LIMITED LIABILITY COMPANY AGREEMENT
OF
COBALT LIFE SCIENCES GP I, LLC
A Delaware Limited Liability Company
Effective as of _____, 2026
THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into by and among the Members identified herein.
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RECITALS
WHEREAS, Cobalt Life Sciences GP I, LLC (the "Company") is being formed as a Delaware limited liability company pursuant to a Certificate of Formation to be filed with the Secretary of State of the State of Delaware under the Delaware Limited Liability Company Act, 6 Del. C. §18-101 et seq.;
WHEREAS, the Company is being formed for the purpose of serving as the sole general partner of Cobalt Life Sciences Opportunities Fund I, LP, a Delaware limited partnership (the "Fund"), which is an opportunistic life-sciences fund targeting a fund size of Seven Hundred Fifty Million Dollars ($750,000,000) with a hard cap of One Billion Dollars ($1,000,000,000);
WHEREAS, the Fund will pursue control and significant-minority investments in clinical-stage therapeutics, medical devices, and platform biotechnology companies, with the goal of generating superior risk-adjusted returns for its limited partners through active portfolio management and deep sector expertise;
WHEREAS, the Members identified on Schedule A hereto desire to enter into this Agreement to set forth their respective rights, duties, and obligations with respect to the Company, including the allocation of Carried Interest, the management of the Company's affairs, and the governance of the Company's role as general partner of the Fund;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, an Affiliate of any Member shall include any entity in which such Member holds a controlling equity interest, any entity that holds a controlling equity interest in such Member, and any entity under common control with such Member.
"Agreement" means this Limited Liability Company Agreement of Cobalt Life Sciences GP I, LLC, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the provisions hereof.
"Capital Account" means the individual capital account maintained for each Member in accordance with Treasury Regulation §1.704-1(b)(2)(iv) and Section 4.4 of this Agreement.
"Capital Contribution" means the total amount of cash and the fair market value of any property (net of any liabilities secured by such property that the Company assumes or takes subject to) contributed to the Company by each Member, including initial and additional contributions.
"Carried Interest" means the twenty percent (20%) share of net profits of the Fund allocated to the Company in its capacity as General Partner of the Fund, above an eight percent (8%) per annum preferred return to the limited partners of the Fund, compounded annually, and subject to a one hundred percent (100%) GP catch-up until the overall profit split between the Company and the limited partners reaches a 20/80 ratio, all as more fully described in the Fund LPA.
"Carried Interest Allocation" means the percentage of Carried Interest allocated to each Member as set forth on Schedule A and described in Section 5.1 of this Agreement.
"Carry Escrow" means the escrow account into which thirty percent (30%) of all Carried Interest distributions received by the Company from the Fund shall be deposited and held until the wind-down of the Fund, as more fully described in Section 5.2 of this Agreement and the Fund LPA.
"Cause" means, with respect to any Member, (a) conviction of, or plea of nolo contendere to, a felony or any crime involving moral turpitude, fraud, or dishonesty; (b) willful misconduct or gross negligence in the performance of such Member's duties to the Company or the Fund that results in material harm to the Company or the Fund; (c) material breach of this Agreement or the Fund LPA that remains uncured for thirty (30) days after written notice; (d) material breach of fiduciary duty owed to the Company or the other Members; or (e) any act of fraud, embezzlement, or misappropriation of Company or Fund assets.
"Certificate of Formation" means the Certificate of Formation of the Company as filed with the Secretary of State of the State of Delaware pursuant to the DLLCA, as it may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time. All references herein to specific sections of the Code shall include any corresponding successor provisions of the Code, and all references to the Code shall include applicable Treasury Regulations, revenue rulings, revenue procedures, and other guidance issued by the Internal Revenue Service, including, without limitation, Section 1061 of the Code regarding the three-year holding period requirements applicable to certain carried interest allocations.
"Company" means Cobalt Life Sciences GP I, LLC, a Delaware limited liability company.
"DLLCA" means the Delaware Limited Liability Company Act, 6 Del. C. §18-101 et seq., as amended from time to time.
"First Close" means the initial closing of the Fund at which limited partners are first admitted and capital commitments are first accepted.
"Fund" means Cobalt Life Sciences Opportunities Fund I, LP, a Delaware limited partnership for which the Company serves as the sole general partner.
"Fund LPA" means the Agreement of Limited Partnership of Cobalt Life Sciences Opportunities Fund I, LP, as it may be amended, restated, supplemented, or otherwise modified from time to time.
"GP Commitment" means the capital commitment to be made by the Company (or through its Members, directly or indirectly) to the Fund, in an amount equal to not less than two percent (2%) of the aggregate capital commitments of all partners in the Fund, which at the target fund size of Seven Hundred Fifty Million Dollars ($750,000,000) equals Fifteen Million Dollars ($15,000,000).
"Indemnified Person" has the meaning set forth in Section 8.1 of this Agreement.
"Investment Period" means the period beginning on the date of the First Close of the Fund and ending on the fifth (5th) anniversary thereof, during which new investments may be made by the Fund, subject to the terms and conditions of the Fund LPA, including any early termination or suspension of the Investment Period as a result of a Key Person Event.
"Key Person Event" has the meaning set forth in Section 6.5 of this Agreement.
"LPAC" means the Limited Partner Advisory Committee of the Fund, as established and constituted in accordance with the Fund LPA.
"Management Company" means Cobalt Life Sciences Management I, LLC, a Delaware limited liability company that provides management, administrative, and operational services to the Company and the Fund and that receives the management fee payable under the Fund LPA.
"Managing Members" means Dr. Marcus Yeung and Priya Dasgupta, or their duly appointed successors, who are responsible for the management of the business and affairs of the Company as described in Article VI.
"Member" means each Person who is admitted as a member of the Company, as set forth on Schedule A hereto, together with any Person subsequently admitted as a member in accordance with this Agreement.
"Membership Interest" means a Member's entire interest in the Company, including such Member's Percentage Interest, Carried Interest Allocation, right to receive distributions, right to vote on matters subject to Member approval, and all other rights, benefits, and obligations of a Member under this Agreement and the DLLCA.
"Net Profits" and "Net Losses" mean, for any period, the net profits or net losses, respectively, of the Fund as determined under the Fund LPA waterfall provisions and allocated to the Company in its capacity as general partner of the Fund, computed in accordance with the accounting methods adopted by the Fund.
"Percentage Interest" means, with respect to any Member, the percentage interest of such Member in the Company as set forth on Schedule A hereto, as adjusted from time to time in accordance with this Agreement.
"Permitted Transfer" has the meaning set forth in Section 9.2 of this Agreement.
"Person" means any natural person, corporation, partnership, limited liability company, trust, estate, joint venture, association, governmental authority, or any other entity of any kind or nature.
"Sponsor" means Cobalt Ventures LP, a Delaware limited partnership headquartered at 3400 Sand Hill Road, Suite 220, Menlo Park, California 94025, which is the sponsor organization affiliated with the Managing Members and which manages other investment vehicles including Cobalt Ventures Fund A, LP and Cobalt Ventures Fund B, LP.
"Tax Matters Partner" or "Partnership Representative" means the Person designated to serve as the "partnership representative" of the Company for federal income tax purposes under Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015, and any corresponding state or local tax provisions. Dr. Marcus Yeung shall serve as the initial Partnership Representative.
"Transfer" means any direct or indirect sale, assignment, pledge, hypothecation, encumbrance, gift, bequest, or other disposition, whether voluntary or involuntary, by operation of law or otherwise, of all or any part of a Membership Interest, including without limitation any transfer by way of foreclosure, execution, or levy.
"Treasury Regulations" means the regulations promulgated by the United States Department of the Treasury under the Code, as amended from time to time.
Section 1.2 — Rules of Construction
The following rules of construction shall apply to this Agreement:
(a) The headings and captions used in this Agreement are for convenience of reference only and shall not be used in interpreting, construing, or enforcing any of the provisions of this Agreement.
(b) Whenever the context requires, words used in the singular shall include the plural, and words used in the plural shall include the singular. Words importing one gender shall be deemed to include the other genders.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(d) References to any statute, law, or regulation shall be deemed to include any amendments, modifications, or successor provisions thereto, unless the context otherwise requires.
(e) References to "Sections," "Articles," "Schedules," and "Exhibits" are to sections, articles, schedules, and exhibits of this Agreement, unless otherwise specified.
(f) The terms "hereof," "herein," "hereby," "hereunder," and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement.
(g) Any reference to "days" shall mean calendar days unless "business days" is expressly specified.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company has been or shall be formed as a Delaware limited liability company by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware in accordance with and pursuant to the DLLCA. The rights and liabilities of the Members shall be determined pursuant to the DLLCA and this Agreement. To the extent that the rights or obligations of any Member are different by reason of any provision of this Agreement than they would be under the DLLCA in the absence of such provision, this Agreement shall, to the extent permitted by the DLLCA, control. The registered agent of the Company for service of process in the State of Delaware is Hollowell Technologies, located at 1209 Orange Street, Wilmington, Delaware 19801. The Company's Employer Identification Number shall be obtained from the Internal Revenue Service upon formation.
Section 2.2 — Name
The name of the Company is "Cobalt Life Sciences GP I, LLC." The Company may conduct business under such name or such other names as the Managing Members may from time to time determine, and the Managing Members shall have the authority to execute, file, and record any assumed or fictitious name certificates or similar filings as may be necessary or appropriate. All business of the Company shall be conducted in the name of the Company or such other names that comply with applicable law.
Section 2.3 — Principal Office
The principal office of the Company shall be located at 3400 Sand Hill Road, Suite 220, Menlo Park, California 94025, or such other place as the Managing Members may from time to time designate by notice to all Members. The Managing Members may establish additional offices or places of business of the Company as they may deem appropriate.
Section 2.4 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware 19801, or at such other address in the State of Delaware as the Managing Members may from time to time designate. The registered agent of the Company at such registered office is Hollowell Technologies. The Managing Members may change the registered office and registered agent of the Company from time to time in the manner provided by the DLLCA.
Section 2.5 — Term
The Company shall have a perpetual existence and shall continue in existence until dissolved in accordance with the provisions of Article XI of this Agreement. The Members acknowledge that the Fund has a term of ten (10) years from the date of its Final Close (the target date for which is May 15, 2027, such that the anticipated expiration date of the Fund is May 15, 2037), subject to two (2) optional one-year extensions. The first one-year extension may be exercised by the Company in its discretion as general partner of the Fund without the consent of the LPAC or the limited partners. The second one-year extension requires the prior consent of the LPAC. Notwithstanding its perpetual term, the Company shall remain in existence at least until all obligations of the Fund have been satisfied and the Fund has been fully wound down and dissolved.
Section 2.6 — Purpose
The purpose of the Company is:
(a) To serve as the sole general partner of the Fund;
(b) To execute and perform all obligations of the general partner under the Fund LPA, including the management and direction of the Fund's investment activities;
(c) To make, hold, manage, monitor, and dispose of investments on behalf of the Fund in clinical-stage therapeutics, medical devices, platform biotechnology companies, and such other investments as may fall within the Fund's investment mandate as set forth in the Fund LPA;
(d) To enter into agreements with the Management Company, Cobalt Life Sciences Management I, LLC, for the provision of management, administrative, and operational services, including the employment of investment professionals and support staff;
(e) To enter into agreements with service providers on behalf of the Fund, including Halcyon Fund Services, Inc. as fund administrator, Whitfield & Pratt LLP as independent auditor, and Ridgeway National Bank, N.A. as custodian;
(f) To engage placement agents, including sagebrush Capital Partners LLC, and legal counsel, including Calderwood & Harkness LLP and Fielding & O'Hara PLLC, in connection with the Fund's fundraising and operations;
(g) To borrow money, issue guarantees, and execute instruments and agreements in connection with the foregoing purposes; and
(h) To do any and all things necessary, appropriate, proper, advisable, incidental, or convenient to the foregoing purposes, and to exercise any and all rights, powers, and privileges which a limited liability company may exercise under the DLLCA or any other applicable law.
Section 2.7 — Powers
The Company shall have all powers available to a Delaware limited liability company under the DLLCA, including, without limitation, the power to borrow money, to mortgage or pledge any or all of its assets, to guarantee the obligations of other Persons, to enter into contracts and agreements, to sue and be sued, to appoint agents, to open and maintain bank accounts, and to take all actions necessary or appropriate to carry out the purposes of the Company as set forth in Section 2.6. The enumeration of specific powers in this Section 2.7 is not intended to limit the general powers of the Company under the DLLCA.
ARTICLE III — MEMBERS; MEMBERSHIP INTERESTS
Section 3.1 — Initial Members
The initial Members of the Company and their respective Percentage Interests and Carried Interest Allocations are set forth on Schedule A attached hereto and incorporated herein by this reference. The initial Members are:
(a) Dr. Marcus Yeung, serving as a Managing Member;
(b) Priya Dasgupta, serving as a Managing Member; and
(c) Alan Whitford, serving as a Member.
Each initial Member shall be admitted to the Company upon execution of this Agreement and the making of such Member's initial Capital Contribution as described in Section 4.1.
Section 3.2 — Membership Interests
The Membership Interests of the Members shall be as set forth on Schedule A hereto. Schedule A shall be updated from time to time by the Managing Members to reflect admissions, withdrawals, Transfers, and adjustments to Percentage Interests and Carried Interest Allocations in accordance with this Agreement. No certificates shall be issued with respect to Membership Interests. A Member's Membership Interest represents such Member's entire interest in the Company, including the right to receive allocations and distributions, the right to vote on matters requiring Member approval, and all other rights and obligations of a Member under this Agreement and the DLLCA.
Section 3.3 — No Liability of Members
No Member shall be personally liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Member of the Company, except as otherwise expressly provided by the DLLCA or this Agreement. The Members acknowledge and agree, however, that the Company, in its capacity as general partner of the Fund, bears unlimited liability for the debts and obligations of the Fund that cannot be satisfied out of the assets of the Fund, and that the clawback obligation under the Fund LPA is joint and several among the principals of the Company (Dr. Marcus Yeung, Priya Dasgupta, and Alan Whitford). Each Member's obligations with respect to the clawback are further described in Section 5.6 of this Agreement. The foregoing acknowledgment does not create any liability of a Member to any third party and is intended solely to describe the Members' obligations as among themselves and in their capacity as principals obligated under the Fund LPA.
Section 3.4 — No Withdrawal
No Member shall have the right to withdraw from the Company or to demand or receive a return of such Member's Capital Contributions, except as expressly provided in this Agreement or as required by the DLLCA. Any purported withdrawal in violation of this Section 3.4 shall be null and void and of no force or effect, and the purportedly withdrawing Member shall remain bound by all obligations under this Agreement, including obligations relating to Capital Contributions and clawback.
ARTICLE IV — CAPITAL CONTRIBUTIONS
Section 4.1 — Initial Capital Contributions
Each Member shall make an initial Capital Contribution to the Company in the amount set forth opposite such Member's name on Schedule A. Initial Capital Contributions shall be due and payable upon formation of the Company or at such later time as the Managing Members may determine. All initial Capital Contributions shall be made in immediately available funds by wire transfer to an account designated by the Managing Members.
Section 4.2 — GP Commitment to the Fund
The Company is obligated to make a capital commitment to the Fund equal to not less than two percent (2%) of the aggregate capital commitments of all partners in the Fund. At the Fund's target size of Seven Hundred Fifty Million Dollars ($750,000,000), this GP Commitment equals Fifteen Million Dollars ($15,000,000). If aggregate commitments to the Fund exceed the target fund size, the GP Commitment shall be correspondingly increased to maintain the minimum two percent (2%) threshold. The GP Commitment shall be funded by the Members in proportion to their respective Percentage Interests set forth on Schedule A, or as otherwise agreed in writing by all Members. At the target fund size, the GP Commitment shall be allocated as follows: Dr. Marcus Yeung — Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000); Priya Dasgupta — Five Million Two Hundred Fifty Thousand Dollars ($5,250,000); and Alan Whitford — One Million Five Hundred Thousand Dollars ($1,500,000). Capital calls for the GP Commitment shall be made by the Managing Members in accordance with the schedule of capital calls applicable to all partners under the Fund LPA, and each Member shall be obligated to fund such Member's pro rata share of each capital call within the time period specified in the applicable capital call notice.
Section 4.3 — Additional Capital Contributions
From time to time, additional Capital Contributions may be required from the Members to fund the GP Commitment, to satisfy the Company's expenses or obligations, or for such other purposes as the Managing Members may determine. Any such additional Capital Contributions shall be made by the Members in proportion to their respective Percentage Interests, unless the Members unanimously agree to a different allocation. The Managing Members shall provide each Member with not less than ten (10) business days' prior written notice of any required additional Capital Contribution, specifying the amount required and the purpose for which such contribution is needed. A Member who fails to make a required additional Capital Contribution within the time specified in the notice shall be subject to the default provisions set forth in Section 4.5.
Section 4.4 — Capital Accounts
A separate Capital Account shall be maintained for each Member in accordance with Treasury Regulation §1.704-1(b)(2)(iv) and the principles set forth in this Section 4.4. Each Member's Capital Account shall be:
(a) Credited with (i) the amount of cash and the fair market value of property (net of any liabilities secured by such property that the Company assumes or takes subject to) contributed by such Member to the Company, (ii) allocations to such Member of Net Profits and items of income and gain, and (iii) such other items as are required to be credited to a partner's capital account under Treasury Regulation §1.704-1(b)(2)(iv);
(b) Debited with (i) the amount of cash and the fair market value of property (net of any liabilities assumed by such Member or to which such property is subject) distributed to such Member by the Company, (ii) allocations to such Member of Net Losses and items of loss and deduction, and (iii) such other items as are required to be debited to a partner's capital account under Treasury Regulation §1.704-1(b)(2)(iv).
The Capital Accounts shall be adjusted as necessary to reflect the revaluation of Company assets in connection with the admission of additional Members, the distribution of property in kind, or other events requiring a revaluation of Capital Accounts under Treasury Regulation §1.704-1(b)(2)(iv)(f). In the event of a Transfer of a Membership Interest, the transferee shall succeed to the Capital Account of the transferor to the extent attributable to the Membership Interest transferred.
Section 4.5 — Default on Capital Contributions
If any Member (a "Defaulting Member") fails to make a required Capital Contribution within ten (10) business days after receiving written notice from the Managing Members specifying the amount due and demanding payment, the non-defaulting Members shall have the following rights and remedies, which shall be cumulative and not exclusive:
(a) Loan. One or more non-defaulting Members may, but shall not be obligated to, advance the Defaulting Member's share of the required Capital Contribution. Any such advance shall be treated as a loan from the advancing Member(s) to the Defaulting Member, bearing interest at the lesser of twelve percent (12%) per annum (compounded monthly) or the maximum rate permitted by applicable law, and shall be repayable from the Defaulting Member's share of subsequent distributions from the Company. The Company shall withhold and redirect to the lending Member(s) all distributions otherwise payable to the Defaulting Member until the loan, including all accrued interest, has been repaid in full.
(b) Punitive Dilution. The non-defaulting Members may elect, by written notice to the Defaulting Member, to dilute the Defaulting Member's Percentage Interest and corresponding Carried Interest Allocation on a punitive basis at a ratio of 1.5 to 1.0 (that is, for every dollar of the defaulted contribution, the Defaulting Member's Percentage Interest shall be reduced by the equivalent of one and one-half dollars, and the relinquished interest shall be allocated among the non-defaulting Members pro rata based on their respective Percentage Interests). Schedule A shall be amended accordingly by the Managing Members.
(c) Other Remedies. The non-defaulting Members may pursue any other remedies available at law or in equity, including specific performance, injunctive relief, or damages.
In addition to the foregoing remedies, a Defaulting Member shall forfeit all advisory committee nomination rights and voting rights under this Agreement until such time as the default is cured in full, including the payment of all interest and any other amounts owed in connection with the default.
Section 4.6 — Return of Capital
No Member shall have the right to demand or receive a return of such Member's Capital Contributions or any portion thereof, except upon dissolution of the Company in accordance with Article XI or as otherwise expressly provided in this Agreement. No interest shall be paid on any Capital Contribution. No Member shall have priority over any other Member with respect to the return of Capital Contributions, except as specifically provided in this Agreement.
ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 — Carried Interest Allocation
All Carried Interest received by the Company from the Fund shall be allocated among the Members in accordance with the following Carried Interest Allocation percentages:
The Carried Interest equals twenty percent (20%) of net profits of the Fund above an eight percent (8%) per annum preferred return to the limited partners of the Fund (compounded annually), subject to a one hundred percent (100%) GP catch-up until the cumulative overall profit split between the Company and the limited partners reaches a ratio of 20/80, as more fully set forth in the Fund LPA. All allocations of Carried Interest among the Members set forth in this Section 5.1 are subject to the vesting provisions of Section 5.7 and the Carry Escrow provisions of Section 5.2. The Carried Interest Allocation percentages may be modified only by the unanimous written consent of all Members, as provided in Section 6.2(c).
Section 5.2 — Carry Escrow
Thirty percent (30%) of all Carried Interest distributions received by the Company from the Fund shall be deposited into an escrow account (the "Carry Escrow") to be maintained at Ridgeway National Bank, N.A. or such other financial institution as the Managing Members may designate from time to time. Amounts held in the Carry Escrow shall be retained until the wind-down of the Fund and the satisfaction of all clawback and true-up obligations under the Fund LPA.
Upon the final determination that no clawback obligation exists or upon the satisfaction of all clawback obligations, amounts held in the Carry Escrow shall be released and distributed to the Members in accordance with their respective Carried Interest Allocation percentages. Pending release, amounts held in the Carry Escrow may be invested in short-term, high-quality, liquid investments as directed by the Managing Members, and any income earned on escrowed amounts shall be allocated among the Members in proportion to their respective Carried Interest Allocations.
If clawback obligations arise under the Fund LPA at any time, funds held in the Carry Escrow shall first be applied to satisfy such clawback obligations before any distribution of escrowed amounts to the Members. To the extent that amounts held in the Carry Escrow are insufficient to satisfy the clawback obligation in full, each Member shall be obligated to return additional amounts as set forth in Section 5.6.
Section 5.3 — Allocation of GP Commitment Returns
Returns on the GP Commitment, including all distributions from the Fund that are attributable to the Company's capital commitment as a partner of the Fund (as distinct from the Carried Interest), shall be allocated to the Members in proportion to each Member's actual contribution to the GP Commitment. For the avoidance of doubt, each Member's share of GP Commitment returns shall be calculated based on such Member's actual Capital Contributions to the Company for purposes of the GP Commitment, which is expected to correspond to such Member's Percentage Interest but may differ if any Member has contributed more or less than its pro rata share or if dilution has occurred pursuant to Section 4.5.
Section 5.4 — Tax Allocations
(a) General Rule. Allocations of income, gain, loss, deduction, and credit for federal and state income tax purposes shall be made in a manner consistent with the economic allocations set forth in this Article V, subject to compliance with Section 704(b) of the Code and the Treasury Regulations promulgated thereunder.
(b) Special Allocations. To the extent required by the Treasury Regulations, the following special allocations shall be made in the following order of priority:
(i) Minimum Gain Chargeback. If there is a net decrease in "partnership minimum gain" (as defined in Treasury Regulation §1.704-2(d)) during any fiscal year, each Member shall be allocated items of income and gain for such year (and, if necessary, subsequent years) in the amount and manner required by Treasury Regulation §1.704-2(f).
(ii) Partner Nonrecourse Debt Minimum Gain Chargeback. If there is a net decrease in "partner nonrecourse debt minimum gain" (as defined in Treasury Regulation §1.704-2(i)) during any fiscal year, each Member who has a share of such partner nonrecourse debt minimum gain shall be allocated items of income and gain for such year (and, if necessary, subsequent years) in the amount and manner required by Treasury Regulation §1.704-2(i)(4).
(iii) Qualified Income Offset. If any Member unexpectedly receives any adjustment, allocation, or distribution described in Treasury Regulation §1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of income and gain shall be allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the deficit balance in such Member's Capital Account (after giving effect to the adjustments, allocations, and distributions described above) as quickly as possible.
(iv) Partner Nonrecourse Deduction Allocations. Partner nonrecourse deductions shall be allocated to the Member who bears the economic risk of loss with respect to the partner nonrecourse debt to which such deductions are attributable, in accordance with Treasury Regulation §1.704-2(i)(1).
(c) Code Section 704(c) Allocations. In accordance with Section 704(c) of the Code and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the Company shall, solely for tax purposes, be allocated among the Members so as to take into account any variation between the adjusted basis of such property to the Company for federal income tax purposes and its fair market value at the time of contribution.
(d) Code Section 1061 Compliance. The Members acknowledge that Section 1061 of the Code imposes a three-year holding period requirement for long-term capital gains treatment of certain income allocated with respect to "applicable partnership interests" (as defined in Section 1061 of the Code), including the Carried Interest. The Company shall provide each Member with all information necessary for such Member to comply with the reporting requirements of Section 1061 of the Code, including information regarding the holding periods of Fund investments and the character of income and gains allocable to the Carried Interest. Each Member acknowledges that it is such Member's sole responsibility to comply with Section 1061 and to consult with such Member's own tax advisors regarding the application of Section 1061 to such Member's Carried Interest Allocation.
Section 5.5 — Distributions
(a) Timing and Amount. Cash distributions shall be made at such times and in such amounts as the Managing Members shall determine in their sole discretion, subject to the retention of adequate reserves for Company obligations, including, without limitation, the Carry Escrow, clawback obligations under the Fund LPA, accrued and anticipated expenses of the Company, and any contingent liabilities.
(b) Order of Distributions. Distributions shall be made in accordance with the allocation percentages described in Sections 5.1 and 5.3, as applicable. Distributions attributable to the GP Commitment shall be allocated as described in Section 5.3. Distributions attributable to the Carried Interest shall be allocated as described in Section 5.1, subject to the Carry Escrow provisions of Section 5.2 and the vesting provisions of Section 5.7.
(c) Tax Distributions. The Managing Members shall use reasonable efforts to distribute to each Member, prior to the due date for each quarterly estimated federal income tax payment, an amount sufficient to cover such Member's estimated federal, state, and local income tax liability attributable to allocations of income from the Company for the relevant period. For purposes of calculating tax distributions, the Managing Members shall assume that each Member is subject to tax at the highest combined marginal federal, state, and local income tax rate applicable to individuals resident in the State of California. Tax distributions shall be treated as advances on account of, and shall reduce, subsequent distributions to which such Member would otherwise be entitled under this Agreement.
(d) Withholding. The Company may withhold from distributions to any Member any amounts required to be withheld pursuant to applicable federal, state, local, or foreign tax laws, and any amounts so withheld shall be treated as having been distributed to such Member for all purposes of this Agreement.
Section 5.6 — Clawback Obligations
(a) Each Member acknowledges and agrees that the Company, as general partner of the Fund, is subject to a GP-level clawback obligation under the Fund LPA, pursuant to which the Company is required to return to the Fund excess carried interest distributions to the extent that cumulative distributions to the Company as Carried Interest exceed the amounts to which the Company is entitled under the Fund LPA waterfall upon the final wind-down of the Fund. The Members further acknowledge that the clawback obligation under the Fund LPA is joint and several among the principals of the Company (Dr. Marcus Yeung, Priya Dasgupta, and Alan Whitford), such that each principal may be held liable by the Fund for the entire clawback amount, regardless of such principal's individual share of Carried Interest distributions.
(b) In the event that a clawback obligation arises under the Fund LPA, each Member shall return to the Company (for repayment to the Fund) such Member's proportionate share of excess Carried Interest distributions, calculated based on such Member's Carried Interest Allocation. Each Member's clawback obligation shall be reduced by the amount of income taxes deemed to have been paid by such Member on the Carried Interest distributions subject to clawback, calculated using the highest combined marginal federal, state, and local income tax rate applicable to individuals resident in the State of California as of the date of each such distribution.
(c) Amounts held in the Carry Escrow shall be applied first to satisfy clawback obligations. To the extent that the Carry Escrow is insufficient to satisfy the clawback in full, each Member shall be personally obligated to return additional amounts equal to such Member's remaining share of the clawback, net of taxes deemed paid.
(d) The clawback obligations of each Member under this Section 5.6 shall survive the termination or dissolution of the Company, the withdrawal or removal of any Member, and the death, disability, or dissolution of any Member, and shall be binding upon each Member's estate, heirs, successors, and assigns.
Section 5.7 — Vesting of Carried Interest
(a) Managing Members. The Carried Interest Allocations of Dr. Marcus Yeung and Priya Dasgupta shall be fully vested upon the formation of the Company and execution of this Agreement.
(b) Alan Whitford. The Carried Interest Allocation of Alan Whitford shall vest in accordance with the following schedule:
(i) No portion of Alan Whitford's Carried Interest Allocation shall vest during the first twelve (12) months following the date of this Agreement (the "Cliff Period").
(ii) On the first anniversary of the date of this Agreement, twenty-five percent (25%) of Alan Whitford's Carried Interest Allocation shall vest (the "Cliff Vesting").
(iii) Following the Cliff Vesting, the remaining seventy-five percent (75%) of Alan Whitford's Carried Interest Allocation shall vest in twelve (12) equal quarterly installments over the following thirty-six (36) months (i.e., 6.25% per quarter), such that one hundred percent (100%) of Alan Whitford's Carried Interest Allocation shall be fully vested on the fourth anniversary of the date of this Agreement.
(c) Forfeiture upon Termination for Cause. If any Member ceases to be a Member of the Company or is terminated for Cause, all unvested portions of such Member's Carried Interest Allocation shall be immediately forfeited without consideration and shall be reallocated among the remaining Members pro rata based on their respective Carried Interest Allocations (as in effect immediately prior to such forfeiture, excluding the forfeiting Member's allocation).
(d) Termination without Cause. If a Member's relationship with the Company is terminated without Cause, such departing Member shall retain any vested portion of such Member's Carried Interest Allocation but shall forfeit all unvested portions, which shall be reallocated among the remaining Members as described in Section 5.7(c).
(e) Acceleration. In the event of a Change of Control of the Sponsor (as defined in the Fund LPA) or the death or Disability (as defined below) of a Member, all unvested Carried Interest of such Member shall immediately vest in full. For purposes of this Section, "Disability" means the inability of a Member to perform such Member's material duties for a period of one hundred eighty (180) consecutive days due to physical or mental incapacity, as determined in good faith by the Managing Members (or, in the case of a Managing Member, by the other Managing Member and the remaining Members).
ARTICLE VI — MANAGEMENT AND VOTING
Section 6.1 — Managing Members
The business and affairs of the Company shall be managed by the Managing Members, Dr. Marcus Yeung and Priya Dasgupta. The Managing Members shall have full and exclusive authority to manage and control the business and affairs of the Company, including the authority to act on behalf of the Company in its capacity as general partner of the Fund. Without limiting the generality of the foregoing, the Managing Members shall have the authority to:
(a) Make investment decisions on behalf of the Fund, including the identification, evaluation, negotiation, execution, monitoring, and disposition of investments in clinical-stage therapeutics, medical devices, and platform biotechnology companies;
(b) Execute and deliver the Fund LPA, any amendments thereto, subscription agreements, and all other Fund-related documents;
(c) Engage, retain, and compensate service providers, consultants, advisors, legal counsel, auditors, administrators, custodians, and other professionals on behalf of the Company and the Fund;
(d) Open and maintain bank accounts and investment accounts in the name of the Company;
(e) Manage the day-to-day operations of the Company and the Fund, including overseeing the Management Company's performance of delegated functions;
(f) Cause the Company to make Capital Contributions to the Fund in satisfaction of the GP Commitment;
(g) Execute all documents and take all actions necessary or appropriate to carry out the purposes of the Company as set forth in Section 2.6; and
(h) Take any and all other actions customarily taken by the general partner of a private equity fund, consistent with the terms of this Agreement and the Fund LPA.
Each Managing Member shall devote substantially all of his or her business time and attention to the affairs of the Company and the Fund, consistent with the Key Person provisions of the Fund LPA as described in Section 6.5 hereof. Notwithstanding the foregoing, a Managing Member may engage in outside activities to the extent permitted by Section 7.3 of this Agreement.
Section 6.2 — Voting
The following decisions shall require the vote or written consent of the Members as specified below:
(a) Majority Vote. The following matters shall require the affirmative vote of Members holding more than fifty percent (50%) of the Percentage Interests:
(i) Hiring or termination of senior investment professionals of the Fund (other than the Managing Members);
(ii) Material modifications to the investment strategy or investment guidelines of the Fund (to the extent such modifications do not require amendment of the Fund LPA);
(iii) Approval of annual operating budgets for the Company and the Management Company; and
(iv) Such other matters as the Managing Members may from time to time submit to the Members for a majority vote.
(b) Supermajority Vote. The following matters shall require the affirmative vote of Members holding at least seventy-five percent (75%) of the Percentage Interests:
(i) Amendment, modification, or restatement of this Agreement (except amendments requiring unanimous consent under clause (c) below);
(ii) Admission of new Members to the Company;
(iii) Increase in the GP Commitment beyond the minimum two percent (2%) of aggregate commitments to the Fund;
(iv) Any merger, consolidation, or sale of all or substantially all of the Company's assets;
(v) Any voluntary dissolution of the Company (except as triggered automatically under Section 11.1);
(vi) Reservation of a Carried Interest pool for future Members or key employees under Section 10.2; and
(vii) Such other matters as the Managing Members may from time to time submit to the Members for a supermajority vote.
(c) Unanimous Consent. The following matters shall require the unanimous written consent of all Members:
(i) Modification of the Carried Interest Allocation percentages set forth in Section 5.1 and Schedule A;
(ii) Modification of Capital Contribution obligations set forth in this Agreement, including any change in the allocation of the GP Commitment among the Members; and
(iii) Any action that would impose personal liability on a Member beyond the obligations expressly set forth in this Agreement.
Section 6.3 — Actions by Managing Members
(a) Individual Authority. Subject to Section 6.3(b), either Managing Member may act individually to bind the Company in ordinary-course matters, including executing routine contracts, authorizing payments, signing correspondence, and taking other day-to-day administrative and operational actions.
(b) Joint Authority. Both Managing Members must act jointly (either by both executing the relevant document or by one executing with the prior written authorization of the other) for the following matters:
(i) Execution of the Fund LPA or any material amendment, modification, or waiver thereof;
(ii) Execution of the Placement Agent Agreement with sagebrush Capital Partners LLC or any modification thereto;
(iii) Approval of any Fund investment in excess of Fifty Million Dollars ($50,000,000);
(iv) Any borrowing by the Company or the Fund, including any subscription-line credit facility, in excess of Ten Million Dollars ($10,000,000);
(v) Any settlement of claims or litigation in excess of One Million Dollars ($1,000,000);
(vi) Any amendment to or termination of the Management Company Agreement;
(vii) Any capital call to the Members in excess of Two Million Dollars ($2,000,000) in the aggregate; and
(viii) Any other matter that the Managing Members have agreed to submit to joint approval.
Section 6.4 — Officers
The Managing Members may, from time to time, appoint one or more officers of the Company, including, without limitation, a Chief Financial Officer, Secretary, General Counsel, and such other officers as the Managing Members may deem appropriate. Officers shall have such duties, responsibilities, and authority as the Managing Members may delegate to them, and shall serve at the pleasure of the Managing Members. The appointment of an officer shall not confer upon such officer the status of a Member. Any officer may be removed by the Managing Members at any time, with or without cause, and the delegation of authority to any officer shall not relieve the Managing Members of their responsibilities for the management of the Company. As of the date of this Agreement, no officers have been appointed, and the initial designation of officers, if any, shall be set forth on Schedule B.
Section 6.5 — Key Person Provisions
(a) The Members acknowledge and agree that the Fund LPA contains a Key Person provision pursuant to which, if either Dr. Marcus Yeung or Priya Dasgupta (each, a "Key Person") ceases to devote substantially all of his or her business time and attention to the affairs of the Fund during the Investment Period, a "Key Person Event" shall be triggered, resulting in the automatic suspension of the Investment Period until such time as the LPAC and/or the limited partners of the Fund have approved either the designation of a replacement Key Person or the resumption of the Investment Period, in each case in accordance with the terms of the Fund LPA.
(b) Each Managing Member hereby covenants and agrees that, during the Investment Period (being the period commencing on the date of the First Close of the Fund and ending on the fifth (5th) anniversary thereof), such Managing Member shall devote substantially all of his or her professional and business time and attention to the affairs of the Company and the Fund, and shall not undertake any other professional activities that would materially interfere with such commitment.
(c) If a Key Person Event occurs, the remaining Managing Member and the other Members shall take all actions required under the Fund LPA, including (i) providing prompt written notice to the LPAC and the limited partners of the Fund, (ii) suspending the making of new investments by the Fund (other than follow-on investments in existing portfolio companies as permitted by the Fund LPA), and (iii) cooperating with the LPAC and the limited partners to determine the appropriate course of action for the Fund.
Section 6.6 — Delegation to Management Company