LIMITED LIABILITY COMPANY AGREEMENT
OF
COBALT LIFE SCIENCES MANAGEMENT I, LLC
A Delaware Limited Liability Company
Dated as of [●], 2026
LIMITED LIABILITY COMPANY AGREEMENT
OF
COBALT LIFE SCIENCES MANAGEMENT I, LLC
This Limited Liability Company Agreement (this "Agreement") of Cobalt Life Sciences Management I, LLC, a Delaware limited liability company (the "Company"), is entered into as of [●], 2026, by and among the Members listed on Schedule A attached hereto (each, a "Member" and collectively, the "Members").
RECITALS
WHEREAS, the Company is a Delaware limited liability company to be formed by filing a Certificate of Formation with the Secretary of State of the State of Delaware pursuant to the Delaware Limited Liability Company Act (6 Del. C. §18-101 et seq.) (the "Act");
WHEREAS, the Company is being formed in connection with the establishment and operation of Cobalt Life Sciences Opportunities Fund I, LP, a Delaware limited partnership (the "Fund"), for which Cobalt Life Sciences GP I, LLC, a Delaware limited liability company (the "General Partner"), will serve as general partner;
WHEREAS, the Company will serve as the management company responsible for providing management, advisory, and administrative services to the Fund, and for employing the investment professionals who perform services for the Fund;
WHEREAS, the Company will receive the management fee payable by the Fund pursuant to the Agreement of Limited Partnership of Cobalt Life Sciences Opportunities Fund I, LP, dated as of [●], 2026 (the "Partnership Agreement"), and will use such fees to fund the operating expenses of the management company, including employee compensation, office overhead, and general administrative costs;
WHEREAS, the Members desire to enter into this Agreement to set forth their respective rights, obligations, and interests in the Company, and to provide for the governance, management, and operation of the Company in accordance with the Act and the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree as follows:
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ARTICLE I — DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth below:
"Act" means the Delaware Limited Liability Company Act, 6 Del. C. §18-101 et seq., as amended from time to time.
"Affiliate" means, with respect to any Person, (a) any other Person directly or indirectly controlling, controlled by, or under common control with such Person, and (b) without limiting the foregoing, shall include Cobalt Ventures LP, the General Partner, the Fund, the blocker Corporation (if formed), and each of their respective controlled entities, partners, members, officers, directors, and employees. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise.
"Agreement" means this Limited Liability Company Agreement, including all schedules and exhibits hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Blocker Corporation" means Cobalt Life Sciences Opportunities Fund I (Blocker), Inc., a Delaware C-corporation, if formed for the purpose of providing a taxable blocker structure for certain categories of investors in the Fund, including tax-exempt investors and non-U.S. investors seeking to avoid effectively connected income.
"Capital Contribution" means the total amount of cash or the fair market value of any property contributed by a Member to the capital of the Company in accordance with the terms of this Agreement.
"Certificate of Formation" means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware, as the same may be amended or restated from time to time.
"Cobalt" means Cobalt Ventures LP, a Delaware limited partnership, with its principal office located at 3400 Sand Hill Road, Suite 220, Menlo Park, California 94025 (Delaware Limited Partnership File No. 7824931; Employer Identification Number 83-2947561).
"Code" or "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder.
"Company" means Cobalt Life Sciences Management I, LLC, a Delaware limited liability company.
"Fiscal Year" means the calendar year, or such portion thereof during which the Company is in existence.
"Fund" means Cobalt Life Sciences Opportunities Fund I, LP, a Delaware limited partnership.
"General Partner" means Cobalt Life Sciences GP I, LLC, a Delaware limited liability company, in its capacity as general partner of the Fund.
"Indemnified Person" has the meaning set forth in Section 9.1 hereof.
"Investment Period" means the five (5)-year period commencing on the date of the first closing of the Fund (anticipated to be November 15, 2026) and ending on the fifth anniversary thereof, subject to early termination as provided in the Partnership Agreement.
"Management Agreement" means the management agreement to be entered into by and among the Company, the Fund, and the General Partner, pursuant to which the Company will provide management, advisory, and administrative services to the Fund in exchange for the Management Fee.
"Management Fee" means the management fee payable to the Company by the Fund pursuant to the terms of the Partnership Agreement and the Management Agreement, as more fully described in Article V hereof.
"Managing Members" means Dr. Marcus Yeung and Priya Dasgupta, each in their capacity as a managing member of the Company, and any successor managing member designated in accordance with the terms of this Agreement.
"Members" means the Persons listed on Schedule A hereto as members of the Company, together with any additional Persons who are hereafter admitted as members of the Company in accordance with the terms of this Agreement.
"Membership Interest" means a Member's entire interest in the Company, including such Member's economic interest (i.e., the right to receive allocations and distributions), governance rights, voting rights, and all other rights and obligations arising under this Agreement and the Act.
"Organizational Expenses" means all costs and expenses incurred in connection with the organization and formation of the Fund, the General Partner, the Company, and any related vehicles (including the blocker Corporation, if formed), including legal fees, filing fees, accounting fees, and related costs.
"Organizational Expense Cap" means one million five hundred thousand dollars ($1,500,000), which is the maximum amount of Organizational Expenses that the Fund shall bear, as specified in the Partnership Agreement.
"Partnership Agreement" means the Agreement of Limited Partnership of Cobalt Life Sciences Opportunities Fund I, LP, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Person" means any individual, partnership, limited liability company, corporation, trust, estate, association, governmental authority, or other entity of any kind.
"Placement Fee Offset" means the offset of one hundred percent (100%) of placement fees paid to any placement agent against the Management Fee, as more fully described in Section 5.2(a) hereof.
"Tax Matters Partner/Member" or "Partnership Representative" means the Member designated to act as the partnership representative of the Company under IRC §6223 and the regulations promulgated thereunder, as more fully described in Section 8.3 hereof.
"Transaction/Monitoring Fee Offset" means the offset of eighty percent (80%) of transaction fees and monitoring fees against the Management Fee, as more fully described in Section 5.2(b) hereof.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time.
Terms defined elsewhere in this Agreement shall have the meanings ascribed to them in the sections in which they are defined. Unless the context otherwise requires, (a) references to the singular include the plural and vice versa, (b) references to "herein," "hereof," "hereunder," and similar terms refer to this Agreement as a whole and not to any particular section or provision, (c) references to "including" or "includes" mean "including without limitation," and (d) references to any statute or regulation shall be deemed to include all amendments thereto and any successor statute or regulation.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company shall be formed as a Delaware limited liability company upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware in accordance with the Act. The authorized person executing the Certificate of Formation on behalf of the Company shall be Dr. Marcus Yeung. The registered agent of the Company in the State of Delaware shall be Hollowell Technologies, located at 1209 Orange Street, Wilmington, Delaware 19801. Upon formation, the Company shall promptly obtain an Employer Identification Number from the Internal Revenue Service. The rights, powers, duties, obligations, and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights, powers, duties, obligations, and liabilities of any Member are different by reason of any provision of this Agreement than they would be under the Act in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.
Section 2.2 — Name
The name of the Company is "Cobalt Life Sciences Management I, LLC." The Company may conduct business under such name or under any other trade name or assumed name as may be approved from time to time by the Managing Members. The Managing Members shall have the authority to file any certificates or statements required under applicable law in connection with the use of any such trade name or assumed name.
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 at such other location as the Managing Members may determine from time to time. The Managing Members shall give prompt written notice to all Members of any change in the location of the principal office.
Section 2.4 — Registered Office and Registered Agent
The registered office of the Company in the State of Delaware shall be at 1209 Orange Street, Wilmington, Delaware 19801, and the registered agent of the Company for service of process at such address shall be Hollowell Technologies. The Managing Members may change the registered office and registered agent of the Company from time to time by filing the appropriate amendment to the Certificate of Formation with the Secretary of State of the State of Delaware and providing notice thereof to all Members.
Section 2.5 — Purpose
The purpose of the Company is:
(a) to serve as the management company for the Fund and to provide investment management, advisory, and administrative services to the Fund and to Cobalt and its Affiliates;
(b) to employ (or engage as independent contractors) investment professionals and support personnel who provide services to the Fund and to Cobalt and its Affiliates;
(c) to receive the Management Fee from the Fund and any other compensation to which the Company may be entitled under the Management Agreement or otherwise;
(d) to enter into the Management Agreement with the Fund and the General Partner, and to perform the obligations of the Company thereunder;
(e) to bear certain organizational and operating expenses as described in Article VI hereof;
(f) to enter into agreements and arrangements with Affiliates, service providers, and other Persons as may be necessary or desirable in furtherance of the foregoing purposes; and
(g) to engage in any and all lawful activities incidental or ancillary to the foregoing purposes, and to exercise all powers that are necessary, suitable, or convenient for the accomplishment of the foregoing, or that are incidental thereto, as may be exercised by a limited liability company under the Act.
Section 2.6 — Term
The Company shall commence upon the filing of the Certificate of Formation with the Secretary of State of the State of Delaware and shall continue in existence in perpetuity until dissolved in accordance with Article X hereof or the Act. The term of the Company is not contractually tied to the term of the Fund; however, the Company is expected to operate for the duration of the Fund Term, which is anticipated to be ten (10) years from the Final Close of the Fund (anticipated to occur no later than May 15, 2027), with two optional one (1)-year extensions at the discretion of the General Partner (potentially through May 15, 2039). Following the termination of the Fund, the Company may continue in existence for such additional period as the Managing Members deem necessary or appropriate to wind down the Company's affairs, satisfy its obligations, and distribute its remaining assets to the Members.
Section 2.7 — Qualification in Other Jurisdictions
The Managing Members shall cause the Company to qualify to do business as a foreign limited liability company in the State of California and in any other state or jurisdiction in which the nature of the Company's activities or the location of its properties requires such qualification, including potentially the States of Oregon, Connecticut, and Massachusetts based on the Company's anticipated activities and investor nexus considerations. The Managing Members shall take all actions necessary to maintain such qualifications in good standing for so long as the Company conducts business in such jurisdictions.
ARTICLE III — MEMBERS; MEMBERSHIP INTERESTS
Section 3.1 — Members
The initial Members of the Company are:
(a) Dr. Marcus Yeung — Co-Founder and Managing Partner of Cobalt Ventures LP; and
(b) Priya Dasgupta — Co-Founder and Managing Partner of Cobalt Ventures LP.
The names, addresses, Membership Interests, and initial Capital Contributions of the initial Members are set forth on Schedule A attached hereto. Additional Members may be admitted to the Company from time to time with the unanimous written consent of the Managing Members, upon such terms and conditions as the Managing Members may determine, and subject to compliance with Section 3.5 hereof.
Section 3.2 — Membership Interests
The economic interests, governance rights, and other rights and obligations of each Member in the Company shall be determined by reference to such Member's Membership Interest, as set forth on Schedule A hereto, as the same may be updated from time to time by the Managing Members to reflect the admission of additional Members, transfers of Membership Interests, or other changes made in accordance with this Agreement. Membership Interests shall not be represented by certificates unless the Managing Members determine otherwise. No Member shall have any interest in any specific assets of the Company, and no Member shall have the right to demand or receive any distribution in kind from the Company except as expressly provided herein.
Section 3.3 — 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, or in such other amount as may be determined by the Managing Members. Additional Capital Contributions may be made by the Members from time to time, in such amounts and at such times as determined by the Managing Members. No Member shall be required to make any additional Capital Contribution to the Company without such Member's prior written consent, except as otherwise provided herein with respect to bearing excess Organizational Expenses pursuant to Section 6.1. The Capital Contributions of the Members shall be used by the Company to fund the Company's operations, including start-up costs, working capital needs, and any other purposes as determined by the Managing Members.
Section 3.4 — No Withdrawal of Capital; No Interest
No Member shall be entitled to withdraw or receive a return of all or any portion of such Member's Capital Contribution except upon the dissolution and winding up of the Company in accordance with Article X hereof or as otherwise expressly provided in this Agreement. No interest shall accrue on any Capital Contribution, and no Member shall have priority over any other Member with respect to the return of Capital Contributions, except as otherwise set forth in this Agreement.
Section 3.5 — Admission of Additional Members
Additional Members may be admitted to the Company from time to time with the unanimous written consent of the Managing Members. Without limiting the foregoing, the Managing Members contemplate that Alan Whitford, Partner and Head of Research at Cobalt, may be admitted as an additional Member of the Company at a time and upon terms to be determined by the Managing Members. The admission of additional Members may be for the purpose of incentivizing and retaining key employees of the Company, aligning the interests of such employees with the performance and success of the Fund, and such other purposes as the Managing Members may determine. As a condition to the admission of any additional Member, such Person shall execute a joinder or counterpart to this Agreement and shall agree to be bound by all of the terms and conditions hereof. Upon the admission of any additional Member, the Managing Members shall update Schedule A to reflect the name, address, Membership Interest, and Capital Contribution of such additional Member.
ARTICLE IV — MANAGEMENT AND OPERATIONS
Section 4.1 — Management by Managing Members
The business and affairs of the Company shall be managed by the Managing Members. The Managing Members of the Company are Dr. Marcus Yeung and Priya Dasgupta. Except as otherwise expressly provided in this Agreement, all decisions requiring the approval of the Managing Members shall require the affirmative consent of both Managing Members. The Managing Members shall have full power, authority, and discretion to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incident to the management of the Company's business. Without limiting the generality of the foregoing, the Managing Members shall have the authority to:
(a) enter into contracts, agreements, and other instruments on behalf of the Company, including the Management Agreement;
(b) employ or engage investment professionals, support staff, consultants, and independent contractors;
(c) establish compensation, benefits, and incentive arrangements for employees and contractors;
(d) open bank and brokerage accounts and authorize signatories thereon;
(e) incur indebtedness, guarantee obligations, and grant security interests on behalf of the Company;
(f) settle, compromise, or submit to arbitration any claim or dispute involving the Company;
(g) make tax elections and filings on behalf of the Company;
(h) acquire, hold, and dispose of property, both real and personal;
(i) retain accountants, attorneys, consultants, and other advisors;
(j) admit additional Members and modify the Membership Interests; and
(k) take all other actions that are necessary, desirable, or incident to the management of the Company's business and the accomplishment of its purposes.
No Member who is not a Managing Member shall have any authority to act on behalf of the Company, bind the Company, or incur any obligation on behalf of the Company. The Managing Members shall devote such time and effort to the business of the Company as they deem necessary and appropriate for the management thereof. The Managing Members are not required to devote their full time and attention to the Company's business, and may engage in other business activities, including the management of Cobalt, the General Partner, the Fund, and any other investment vehicles or business enterprises.
Section 4.2 — Officers
The Managing Members may from time to time appoint one or more officers of the Company, with such titles, duties, and authority as the Managing Members may determine. Initial officers may include, without limitation, a Chief Financial Officer and a Chief Compliance Officer. Each officer shall serve at the pleasure of the Managing Members and may be removed by the Managing Members at any time with or without cause. The appointment of an officer shall not, in and of itself, create any contractual right of such officer to continued employment or service. The Managing Members may delegate to any officer such authority as the Managing Members deem appropriate, subject to the limitations set forth in Section 4.5 hereof.
Section 4.3 — Employment of Investment Professionals
The Company shall employ (or engage as independent contractors, as the Managing Members may determine appropriate) the investment professionals who provide investment management, research, due diligence, and portfolio monitoring services to the Fund. The key investment professionals of the Company include the following individuals:
(a) Dr. Marcus Yeung — Co-Founder and Managing Partner. Dr. Yeung holds an M.D. and Ph.D. from Stanford University, and brings eighteen (18) years of experience in life sciences investing. Prior to founding Cobalt, Dr. Yeung was a partner at Prumvane Biosciences, where he led fourteen (14) biotechnology investments, including three (3) initial public offerings and two (2) trade-sale exits generating significant returns for investors.
(b) Priya Dasgupta — Co-Founder and Managing Partner. Ms. Dasgupta holds an M.B.A. from the Wharton School of the University of Pennsylvania, and brings fifteen (15) years of experience in healthcare investing. Prior to founding Cobalt, Ms. Dasgupta was a Vice President at Ridgeline Health Capital, where she focused on growth-stage healthcare and biopharmaceutical investments.
(c) Alan Whitford — Partner, Head of Research. Dr. Whitford holds a Ph.D. in Molecular Biology from the Massachusetts Institute of Technology. He previously served as Chief Scientific Officer at Meridian Therapeutics and joined Cobalt in 2021. Dr. Whitford leads the Company's scientific diligence and research efforts and provides technical oversight of the Fund's portfolio companies.
The Company shall bear all compensation, benefits, payroll taxes, and other employment-related costs associated with such investment professionals and all other employees of the Company, to the extent funded from the Management Fee and other revenues of the Company. The Managing Members shall have sole discretion to determine the compensation and benefits of all employees and independent contractors of the Company.
Section 4.4 — Management Agreement
The Company shall enter into a Management Agreement with the Fund and the General Partner, pursuant to which the Company shall agree to provide investment management, advisory, and administrative services to the Fund in exchange for the Management Fee. The Management Agreement shall be substantially consistent with the terms of the Partnership Agreement as they relate to the engagement of the management company, the payment of the Management Fee, and the allocation of expenses between the Fund and the Company. The Managing Members shall have the authority to negotiate, execute, and deliver the Management Agreement on behalf of the Company, and to amend or supplement the Management Agreement from time to time as they deem necessary or appropriate.
Section 4.5 — Delegation
The Managing Members may delegate their authority to officers, employees, or agents of the Company as they deem necessary or appropriate for the efficient conduct of the Company's business; provided, however, that no such delegation shall relieve the Managing Members of their ultimate responsibility for the management and control of the Company's business and affairs. Any authority delegated to an officer, employee, or agent of the Company may be revoked by the Managing Members at any time.
Section 4.6 — Standard of Care
The Managing Members and each officer of the Company shall discharge their duties in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner such Person reasonably believes to be in the best interests of the Company. No Managing Member or officer shall be liable to the Company or any Member for any act or omission taken or suffered in good faith in the performance of such Person's duties, subject to the limitations set forth in Article IX hereof.
Section 4.7 — Transactions with Affiliates
The Company may enter into transactions, agreements, and arrangements with Cobalt, the General Partner, the Fund, the blocker Corporation, or any other Affiliate of the Company; provided that such transactions shall be on terms that are no less favorable to the Company than those that could be obtained in arm's-length transactions with unaffiliated third parties, or are approved by the Managing Members after full disclosure of all material terms and conditions of such transactions. The Members acknowledge that the Company will routinely transact with the Fund and the General Partner in the ordinary course of its operations, including through the Management Agreement, and that such transactions are integral to the Company's purpose and are hereby approved.
ARTICLE V — MANAGEMENT FEE; REVENUE; ALLOCATIONS
Section 5.1 — Management Fee Receipt
The Company shall be entitled to receive the Management Fee from the Fund, as specified in the Partnership Agreement and the Management Agreement, in the following amounts:
(a) During the Investment Period (five (5) years from the first closing of the Fund): two percent (2.00%) per annum of aggregate commitments to the Fund. Based on the target fund size of seven hundred fifty million dollars ($750,000,000), this would result in an annual Management Fee of fifteen million dollars ($15,000,000) (calculated as $750,000,000 × 2.00%), and aggregate Management Fees during the full Investment Period (at target) of seventy-five million dollars ($75,000,000) (calculated as $15,000,000 × 5 years).
(b) Post-Investment Period: two percent (2.00%) per annum of invested capital, net of amounts attributable to investments that have been written off, written down, or with respect to which realized proceeds have been distributed to investors.
The Management Fee shall be payable to the Company in advance on a quarterly basis, or as otherwise specified in the Partnership Agreement. The first quarterly installment shall be pro-rated for the period from the first closing of the Fund through the end of the calendar quarter in which such first closing occurs. Each subsequent quarterly installment shall be payable on the first business day of each calendar quarter during the term of the Management Agreement.
Section 5.2 — Management Fee Offset Mechanics
The Management Fee receivable by the Company shall be subject to the following offsets, each as more fully set forth in the Partnership Agreement:
(a) Placement Fee Offset. One hundred percent (100%) of all placement fees paid or payable to sagebrush Capital Partners LLC (the "Placement Agent"), or to any other placement agent engaged in connection with the offering of interests in the Fund, shall be offset against the Management Fee. Based on the target fund size of seven hundred fifty million dollars ($750,000,000) and an assumed general partner commitment of fifteen million dollars ($15,000,000), if the Placement Agent sources all seven hundred thirty-five million dollars ($735,000,000) of third-party capital at a placement fee rate of one and one-half percent (1.50%), total placement fees would equal eleven million twenty-five thousand dollars ($11,025,000), all of which would be fully offset against the Management Fee. The retainer of one hundred fifty thousand dollars ($150,000) payable to the Placement Agent shall be credited against placement fees earned by the Placement Agent. After application of the full placement fee offset over the Investment Period, the net Management Fee payable to the Company would be sixty-three million nine hundred seventy-five thousand dollars ($63,975,000) (calculated as $75,000,000 less $11,025,000). The actual amount of the placement fee offset will depend on the final fund size, the amount of capital sourced by the Placement Agent, and the applicable placement fee rate.
(b) Transaction and Monitoring Fee Offset. Eighty percent (80%) of any transaction fees, monitoring fees, directors' fees, advisory fees, break-up fees, topping fees, or similar fees received by the Company, the General Partner, or any of their respective Affiliates from portfolio companies of the Fund or in connection with actual or contemplated investments by the Fund shall be offset against the Management Fee. The remaining twenty percent (20%) of such fees shall be retained by the Company (or the General Partner, as applicable) for its own account and shall not be subject to offset. The Members acknowledge that such fee-sharing arrangement reflects the terms negotiated with the limited partners of the Fund and set forth in the Partnership Agreement.
(c) Offset Mechanics. Offsets described in Sections 5.2(a) and 5.2(b) shall be applied against the Management Fee in the quarterly period immediately following the calendar quarter in which the relevant fee is received by the Company, the General Partner, or their Affiliates. If the aggregate amount of offsets applicable to any given quarter exceeds the Management Fee otherwise payable to the Company in such quarter, the excess offset amount shall be carried forward and applied against Management Fee payments in subsequent quarters until the full offset has been applied. The Company shall maintain accurate records of all fees subject to offset and shall provide the Fund and the General Partner with quarterly reconciliation statements setting forth the calculation of all applicable offsets.
Section 5.3 — Allocation of Revenue Among Members
The net revenues of the Company (consisting of the Management Fee, after application of all offsets described in Section 5.2 and the deduction of all Company expenses described in Article VI) shall be allocated among the Members in proportion to their respective Membership Interests as set forth on Schedule A, unless the Managing Members, in their sole discretion, determine that a different allocation is appropriate. Any such alternative allocation shall be made in writing and communicated to all Members. The Managing Members may establish reasonable reserves from the Company's revenues prior to allocating net revenues to the Members.
Section 5.4 — Other Revenue
In addition to the Management Fee, the Company may receive other income from time to time, including interest earned on cash balances maintained in the Company's bank and investment accounts, reimbursements from the Fund or the General Partner for expenses properly chargeable to the Fund, and any other amounts payable to the Company. All such revenue shall be allocated among the Members in the same manner as set forth in Section 5.3 hereof.
ARTICLE VI — EXPENSES; ORGANIZATIONAL EXPENSE OBLIGATIONS
Section 6.1 — Organizational Expenses
The Fund shall bear Organizational Expenses incurred in connection with the organization and formation of the Fund, the General Partner, the Company, and any related vehicles (including the blocker Corporation, if formed), up to the Organizational Expense Cap of one million five hundred thousand dollars ($1,500,000). Such expenses include, without limitation, legal fees for structuring and formation (including fees of Calderwood & Harkness LLP as Fund counsel and Fielding & O'Hara PLLC as regulatory counsel), accounting fees, filing fees, regulatory registration fees, and all related costs.
Any Organizational Expenses in excess of the Organizational Expense Cap of $1,500,000 shall be borne by the Company and shall not be charged to the Fund or its limited partners. To the extent that the Fund has incurred or paid any Organizational Expenses in excess of the Organizational Expense Cap, the Company shall promptly indemnify and reimburse the Fund for such excess amounts. The Managing Members shall maintain accurate records of all Organizational Expenses and shall coordinate with Greystone Tax Advisors LLC and Whitfield & Pratt LLP to ensure proper accounting and reporting of such expenses.
Section 6.2 — Operating Expenses Borne by the Company
The Company shall bear the following expenses from its Management Fee revenue and other revenues, all of which shall be considered operating expenses of the management company and shall not be charged to the Fund:
(a) compensation, salaries, bonuses, benefits, payroll taxes, and all other employment-related costs for all employees of the Company, including investment professionals and support staff;
(b) office rent, utilities, technology systems, telecommunications, office equipment, office supplies, and general overhead at the Company's principal office at 3400 Sand Hill Road, Suite 220, Menlo Park, California 94025, and any other office maintained by the Company;
(c) travel expenses of Company personnel, including airfare, lodging, ground transportation, and meals, to the extent such expenses are not properly reimbursable as Fund-level expenses under the Partnership Agreement;
(d) general administrative costs of operating the management company, including internal accounting, human resources, information technology support, and office management; and
(e) such other expenses as the Managing Members determine are properly attributable to the operations of the Company rather than the Fund.
Section 6.3 — Fund-Level Operating Expenses (Not Borne by Company)
For the avoidance of doubt, the following expenses are borne by the Fund (and not by the Company) as specified in the Partnership Agreement, and shall be charged directly to the Fund and paid from the Fund's assets:
(a) audit fees payable to Whitfield & Pratt LLP (Maria Sandoval, Partner), the Fund's independent auditor;
(b) tax preparation and compliance fees, including the preparation of the Fund's tax returns and Schedule K-1s for limited partners;
(c) legal fees and expenses related to the Fund's investments and ongoing operations, including fees of Calderwood & Harkness LLP (Pamela Cross, Nicholas Stern, Theresa Kim, Owen Fischer, and Leonard Cross) as Fund counsel and Fielding & O'Hara PLLC (Brian Liddell) as regulatory counsel;
(d) fund administration fees payable to Halcyon Fund Services, Inc. (Thomas Varga, Director);
(e) directors' and officers' liability insurance and errors and omissions insurance premiums, brokered by Vantage Risk Advisors, Inc. (Laura Benton);
(f) custodian and banking fees payable to Ridgeway National Bank, N.A. (Steven Cho);
(g) regulatory filing fees, including fees associated with Form D filings, blue sky filings, Form ADV amendments, and other regulatory filings;
(h) expenses of the limited partner advisory committee ("LPAC"), including meeting costs, travel reimbursement for LPAC members, and related administrative costs; and
(i) broken-deal expenses, subject to the limitations set forth in Section 6.4 hereof.
Section 6.4 — Broken-Deal Expenses
Broken-deal expenses (i.e., expenses incurred in connection with potential investments of the Fund that are not consummated, including legal fees, due diligence costs, accounting fees, and other out-of-pocket expenses) shall be borne by the Fund to the extent not reimbursed by a target company, subject to a per-deal cap of five hundred thousand dollars ($500,000) as specified in the Partnership Agreement. Any broken-deal expenses in excess of five hundred thousand dollars ($500,000) per deal shall be borne by the Company from its own resources and shall not be charged to the Fund. The Managing Members shall exercise reasonable judgment in managing and controlling broken-deal expenses and shall seek reimbursement from target companies where practicable.
ARTICLE VII — DISTRIBUTIONS
Section 7.1 — Distributions Generally
The Managing Members, in their sole and absolute discretion, shall determine the timing and amount of distributions to be made by the Company to the Members. Distributions shall be made from the available cash of the Company after payment of, or reasonable provision for, all Company expenses, obligations, and liabilities, and after establishing such reserves as the Managing Members deem necessary or appropriate for the Company's operations, including reserves for anticipated expenses, contingent liabilities, and working capital requirements. The Managing Members shall endeavor to make distributions to Members on at least a quarterly basis, subject to the availability of cash and the Company's liquidity needs.
Section 7.2 — Tax Distributions
Notwithstanding Section 7.1, the Company shall make tax distributions to the Members in amounts sufficient to cover each Member's estimated federal and state income tax liability attributable to such Member's allocable share of the Company's taxable income for each Fiscal Year. Such tax distributions shall be calculated based on the highest combined marginal federal and applicable state income tax rate applicable to any Member (taking into account the character of the income so allocated), and shall be made on a quarterly basis or at such other intervals as the Managing Members determine to be appropriate in light of estimated tax payment obligations. Tax distributions made to a Member pursuant to this Section 7.2 shall be treated as advances against, and shall reduce, the amount of regular distributions otherwise payable to such Member under Section 7.1 or Section 7.3.
Section 7.3 — Priority of Distributions
Except as otherwise provided in Section 7.2 (with respect to tax distributions) and Section 10.2 (with respect to distributions upon liquidation), all distributions by the Company to the Members shall be made in proportion to the Members' respective Membership Interests as set forth on Schedule A, unless the Managing Members, in their sole discretion, determine that a different allocation of distributions is appropriate. Any such alternative distribution allocation shall be made in writing and communicated to all Members.
ARTICLE VIII — TAX MATTERS
Section 8.1 — Tax Classification
The Company shall be classified as a partnership for United States federal income tax purposes in any Fiscal Year in which the Company has more than one Member, or as a disregarded entity (within the meaning of Treasury Regulation §301.7701-3) in any Fiscal Year in which the Company has only a single Member. The Company shall not file an election on IRS Form 8832 (or any successor form) to be treated as a corporation for United States federal income tax purposes. The Managing Members shall take all actions necessary to ensure that the Company's tax classification is consistent with this Section 8.1.
Section 8.2 — Tax Returns and Information
The Company shall cause to be prepared and timely filed all required federal, state, and local tax returns, reports, and information statements. The preparation of such returns shall be coordinated with Greystone Tax Advisors LLC (Kenneth Liu, Managing Director, 44 Montgomery Street, Suite 3100, San Francisco, California 94104), or such other tax advisor as the Managing Members may designate from time to time. The Company shall furnish to each Member a copy of Schedule K-1 (IRS Form 1065) or other applicable tax information within ninety (90) days after the end of each Fiscal Year. The Company shall also furnish to each Member such other tax information as may be reasonably necessary for such Member to prepare its federal, state, and local tax returns.
Section 8.3 — Partnership Representative
Dr. Marcus Yeung shall serve as the initial partnership representative (or "tax matters partner") of the Company under IRC §6223, and shall have full authority to act on behalf of the Company in connection with any administrative adjustment request, any partnership-level audit, any tax proceeding, and any other matter arising under the centralized partnership audit procedures enacted by the Bipartisan Budget Act of 2015 (as amended) and the regulations promulgated thereunder. The partnership representative may, in consultation with the other Managing Member, take such actions as the partnership representative deems necessary or appropriate in the best interests of the Company and the Members, including making elections under IRC §6226 (the "push-out" election) or IRC §6225(c) (the "modification" procedures). The partnership representative shall keep all Members reasonably informed of any material tax proceeding involving the Company.
Section 8.4 — IRC §1061 Compliance
To the extent that any amounts allocated or distributable to the Members constitute, or are derived from, "applicable partnership interests" within the meaning of IRC §1061, the Company shall maintain records and information necessary to comply with the three (3)-year holding period requirements for long-term capital gains treatment of carried interest income under IRC §1061 and the Treasury Regulations promulgated thereunder. The Company shall coordinate with the General Partner and the Fund to ensure proper identification, tracking, and reporting of applicable partnership interests and the associated holding periods. Each Member acknowledges that, pursuant to IRC §1061, certain gains that would otherwise be treated as long-term capital gains may be recharacterized as short-term capital gains (and taxed at ordinary income rates) if the applicable three-year holding period is not satisfied at the time of the relevant disposition. The Company shall provide each Member with such information as is necessary for such Member to comply with its reporting obligations under IRC §1061.
Section 8.5 — State Tax Nexus
The Company acknowledges that it may have income tax filing obligations and other tax obligations in multiple jurisdictions, including the State of Delaware (as the state of formation), the State of California (as the state in which the Company's principal office is located and where it conducts its primary operations), and potentially the States of Oregon, Connecticut, and Massachusetts, based on the Company's activities, the presence of employees or agents, and investor nexus considerations. The Company shall timely file all required state and local tax returns and shall make all required state and local tax payments. The Managing Members shall consult with Greystone Tax Advisors LLC and other appropriate advisors to identify all jurisdictions in which the Company has tax filing obligations and to ensure compliance with all applicable tax laws and regulations.
Section 8.6 — Allocations
For each Fiscal Year (or other applicable taxable period), the items of income, gain, loss, deduction, and credit of the Company shall be allocated among the Members in accordance with their respective Membership Interests, subject to any mandatory allocation requirements of the Code and the Treasury Regulations, including the provisions of IRC §§704(b) and 704(c) and the Treasury Regulations promulgated thereunder. The Managing Members shall cause the Company's allocations to have "substantial economic effect" within the meaning of Treasury Regulation §1.704-1(b)(2) and to comply with the "economic effect equivalence" test of Treasury Regulation §1.704-1(b)(2)(ii)(i), as applicable. The Managing Members, in consultation with Greystone Tax Advisors LLC, shall make such elections and adopt such conventions and methods as they deem necessary or appropriate to achieve the intended tax treatment and to comply with applicable tax laws.
ARTICLE IX — INDEMNIFICATION AND EXCULPATION
Section 9.1 — Indemnification
The Company shall, to the fullest extent permitted by the Act, indemnify and hold harmless each Member, Managing Member, officer, employee, and agent of the Company, and each of their respective Affiliates, partners, members, shareholders, directors, officers, employees, agents, heirs, executors, administrators, successors, and assigns (each, an "Indemnified Person"), from and against any and all losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys' fees and disbursements), judgments, fines, penalties, settlements, and other amounts (collectively, "Losses") arising from or in connection with any claim, demand, action, suit, proceeding, or investigation (whether civil, criminal, administrative, or investigative) in which the Indemnified Person may be involved, or is threatened to be involved, by reason of being or having been a Member, Managing Member, officer, employee, or agent of the Company, or by reason of any act or omission performed or omitted by such Indemnified Person in connection with the business or affairs of the Company; provided, however, that no Indemnified Person shall be entitled to indemnification hereunder with respect to any Losses arising from or attributable to such Indemnified Person's fraud, willful misconduct, gross negligence, or material breach of this Agreement. The right to indemnification provided in this Section 9.1 shall include the right to advancement of expenses (including reasonable attorneys' fees) incurred in connection with the defense of any such claim, demand, action, suit, proceeding, or investigation, upon receipt by the Company of an undertaking by or on behalf of the Indemnified Person to repay such amounts if it is ultimately determined that such Indemnified Person is not entitled to indemnification under this Section 9.1.
Section 9.2 — Exculpation
No Indemnified Person shall be liable to the Company or to any Member for any loss, damage, liability, or expense (including diminution in value) incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Company; provided, however, that such act or omission does not constitute fraud, willful misconduct, or gross negligence. To the fullest extent permitted by the Act, the Members hereby waive any claim or right of action against any Indemnified Person for any such loss, damage, liability, or expense, except to the extent arising from fraud, willful misconduct, or gross negligence.
Section 9.3 — Insurance
The Company may purchase and maintain insurance, at the expense of the Company or the Fund (as set forth in the Partnership Agreement), on behalf of the Managing Members, officers, employees, and agents of the Company against any liability asserted against them or incurred by them in their respective capacities with the Company, whether or not the Company would have the power to indemnify them against such liability. Such insurance shall include directors' and officers' liability insurance and errors and omissions insurance, and shall be coordinated through Vantage Risk Advisors, Inc. (Laura Benton). The Managing Members shall review the adequacy of such insurance coverage on at least an annual basis.
ARTICLE X — DISSOLUTION AND WINDING UP
Section 10.1 — Events of Dissolution
The Company shall be dissolved upon the earliest to occur of any of the following events:
(a) the unanimous written consent of all Members;
(b) the entry of a decree of judicial dissolution of the Company under the Act;
(c) the termination of the Fund and the completion of all wind-down activities under the Partnership Agreement, including the final distribution of all Fund assets, the discharge of all Fund obligations, and the filing of a certificate of cancellation of the Fund; or
(d) any event that makes it unlawful for the business of the Company to be carried on by the Members, or that otherwise requires the dissolution of the Company under the Act.
The death, bankruptcy, retirement, resignation, expulsion, or dissolution of any Member shall not, in and of itself, cause the dissolution of the Company. Upon the occurrence of any such event with respect to a Member, the Company shall continue without dissolution, and the remaining Members shall continue the business of the Company without interruption.
Section 10.2 — Winding Up
Upon the dissolution of the Company, the Managing Members (or, if no Managing Member is then serving, a liquidating trustee designated by the Members or appointed by a court of competent jurisdiction) shall proceed to wind up the affairs of the Company. During the winding-up period, the Managing Members (or liquidating trustee) shall discharge the Company's obligations, collect the Company's assets, and settle all of the Company's liabilities and obligations. The assets of the Company shall be distributed in the following order of priority:
(i) first, to the payment of the debts and liabilities of the Company to creditors, including Members who are creditors of the Company (to the extent otherwise permitted by law), in the order of priority as provided by law;
(ii) second, to the payment of the costs and expenses of the winding up and liquidation of the Company;
(iii) third, to the establishment of such reserves as the Managing Members (or liquidating trustee) deem reasonably necessary for any remaining contingent or unforeseen liabilities or obligations of the Company, which reserves shall be held for a reasonable period of time as determined by the Managing Members (or liquidating trustee) and, upon expiration of such period, shall be distributed as provided in clause (iv) below; and
(iv) fourth, to the Members in accordance with their respective positive capital account balances, after giving effect to all contributions, allocations, and distributions through the date of the final distribution.
Section 10.3 — Certificate of Cancellation
Upon the completion of the winding up and final distribution of the Company's assets, the Managing Members (or liquidating trustee) shall file a Certificate of Cancellation with the Secretary of State of the State of Delaware and shall take all such other actions as may be necessary or appropriate to terminate the existence of the Company in all jurisdictions in which it is then qualified to do business.
ARTICLE XI — TRANSFER OF MEMBERSHIP INTERESTS
Section 11.1 — Restrictions on Transfer
No Member may sell, assign, transfer, pledge, hypothecate, encumber, or otherwise dispose of all or any portion of its Membership Interest (whether voluntarily or by operation of law) without the prior written consent of the Managing Members, which consent may be granted or withheld in the Managing Members' sole and absolute discretion. Any purported transfer of a Membership Interest in violation of this Section 11.1 shall be null and void ab initio and of no force or effect, and the Company shall not recognize or give effect to any such purported transfer on its books and records.
Section 11.2 — Conditions to Transfer