution in kind of securities other than
Marketable Securities subject to valuation under subparagraph B shall be
24
<PAGE>
accompanied by a notice from the General Partner reminding the Limited Partners
of their right to require an independent valuation under this subparagraph D.
E. Upon liquidation of the Partnership, all assets which will be
distributed to the Partners in liquidation, other than Marketable Securities
subject to valuation under subparagraph B above, shall, upon request by Two-
Thirds in Interest of the Limited Partners, be valued by an independent firm of
investment bankers of nationally recognized standing selected by the General
Partner. The decision of such firm as to the liquidation value of all such
assets shall be binding on all Partners.
Section 5.7 Allocations of Operating Income and Loss and Investment
-------------------------------------------------------
Gain and Loss.
-------------
A. Subject to Sections 5.8 and 5.9, all Operating Income and Operating
Loss of the Partnership shall be allocated to the Partners in proportion to
their Percentages of Contributed Capital.
B. Subject to Sections 5.8 and 5.9, an Investment Gain for any fiscal
year or other accounting period of the Partnership shall be allocated as follows
and in the following order of priority as of the close of such fiscal year or
other accounting period:
(1) First, to the General Partner until there has been allocated
-----
on a cumulative basis pursuant to this Section 5.7.B(1) for all
fiscal years and other accounting periods of the Partnership an
amount of Investment Gain equal to the amount of Investment Loss
that has been allocated pursuant to Section 5.7.C(3) for all
fiscal years and other accounting periods of the Partnership;
(2) Second, to the Partners, in proportion to their Percentages
------
of Contributed Capital, until there has been allocated on a
cumulative basis pursuant to this Section 5.7.B(2) for all fiscal
years and other accounting periods of the Partnership an amount
of Investment Gain equal to the amount of Investment Loss that
has been allocated pursuant to Section 5.7.C(2) for all fiscal
years and other accounting periods of the Partnership;
(3) Third, to the Partners, in proportion to their Percentages of
-----
Contributed Capital, until there has been allocated on a
cumulative basis for all fiscal years and other accounting
periods of the Partnership pursuant to this Section 5.7.B(3), an
amount of Net Investment Gain equal to the sum of (i) the amount
of Deemed Portfolio Loss that has been included in the
determination of Capital Contributions Allocable to Liquidated
Portfolio Securities for purposes of making distributions
pursuant to Section 5.2.B, and (ii) the amount of distributions
made with respect to Management Fees pursuant to clause (ii) of
Section 5.2.B(1);
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(4) Fourth, eighty percent (80%) to the General Partner and
------
twenty percent (20%) to the Partners in proportion to their
Percentages of Contributed Capital until the General Partner has
been allocated on a cumulative basis for all fiscal years and
other accounting periods of the Partnership pursuant to this
Section 5.7.B(4), in addition to allocations made to the General
Partner pursuant to this Section 5.7 in proportion to its
Percentage of Contributed Capital, an amount of Net Investment
Gain of the Partnership equal to the amount distributed to the
General Partner pursuant to Section 5.2.B(2);
(5) Fifth, thereafter with respect to the remaining Net
-----
Investment Gain, eighty percent (80%) to the Partners, in
proportion to their Percentages of Contributed Capital, and
twenty percent (20%) to the General Partner.
C. Subject to Sections 5.8 and 5.9, an Investment Loss for any fiscal
year or other accounting period of the Partnership shall be allocated as follows
and in the following order of priority as of the close of such fiscal year or
other accounting period:
(1) First, to the extent of the Net Investment Gain, if any, that
-----
has been allocated hereunder for all prior fiscal years and other
accounting periods, to the Partners in proportion to the
respective amounts, if any, by which (i) their allocations of Net
Investment Gain for all such prior years and other periods exceed
(ii) their Target Allocations as of the close of the fiscal year
or other period for which an Investment Loss is then being
allocated;
(2) Second, to the Partners, in proportion to their Percentages
------
of Contributed Capital, until the Limited Partners' Capital
Accounts have been reduced to zero; and
(3) Third, thereafter, to the General Partner.
-----
Section 5.8 Special Provisions.
------------------
The following provisions shall be complied with notwithstanding any
provision of this Agreement other than Section 5.9:
A. If any Partner unexpectedly receives any adjustment, allocation or
distribution described in Section 1.704-1(b)(2) (ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Treasury Regulations which
causes it to have an, or increases the amount of its, Adjusted Capital Account
Deficit, items of Partnership income and gain shall be specially allocated to
such Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, such Partner's Adjusted Capital Account
Deficit as quickly as possible, provided that an allocation pursuant
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to this Section 5.8.A shall be made to a Partner only if and to the extent that
such Partner would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article V have been tentatively made as if this
Section 5.8.A were not in this Agreement. This Section 5.8.A is intended to
constitute a "qualified income offset" as defined in Section 1.704-
1(b)(2)(ii)(d) of the Treasury Regulations.
B. Notwithstanding Section 5.7.C, an allocation of Operating Loss or
Investment Loss shall not be made to a Partner to the extent that such
allocation would cause such Partner to have an Adjusted Capital Account Deficit.
An allocation that would be made to a Partner but for this Section 5.8.B shall
instead be made to the other Partners to the extent, and in the proportions,
that they could then be made such allocation without causing them to have
Adjusted Capital Account Deficits. Any excess allocation of Operating Loss or
Investment Loss shall be made to the General Partner.
C. The allocations set forth in Sections 5.8.A, 5.8.B, and 5.9 hereof
(the "Regulatory Allocations") are intended to comply with certain provisions of
the Treasury Regulations. Notwithstanding any other provision of this Article
V, the Regulatory Allocations shall be taken into account in making allocations
of other items of income, gain, loss, deduction and expenditure among the
Partners so that, to the extent possible consistent with the Code and the
Treasury Regulations, and on a cumulative basis, the respective net amounts of
such allocations of other items and the Regulatory Allocations to the Partners
are equal to the respective net amounts that would have been allocated to the
Partners had no Regulatory Allocations been made. The General Partner shall
apply this Section 5.8.C at such times, in such order and in such manner as it
determines, in its sole discretion, is likely to minimize any economic
distortions caused by the Regulatory Allocations.
D. If contributions that would otherwise be required pursuant to
Section 3.1 with respect to the interest in the Partnership of a particular
Limited Partner are excused hereunder or by law, such interest shall be treated
for purposes of this Article V as an interest in a separate portfolio of assets
in which, subject to all other provisions of this Agreement, only such Limited
Partner (or his assignees or legatees) and the General Partner shall be entitled
to participate (as provided in this Article V). Such separate portfolio shall
consist of such Limited Partner's pro rata share (by allocable Capital
Contribution) of each Portfolio Security the Partnership's interest in which
was, or the assets of which were, acquired in part with capital contributions of
such Limited Partner. Such Limited Partner (and his assignees and legatees)
shall have no interest in the Partnership or its assets to the extent not
included in, and shall have no right to participate in the results of the
Partnership to the extent not attributable to, such separate portfolio. A
separate portfolio shall be charged with portions of the Partnership's expenses,
liabilities, costs and reserves in such manner as the General Partner reasonably
determines to be fair and equitable.
E. Income, gain, loss and deduction with respect to property
contributed to the Partnership by a Partner shall be shared among the Partners
so as to take account of the variation
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between the basis of the property to the Partnership and its fair market value
at the time of contribution in accordance with the principles of Section 704(c)
of the Code.
Section 5.9 Special Provisions in the Event of Borrowings or a
--------------------------------------------------
Section 754 Election.
--------------------
A. If the Partnership incurs any borrowings, the Partnership (i) shall
allocate any "non-recourse deductions," computed and determined in accordance
with Sections 1.704-2(b)(1), 1.704-2(c) and 1.704-2(j) of the Treasury
Regulations, it may have twenty percent (20%) to the General Partner and eighty
percent (80%) to the Partners in proportion to their Percentages of Contributed
Capital, (ii) shall allocate any "partner non-recourse deductions," computed and
determined in accordance with Sections 1.704-2(i)(1), 1.704-2(i)(2) and 1.704-
2(j) of the Treasury Regulations, it may have so as to comply with Section
1.704-2(i) of the Treasury Regulations and (iii) shall make such allocations as
are necessary to comply with the "minimum gain chargeback" provisions of
Sections 1.704-2(f), 1.704-2(i) and 1.704-2(j) of the Treasury Regulations,
taking into account all exceptions provided by such provisions to the
applicability of this clause (iii).
B. To the extent an adjustment to the adjusted tax basis of any asset
of the Partnership pursuant to Section 734(b) or Section 743(b) of the Code is
required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations,
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset), and such gain or loss shall be specially
allocated to the Partners in a manner that is consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to Section
1.704-1(b)(2)(iv)(m) of the Treasury Regulations.
VI.
MANAGEMENT; PAYMENT OF EXPENSES
-------------------------------
Section 6.1 Description of General Partner.
------------------------------
@Ventures Partners III, LLC, a limited liability company comprised of
David S. Wetherell, Guy M. Bradley, Jonathan Callaghan, Andrew Hajducky, Peter
H. Mills and CMGI as its members, is the General Partner of the Partnership.
Section 6.2 Management by the General Partner.
---------------------------------
The management, policy and operation of the Partnership shall be vested
exclusively in the General Partner who shall perform all acts and enter into
and perform all contracts and other undertakings which it deems necessary or
advisable to carry out any and all of the purposes of the Partnership. Without
limiting the foregoing general powers and duties, and except as is otherwise
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expressly set forth herein, the General Partner is hereby authorized and
empowered on behalf of the Partnership and, as relevant herein, is required:
A. To enter into a Management Contract with the Management Company on
the terms, including those pertaining to payment of the Management Fee, set
forth in Exhibit A attached hereto; provided that such Contract may not be
---------
amended without the written consent of Two-Thirds in Interest of the Limited
Partners unless such Contract is amended to increase the Management Fee, in
which case unanimous consent of the Limited Partners shall be required in
accordance with Section 12.3.
B. To identify investment opportunities for the Partnership, negotiate
and structure the terms of such investments, arrange additional financing needed
to consummate such investments and monitor such investments.
C. To invest the assets of the Partnership in the securities of any
organization, domestic or foreign, without other limitation as to kind and
without other limitation as to marketability of the securities, and pending such
investment, to invest the assets of the Partnership in Temporary Investments.
D. To exercise all rights, powers, privileges and other incidents of
ownership with respect to the Portfolio Securities, including, without
limitation the voting of such Portfolio Securities, the approval of a
restructuring of an investment, participation in arrangements with creditors,
the institution and settlement or compromise of suits and administrative
proceedings, and other similar matters.
E. To sell, transfer, liquidate or otherwise terminate investments made
by the Partnership.
F. To employ or consult brokers, accountants, attorneys, or specialists
in any field of endeavor whatsoever, including such persons or firms who may be
Partners, provided, however, that no Affiliate of the General Partner may be
hired or employed without the approval of Two-Thirds in Interest of the Limited
Partners.
G. To deposit any funds of the Partnership in any bank or trust company
or money market fund provided that, in the case of any bank or trust company
such bank or trust company qualifies as a Financial Institution and in the case
of any money market fund such fund would qualify as a money market fund in which
the Partnership may make a Temporary Investment, and to entrust to such bank or
trust company any of the securities, monies, documents and papers belonging to
or relating to the Partnership; provided, however, that from time to time, in
order to facilitate any transaction, any of the said securities, monies,
documents and papers belonging to or relating to the Partnership may be
deposited in and entrusted to any brokerage firm that is a member of the
29
<PAGE>
New York Stock Exchange and which has minimum net capital of $10 million as
calculated in accordance with the Securities Exchange Act of 1934.
H. To determine, settle and pay all expenses, debts and obligations of
and claims against the Partnership and, in general, to make all accounting and
financial determinations and decisions.
I. To enter into, make and perform all contracts, agreements and other
undertakings as may be determined to be necessary or advisable or incident to
the carrying out of the foregoing objectives and purposes, the execution thereof
by the General Partner to be conclusive evidence of such determination.
J. To execute all other instruments of any kind or character which the
General Partner determines to be necessary or appropriate in connection with the
business of the Partnership, the execution thereof by the General Partner to be
conclusive evidence of such determination.
K. To provide Bridge Financing on the terms and subject to the
conditions set forth in Section 4.1 to Portfolio Companies and to borrow funds
and provide guarantees in the name and on behalf of the Partnership in
connection therewith solely in order to facilitate or expedite the closing of
investments in Portfolio Securities.
L. To make Follow-on Investments in Portfolio Companies from Capital
Contributions called from the Partners pursuant to Section 3.1 and, after the
end of the Commitment Period, from amounts reserved from Operating Receipts and
Investment Receipts. The aggregate amount of Follow-on Investments made after
the end of the Commitment Period shall not exceed the lesser of (x) the uncalled
Capital Commitments as of the last day of the Commitment Period reduced by
Capital Contributions used to make Committed Investments or (y) ten percent
(10%) of the Capital Commitments of the Partnership. Except upon the approval
of Two-Thirds in Interest of the Limited Partners, no Follow-on Investment may
be made by the Partnership after the third anniversary of the last day of the
Commitment Period.
M. To make Committed Investments in Portfolio Companies after the end
of the Commitment Period from Capital Contributions called from the Partners
pursuant to Section 3.1 and from amounts reserved from Operating Receipts and
Investment Receipts. The General Partner shall notify the Limited Partners at
the end of the Commitment Period of any Committed Investments of the Partnership
described in clause (i) of the definition thereof. In addition, any Committed
Investment of the Partnership described in clause (i) of the definition thereof,
shall be consummated within six months of the end of the Commitment Period. The
aggregate amount of Committed Investments shall not exceed the lesser of (x) the
uncalled Capital Commitments as of the last day of the Commitment Period reduced
by Capital Contributions used to make Follow-on Investments after the end of the
Commitment Period or (y) fifteen percent (15%) of the Capital Commitments of the
Partnership. Except upon the approval of Two-Thirds in Interest of the Limited
Partners, no Committed Investment may be made by the Partnership after the third
anniversary of the last day of the Commitment Period.
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<PAGE>
N. Subject to Section 6.2.O, to guarantee obligations of Portfolio
Companies, provided that the sum of any such guarantee, the Partnership's
investment in Portfolio Securities of such Portfolio Company and the amount of
Bridge Financing provided that total guarantees made by the Partnership at any
one time shall not exceed twenty percent (20%) of the aggregate Capital
Commitments of the Partnership, exclusive of guarantees made in connection with
Temporary Bridge Financing.
O. To use best efforts to avoid the generation of UBTI to Tax-Exempt
Partners understanding that it is the intention of the General Partner not to
make or structure investments by the Partnership or operate the Partnership in
such a manner so that UBTI is generated to such Partners.
P. To take such steps as the General Partner shall consider necessary
or appropriate in its sole discretion to cause the Partnership to qualify as a
Venture Capital Operating Company as of the date of the Partnership's first
acquisition of Portfolio Securities and at all relevant times thereafter.
Q. To cause the Partnership or one or more corporate subsidiaries of
the Partnership to borrow funds (i) to purchase Portfolio Securities pending the
receipt of Capital Contributions called from the Partners pursuant to Section
3.1, or (ii) to provide Bridge Financing to a Portfolio Company pursuant to
Section 4.2; provided, however, that the Partnership shall not borrow funds as
provided in this Section 6.2.Q, if as a result of such borrowing UBTI would be
generated to Tax-Exempt Partners; and provided, further, that any borrowing
shall be on terms that are no less favorable to such corporate subsidiary than
those applicable to loans extended by the lender to borrowers comparable to such
corporate subsidiary, and that the General Partner shall cause the corporate
subsidiary to retire this indebtedness with such Capital Contributions
immediately upon receipt thereof.
Section 6.3 Powers of Limited Partners.
--------------------------
The Limited Partners shall not participate in the control of the
Partnership and shall have no authority to act for or bind the Partnership.
Section 6.4 Continuity Mode.
---------------
If during the Commitment Period, or during any eighteen month period
after the end of the Commitment Period, both David S. Wetherell and Peter H.
Mills cease to be members of either the General Partner or the Management
Company or otherwise cease to be actively involved in the business thereof (such
event hereinafter referred to as a "Triggering Event"), prompt notice of such
Triggering Event shall be given to all Limited Partners. At any time within
ninety (90) days after receipt of notice of a Triggering Event, Two-Thirds in
Interest of the Limited Partners may by an election in writing
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<PAGE>
determine to put the Partnership in a Continuity Mode. While in a Continuity
Mode (i) the General Partner shall only be permitted to retain the investments
of the Partnership and to make further investments solely in (x) Temporary
Investments, (y) securities of companies as to which the Partnership had an
existing legal commitment to make an investment on the date the Partnership was
put in the Continuity Mode and (z) investments in current Portfolio Companies
being considered on the date the Partnership was placed in a Continuity Mode,
and (ii) the General Partner shall not be permitted to call for payment of any
remaining installments of Capital Commitments except for the purpose of funding
investment commitments pursuant to (y) and (z) above and to pay current expenses
of the Partnership pursuant to Section 6.6 of this Agreement. Except as
hereinabove expressly provided, from and after the date the Partnership enters
the Continuity Mode, the General Partner shall continue to act on behalf of the
Partnership to perform the functions of the General Partner and to have all the
rights and privileges of the General Partner hereunder. If within sixty (60)
days after commencement of the Continuity Mode (or such shorter period of time
as may be agreed to by Two-Thirds in Interest of the Limited Partners) Two-
Thirds in Interest of the Limited Partners do not by an election in writing
remove the General Partner or dissolve the Partnership, the Continuity Mode
shall automatically terminate and all decisions with respect to the management
and operation of the Partnership will again be made by the General Partner in
accordance with the terms of this Agreement. As provided in the Management
Contract, the Management Fee shall be reduced by one half while the Partnership
is in the Continuity Mode.
Section 6.5 Payment of Fees and Expenses.
----------------------------
Fees and expenses incurred with respect to the business of the
Partnership shall be payable as follows:
A. Subject to the provisions of Section 6.5.D, the Partnership shall be
responsible for and shall pay all fees and reasonable expenses not specified in
subparagraph B as being the responsibility of the Management Company, including
without limitation:
(1) out-of-pocket expenses incurred and fees paid by the Partnership
or the General Partner in connection with the formation of the
Partnership and the offering and distribution of interests therein to the
Limited Partners in an amount not in excess of $200,000 (when aggregated
with amounts paid by the Foreign Fund);
(2) any government or regulatory filings, returns or reports,
including without limitation fees and expenses for annual reports and
foreign qualification certificates;
(3) expenses incurred in connection with the administration of the
Partnership including without limitation, the Management Fee and fees
paid to consultants, custodians, outside counsel, accountants, agents,
investment bankers and other similar outside advisors;
32
<PAGE>
(4) unreimbursed fees and out-of-pocket costs of acquiring, holding
or selling, Temporary Investments, Portfolio Securities or Bridge
Financing, whether or not such transactions close, including fees and
expenses of consultants, outside counsel and accountants and similar
outside advisors in connection with identifying, evaluating, structuring
and consummating potential investments by the Partnership and
recordkeeping expenses and finders', placement, brokerage and other
similar fees; provided that with respect to consummated investments, it
is expected, and the Management Company will use its reasonable best
efforts to ensure, that such fees and expenses paid by the Partnership
will be reimbursed by the Portfolio Company in which the investment is
made;
(5) out-of-pocket costs of reporting to the Limited Partners;
(6) any taxes, fees or other governmental charges levied against the
Partnership or on its income or assets or in connection with its business
or operations;
(7) costs of litigation or other matters that are the subject of
indemnification pursuant to Section 9.3; and
(8) costs of winding-up and liquidating the Partnership.
B. The Management Company, so long as the Management Contract is in
effect, shall be responsible for and shall pay all of its out-of-pocket expenses
and those of the General Partner, including expenses which relate to salaries,
office space, supplies and other facilities of their businesses except as set
forth in Section 6.5.A(4).
C. The Management Company shall serve as the management company of the
Partnership in accordance with the terms of the Management Contract, and shall
be entitled to receive a Management Fee in the amount and payable in the manner
provided in such Contract.
D. The amount of any unreimbursed fees and expenses incurred directly
in connection with a proposed or consummated investment in a Portfolio Company
and payable by the Partnership under subparagraph A shall be allocated among the
Partnership, the Foreign Fund and CMGI in proportion to the amount which would
have been or which was invested by each.
E. Subject to Section 6.2.O, any Break-Up Fee payable to the
Partnership, the General Partner, the Management Company or their respective
Affiliates shall be paid as follows. An amount equal to the aggregate
unreimbursed fees and expenses paid by the Partnership, the General Partner, the
Management Company or their Affiliates which were specific to the transaction
giving rise to such fee shall be paid to each such entity in proportion to the
fees and expenses incurred by it. The balance of any such Break-Up Fee shall be
paid to the Management Company; provided that one-half
33
<PAGE>
of the remaining Break-Up Fee shall be credited against the Management Fee
payable by the Partnership, the Foreign Fund and CMGI in subsequent periods in
proportion to their respective aggregate capital commitments.
F. The General Partner, the Management Company and their respective
Affiliates shall be entitled to receive management, directors', consulting and
other similar fees and compensation from Portfolio Companies; provided that the
amount of such fees and other compensation is reasonable in relation to the work
involved and bears a reasonable relation to fees and compensation charged for
similar work by third parties. One half of such fees shall be credited against
the Management Fee payable by the Partnership, the Foreign Fund and CMGI in
proportion to their respective aggregate capital commitments and if such portion
of such fees exceeds the Management Fee, such excess shall be credited against
the Management Fee payable by the Partnership, the Foreign Fund and CMGI in
subsequent periods in proportion to their respective aggregate capital
commitments. To the extent such amounts exceed total future installments of the
Management Fee, they shall be paid to the Partnership, the Foreign Fund and CMGI
in proportion to their respective aggregate capital commitments and included in
their respective Operating Receipts.
VII.
OTHER ACTIVITIES OF PARTNERS; CO-INVESTMENT OBLIGATION
------------------------------------------------------
Section 7.1 Commitment of General Partner.
-----------------------------
The General Partner hereby agrees to use its best efforts in furtherance
of the purposes and objectives of the Partnership and to devote to such purposes
and objectives such of its time as shall be necessary for the management of the
affairs of the Partnership. During the Commitment Period, each of the members
of the General Partner will devote substantially all of his business time to the
affairs of the Partnership, the Foreign Fund and the CMGI Funds and the
Management Company (solely with respect to its responsibilities to the
Partnership, to the Foreign Fund and to the CMGI Funds); provided that David S.
Wetherell and Andrew Hajducky shall be permitted to devote such business time to
the affairs of CMGI and its subsidiaries as each of them deems necessary to
fulfill his duties as an executive officer of CMGI. Following expiration of the
Commitment Period, each of the members of the General Partner shall devote to
the Partnership such time as may be reasonably necessary to manage the assets of
the Partnership for the benefit of the investors therein.
Subject to the other provisions of this Agreement, the General Partner
and any of its Affiliates (i) may act as a director, officer, employee or
advisor of any corporation, a trustee of any trust, or a partner of any
partnership; (ii) may receive compensation for his services as an advisor with
respect to, or participation in profits derived from, the investments of any
such corporation, trust or partnership; and (iii) may, subject to the time
commitments as set forth above, acquire, invest in, hold and sell securities of
any entity. Neither the Partnership nor any other Partner shall have
34
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by virtue of this Agreement, any right, title or interest in or to such other
corporation, trust, partnership or investment.
Section 7.2 Opportunity to Participate in Future Investment Vehicles.
--------------------------------------------------------
The General Partner will not, without the consent of Two-Thirds in
Interest of the Limited Partners, create, manage, sponsor or act as investment
advisor to any limited partnership or other investment vehicle, other than the
Foreign Fund, the CMGI Funds, the Partnership and CMGI (a "New Investment
Vehicle") until the earlier of (i) the end of the Commitment Period, and (ii)
the commitment by the Partnership of at least seventy-five percent (75%) of its
Capital Commitments. In the event that prior to the termination of the
Partnership, the General Partner or any of its Affiliates creates, manages,
sponsors or acts as investment advisor to another limited partnership or other
investment vehicle with primary investment objectives and policies substantially
similar to those of the Partnership, each Partner will be offered an opportunity
to invest in such limited partnership or other investment vehicle pursuant to
the terms of the offering of interests in such limited partnership or other
investment vehicle on terms no less favorable than those offered to other
investors in such vehicles.
Section 7.3 Dealings with Limited Partners.
------------------------------
The General Partner shall not enter into any agreement, contract,
modification or undertaking of any kind with any Limited Partner that would
grant rights in the Partnership as a Limited Partner by the acquisition of a
Capital Commitment that are more favorable than those offered to any other
Limited Partner. Notwithstanding the foregoing, the General Partner may permit
certain Limited Partners to co-invest with it and the Partnership in Portfolio
Securities and may enter into agreements with any Limited Partner for the
provision to the Partnership or the General Partners of any services thereunder,
provided that any such agreement will be on terms equivalent to those entered
into with independent third parties.
Section 7.4 Co-Investment Obligation.
------------------------
A. CMGI will co-invest with the Partnership in Portfolio Companies an
aggregate amount which shall be equal to the greater of (i) $30 million, and
(ii) 19.9% of the sum of the aggregate Capital Commitments of the Partnership
and the aggregate capital commitments to the Foreign Fund (the "Co-investment
Obligation"). The Co-investment Obligation shall arise with respect to all
investments made by the Partnership in Portfolio Companies (including Follow-on
Investments, Committed Investments, Bridge Financing and through the funding of
guarantees), shall be satisfied in cash and shall be made on the same terms,
same price and in securities identical to the Portfolio Securities purchased by
the Partnership. In the case of each investment in a Portfolio Company, the
percentage of such investment made by the Partnership and CMGI will be computed
as follows: (x) the percentage of such investment made by the Partnership will
be equal to the sum of the aggregate Capital Commitments of the Partnership and
the aggregate capital commitments to the Foreign Fund
35
<PAGE>
divided by the sum of the aggregate Capital Commitments of the Partnership, the
aggregate capital commitments of the Foreign Fund and the Co-investment
Obligation, and (y) the percentage invested by CMGI will be equal to the Co-
investment Obligation divided by the sum of the aggregate Capital Commitments of
the Partnership, the aggregate capital commitments of the Foreign Fund and the
Co-investment Obligation.
B. CMGI may assign all or any portion of its Co-investment Obligation
to any of its Affiliates, including, without limitation, any CMGI Fund; however,
for purposes of this Section 7.4, the Co-investment Obligation shall remain an
obligation of CMGI.
Section 7.5 Other Co-Investment Rights.
--------------------------
In the case of any investment by the Partnership, the General Partner
shall cause employees of the Management Company or other persons who perform
services to or for the benefit of the Partnership (including without limitation,
the members of the Management Company) to co-invest with the Partnership an
amount equal to two percent (2%) of the aggregate amount to be invested by the
Partnership, the Foreign Fund and CMGI, collectively; provided that the
investment by such employees and other persons shall be on the same terms, same
price and in securities identical to the Portfolio Securities purchased by the
Partnership. The obligations of the employees or other persons under this
Section 7.5 may be funded through a partnership or limited liability company,
all of the equity holders of which are employees of the Management Company or
other persons who perform services to or for the benefit of the Partnership
(herein referred to as the "Employee Fund").
Section 7.6 Foreign Fund Co-Investment.
--------------------------
The General Partner shall cause the Partnership to coinvest with the
Foreign Fund and to invest only in the same Portfolio Companies and on the same
terms and at the same times as the Foreign Fund. Investments by the Foreign
Fund, the Partnership and CMGI shall be made by the Foreign Fund, the
Partnership and CMGI at the same times and shall be in proportion to their
respective capital commitments.
Section 7.7 Co-investments by the Other Participating Funds. (a) In
-----------------------------------------------
connection with each investment opportunity pursuant to which any investment is
made under this Agreement at any time, the Foreign Fund, CMGI and the Employee
Fund, including the employees or other persons who invest pursuant to Section
7.5 either directly or through the Employee Fund (the "Other Participating
Funds") that participate in such investment pursuant to the terms of this
Agreement shall at such time each make an investment as a co-investment with
respect to such investment made pursuant to such investment opportunity, in the
same class or series of securities as such investment and on terms substantially
the same as those that apply to such investment in an amount that in the case of
each Other Participating Fund that is participating in such investment
opportunity, is in the same proportion to the aggregate amount invested by the
Partnership and all such Other Participating Funds as the proportion
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that the aggregate capital commitments of all partners of such Other
Participating Fund at such time bears to the aggregate Capital Commitments plus
the aggregate capital commitments of all partners of all such Other
Participating Funds at such time.
(b) No Other Participating Fund shall at any time sell, exchange,
transfer or otherwise dispose of any securities that were acquired as a co-
investment with the Partnership in the same investment opportunity as
contemplated by Section 7.7(a) unless (i) the Partnership also sells, exchanges,
transfers or otherwise disposes of, at substantially the same time, securities
that were acquired by the Partnership in such investment opportunity, and the
aggregate amount of such securities sold, exchanged, transferred or otherwise
disposed of by the Partnership and such Other Participating Fund is pro rata in
proportion to the aggregate amount respectively invested by the Partnership and
such Other Participating Fund and (ii) the terms of such sale, exchange,
transfer or other disposition, except to the extent necessary to address
regulatory or other legal considerations, are substantially the same as those
applicable to such sale, exchange, transfer or other disposition by the
Partnership at such time. In connection with any sale, exchange, transfer or
other disposition by the Partnership at any time of any securities comprising
all or part of an investment acquired pursuant to any investment opportunity,
each of the Other Participating Funds shall, at substantially the same time,
sell, exchange, transfer or otherwise dispose of securities in respect of its
related co-investment in an aggregate amount equal to the amount determined
pursuant to clause (i) of the immediately preceding sentence and on terms
described in clause (ii) of the immediately preceding sentence.
(c) The General Partner undertakes, represents and warrants that the
partnership agreement or other operative agreement for each of the Other
Participating Funds will contain provisions substantially to the effect set
forth in Sections 7.7(a) and 7.7(b) and that no such provision of such limited
partnership agreements shall be amended or waived unless Sections 7.7(a) and
7.7(b) shall have been amended or waived in substantially the same manner.
VIII.
ADMISSIONS; ASSIGNMENTS; REMOVAL AND WITHDRAWALS
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Section 8.1 Admission of Additional General Partner.
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It is not contemplated that any additional general partners will be
admitted to the Partnership. A person may be admitted to the Partnership as a
general partner only with the written consent of the General Partner and Two-
Thirds in Interest of the Limited Partners. Any such person so admitted as a
general partner shall be liable for all the obligations of the Partnership
arising before its admission as though it had been a general partner when such
obligations were incurred. In the event of the addition of a general partner,
the participation of such person in the management of the Partnership and the
interest of such person in the Partnership's Operating Income and Loss and
Investment Gain and Loss must be approved by the General Partner and Two-Thirds
in Interest of the Limited Partners at the time of such person's admission.
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Section 8.2 Admission of Additional Limited Partners.
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After the expiration of the 270 day period commencing on the Initial
Closing Date of the Partnership, additional Limited Partners (other than
Substitute Limited Partners admitted pursuant to Section 8.3) shall be admitted
to the Partnership only with the written consent of, and on the terms approved
by, all Partners. Until such time, the General Partner may admit one or more
additional Limited Partners, subject only to satisfaction of the following
conditions: (i) each such additional Limited Partner shall execute and deliver
a Subscription Agreement and an appropriate amendment to this Agreement pursuant
to which such additional Limited Partner agrees to be bound by the terms and
provisions hereof, (ii) such admission would not result in a violation of any
applicable law, including the federal or state securities laws, or any term or
condition of this Agreement and, as a result of such admission, the Partnership
would not be required to register as an investment company under the Investment
Company Act, and (iii) such additional Limited Partner shall pay to the
Partnership, on the date of its admission to the Partnership, an amount equal to
the sum of (x) the percentage of its Capital Commitment which is equal to the
percentage of the other Limited Partners' Capital Commitments that shall have
been payable at or prior to the admission of the additional Limited Partner, and
(y) an amount equal to interest on that portion of the Capital Commitment
payable upon admission at the Treasury Rate from the date such portion would
have been payable if such additional Limited Partner had been admitted on the
date of formation of the Partnership to the date of actual payment, which amount
shall be treated as Operating Receipts. The Partnership shall pay, from such
initial Capital Contribution of such additional Limited Partner, its allocable
portion of the Management Fee computed as if such additional Limited Partner had
been a Partner of the Partnership since the Initial Closing Date. The name and
business address of each Limited Partner admitted to the Partnership under this
Section 8.2 and the amount of its Capital Commitment shall be added to
Schedule 1 hereto. Each additional Limited Partner admitted pursuant to this
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Section 8.2 during the 270 day period commencing with the formation of the
Partnership shall be deemed for purposes of all allocations of Operating Income
or Loss and Investment Gain or Loss to have been admitted on the date of
formation of the Partnership. Admission of an additional Limited Partner shall
not be a cause of dissolution of the Partnership.
Section 8.3 Assignment of Partnership Interest.
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The General Partner shall not assign or otherwise transfer its interest
as the general partner of the Partnership. A Limited Partner may assign or
otherwise transfer all or any part of its interest in the Partnership (provided
that such part shall include a Capital Commitment, whether funded or unfunded,
of at least $1 million), subject to the limitations set forth in Section 8.4.
The assignee or transferee of a Limited Partner's interest in the Partnership
(an "Assignee") shall have the right to become a Substitute Limited Partner only