Form 10-12G/A TCW Star Direct Lending
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As filed with the Securities and Exchange Commission on August 16, 2022
File No. 000-56404
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
TCW Star Direct Lending LLC
(Exact name of registrant as specified in charter)
| Delaware | 88-1126955 | |
| (State or other jurisdiction of incorporation or registration) |
(I.R.S. Employer Identification No.) | |
| 200 Clarendon Street, 51st Floor Boston, Massachusetts (Address of principal executive offices) |
02116 (Zip Code) | |
| (617) 936-2275 (Registrant’s telephone number, including area code) | ||
with copies to:
| Meredith Jackson, Esq. Executive Vice President and General Counsel The TCW Group, Inc. 865 South Figueroa Street Los Angeles, California 90017 (213) 244-0896 (213) 244-0491 (fax) |
Vadim Avdeychik, Esq. Clifford Cone, Esq. Clifford Chance US LLP 31 West 52nd Street New York, NY 10019 (212) 878-3055 (212) 878-3180 |
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Limited Liability Company Units
(Title of class)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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TCW Star Direct Lending LLC is filing this registration statement on Form 10 (this “Registration Statement”) under the Securities Exchange Act of 1934, as amended (the “1934 Act” or the “Exchange Act”), on a voluntary basis to permit it to file an election to be regulated as a business development company (a “BDC”), under the Investment Company Act of 1940, as amended (the “1940 Act”). In this Registration Statement, each of the “Company,” “we,” “us,” and “our” refers to TCW Star Direct Lending LLC, and the “Adviser” refers to TCW Asset Management Company LLC, unless otherwise specified.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. As a result, we are eligible to take advantage of certain reduced disclosure and other requirements that are otherwise applicable to public companies including, but not limited to, not being subject to the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Once this Registration Statement has been deemed effective, we will be subject to the requirements of Section 13(a) of the 1934 Act, including the rules and regulations promulgated thereunder, which will require us, among other things, to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and we will be required to comply with all other obligations of the 1934 Act applicable to issuers filing registration statements pursuant to Section 12(g) of the 1934 Act. Upon the effectiveness of this Registration Statement, we will also be subject to the proxy rules in Section 14 of the 1934 Act, and we and our directors, officers and principal unitholders will be subject to the reporting requirements of Sections 13 and 16 of the Exchange Act. The Securities and Exchange Commission (the “SEC” or the “Commission”) maintains an Internet Website (http://www.sec.gov) that contains the reports mentioned in this section.
In connection with the foregoing, we will file an election to be regulated as a BDC under the 1940 Act. Upon filing of such election, we will become subject to the 1940 Act requirements applicable to BDCs.
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This Registration Statement contains forward-looking statements that involve substantial risks and uncertainties. These forward- looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation:
| • | an economic downturn, such as the downturn associated with the COVID-19 pandemic, could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
| • | the impact of the novel strain of coronavirus known as “COVID-19” on the global economy, our industry, our business and our targeted investments; |
| • | an economic downturn, such as the downturn associated with the COVID-19 pandemic, could disproportionately impact the companies which we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies; |
| • | the effect of legal and regulatory changes, including Coronavirus Aid, Relief and Economic Security Act signed into law in December 2020 and the American Rescue Plan Act of 2021, signed into law in March 2021; |
| • | a contraction of available credit could impair our lending and investment activities; |
| • | interest rate volatility could adversely affect our results, particularly since we intend to use leverage as part of our investment strategy; |
| • | interest rate volatility, including volatility associated with the decommissioning of LIBOR, could adversely affect our results, particularly since we intend to use leverage as a part of our investment strategy; |
| • | our future operating results; |
| • | our business prospects and the prospects of our portfolio companies; |
| • | our contractual arrangements and relationships with third parties; |
| • | the ability of our portfolio companies to achieve their objectives; |
| • | competition with other entities and our affiliates for investment opportunities; |
| • | an inability to replicate the historical success of any previously launched fund managed by the TCW Private Credit Group; |
| • | the speculative and illiquid nature of our investments; |
| • | the use of borrowed money to finance a portion of our investments; |
| • | the adequacy of our financing sources and working capital; |
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| • | uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union, Russia, Ukraine and China, including the effect of the current COVID-19 pandemic; |
| • | the loss of key personnel; |
| • | the timing of cash flows, if any, from the operations of our portfolio companies; |
| • | the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments; |
| • | the ability of The TCW Group, Inc. to attract and retain highly talented professionals that can provide services to the Adviser and Administrator; |
| • | our ability to qualify and maintain our qualification as a regulated investment company, or “RIC,” under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and as a BDC; |
| • | the effect of legal, tax and regulatory changes; and |
| • | the other risks, uncertainties and other factors we identify under “Item 1A. Risk Factors” and elsewhere in this Registration Statement. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Registration Statement should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Item 1A. Risk Factors” and elsewhere in this Registration Statement. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Registration Statement. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this Registration Statement because we are an investment company.
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Investing in our units involves a number of significant risks. You should carefully consider information found in the section entitled “Item 1A. Risk Factors” and elsewhere in this Registration Statement. Some of the risks involved in investing in our units include:
| • | We are a new company and we are subject to all of the business risks and uncertainties associated with any business with a limited operating history, including the risk that we will not achieve our investment objective and that the value of our units could decline substantially. |
| • | We are an “emerging growth company” under the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our units less attractive to investors. |
| • | We intend to finance our investments with borrowed money. Our inability to access leverage in a timely fashion may inhibit our ability to make timely investments. |
| • | Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage. |
| • | There is no public market for our units, nor can we give any assurance that one will develop in the future. Furthermore, we currently do not intend to conduct repurchases of the Units. As a result, an investment in the Units may not be suitable for investors who may need the money they invest in a specified time frame. |
| • | You should not expect to be able to sell Units regardless of how we perform. As a result, if you are unable to sell your Units, you will be unable to reduce your exposure on any market downturn that affects our portfolio. |
| • | We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, we may not be able to dispose of our interests in our portfolio companies. |
| • | The collateral securing a senior loan may be insufficient to protect us against losses or a decline in income in the event of a borrower’s non-payment of interest or principal. |
| • | An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies. Such companies are also generally more vulnerable to economic downturns and may experience substantial variations in operating results. |
| • | There is no public market or active secondary market for many of the investments that we intend to make and hold and as a result, these investments may be deemed illiquid. |
| • | If we make additional offerings of Units in the future, a unitholder may be required to make additional purchases of our Units on one or more dates to be determined by us. |
| • | Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry. |
| • | We may make investments in highly levered companies. Price declines in the corporate leveraged loan market may adversely affect the fair value of our portfolio, reducing our net asset value through increased net unrealized depreciation and the incurrence of realized losses. |
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| • | We will invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They will also be difficult to value and are illiquid. |
| • | The amount of any distributions we may make on our units is uncertain. We may not be able to pay you distributions, or be able to sustain distributions at any particular level, and our distributions per unit, if any, may not grow over time, and our distributions per share may be reduced. |
| • | If the current period of capital market disruption and instability due to the COVID-19 pandemic continues for an extended period of time, there is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital. A return of capital is a return to investors of a portion of their original investment in the Company. A return of capital is treated as a non-dividend distribution for tax purposes and is not subject to current tax. A return of capital reduces a shareholder’s tax cost basis in Company’s Units. Any capital returned to you through distributions will be distributed after payment of fees and expenses. |
| • | To the extent original issue discount (“OID”), and payment-in-kind (“PIK”), interest income constitute a portion of our income, we will be exposed to risks associated with the deferred receipt of the cash representing such income. |
| • | The Adviser and its affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking by us. |
| • | Our business model depends to a significant extent upon strong referral relationships with private equity sponsors, financial intermediaries, direct lending institutions and other counterparties that are active in our markets. Any inability of the Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. |
| • | The Adviser may frequently be required to make investment analyses and decisions on an expedited basis in order to take advantage of investment opportunities, and our Adviser may not have knowledge of all circumstances that could impact an investment by us. |
| • | Our management and incentive fee structure may create incentives for the Adviser that are not fully aligned with the interests of our unitholders and may induce the Adviser to make speculative investments. |
| • | If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy. |
| • | Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act would adversely affect us and the value of our units. |
| • | We are highly dependent on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the value of our units and our ability to pay distributions. |
| • | Investment in us is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in such an investment. |
| • | We intend to elect to be regulated as a BDC under the 1940 Act, which imposes numerous restrictions on our activities, including restrictions on leverage and on the nature of our investments. |
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| (a) | General Development of Business |
We were formed on March 7, 2022 as a limited liability company under the laws of the State of Delaware. We expect to conduct a private offering of our common limited liability company units (the “Units”) to investors in reliance on exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”). Any investors in our initial private offering will be required to be “accredited investors” as defined in Regulation D of the Securities Act.
We anticipate commencing our loan origination and investment activities on the date we issue Units to persons not affiliated with the Adviser, which we refer to as the “Initial Closing Date.” We expect the Initial Closing Date to occur in the third quarter of 2022.
We are an externally managed, closed-end, non-diversified management investment company, that intends to file an election to be regulated as a BDC under the 1940 Act. We also intend to elect to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a BDC and a RIC, we are required to comply with certain regulatory requirements. See “Item 1(c). Description of Business—Regulation as a Business Development Company” and “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences.”
We are a direct lending investment company that will seek to generate attractive risk-adjusted returns primarily through direct investments in senior secured loans to middle market companies.
We will be managed by the TCW Private Credit Group (the “Private Credit Group”), a group of investment professionals that will use the same investment strategy employed by the Private Credit Group over the past 20 years.
Although we will be primarily focused on investing in senior secured debt obligations, there may be occasions where our investments may be unsecured. Our highly negotiated private investments may include senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, notes and other non-convertible debt securities, equity securities, and equity- linked securities such as options and warrants. We may also consider making an equity investment, in combination with a debt investment. Our investments will mostly be made in portfolio companies formed as corporations, partnerships and other business entities. Our typical investment commitment is expected to be between $25 million and $150 million. We estimate the general maturity and duration for our investments to be approximately five years. We currently expect to focus our investments in portfolio companies in a variety of industries. While we intend to focus on investments in middle market companies, we may invest in larger or smaller companies. See “Item 2. Financial Information—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We will consider financings for many different purposes, including corporate acquisitions, growth opportunities, liquidity needs, rescue situations, recapitalizations, debtor-in-possession (“DIP”) loans, bridge loans and Chapter 11 exits.
The issuers in which we intend to invest will typically be highly leveraged, and, in most cases, these investments will not be rated by any rating agency. If these investments were rated, we believe that they would likely receive a rating from a nationally recognized statistical rating organization of below investment grade, which is often referred to as “junk.” Exposure to below investment grade securities involves certain risks, and those securities are viewed as speculative with respect to the issuer’s capacity to pay interest and repay principal.
Because we intend to qualify as a RIC under the Code, our portfolio will be subject to diversification and other requirements. See “—Certain U.S. Federal Income Tax Consequences.” In addition to those diversification requirements, we will not invest more than 10% of investors’ aggregate capital commitments to us through the Units (the “Commitments”) in any single portfolio company.
We may borrow money from time to time, but do not intend to exceed a 1:1 debt-to-equity ratio, or such other maximum amount as may be permitted by applicable law. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of proposed borrowings as well as the risks of such borrowings compared to our investment outlook. The use of borrowed funds or the proceeds of preferred units issued by the Company (the “Preferred Units”) to make investments would have its own specific set of benefits and risks, and all of the costs of borrowing funds or issuing preferred units would be borne by the holders of the Units (each, a “Unitholder”). See “Item 1A. Risk Factors—Borrowing Money.”
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| (b) | Financial Information about Industry Segments |
Our operations comprise only a single reportable segment. See “Item 2. Financial Information.”
| (c) | Description of Business |
The Adviser
Our investment activities will be managed by the Adviser. Subject to the overall supervision of our board of directors, the Adviser will manage our day-to-day operations and provide investment advisory and management services to us pursuant to the investment management and advisory agreement (the “Advisory Agreement”) by and between the Adviser and us.
The Adviser is a Delaware limited liability company registered with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and has been since 1970. The Adviser is a wholly owned subsidiary of The TCW Group, Inc. (the “TCW Group”) and together with its affiliated companies (collectively, “TCW”) manages or has committed to manage approximately $264 billion of assets as of December 31, 2021. Such assets are managed in various formats, including managed accounts, funds, structured products and other investment vehicles, including TCW Direct Lending LLC, TCW Direct Lending VII LLC, and TCW Direct Lending VIII LLC (together with their five predecessor funds, the “Direct Lending Funds”).
The Adviser is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis.
The Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. The Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
| • | assessment of success in adhering to the portfolio company’s business plan and compliance with covenants; |
| • | periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; |
| • | comparisons to our portfolio companies in the industry, if any; |
| • | attendance at and participation in board meetings or presentations by portfolio companies; and review of monthly and quarterly financial statements and financial projections of portfolio companies. |
The Private Credit Group
The Private Credit Group joined the TCW Group in December 2012. The Private Credit Group was previously with Regiment Capital Advisors, LP, an independent investment manager based in Boston, Massachusetts. The Private Credit Group is launching the Company as its eighth Direct Lending Fund. The Private Credit Group is led by Richard Miller and currently includes a group of seventeen investment professionals who have substantial investing, corporate finance, and merger and acquisition expertise and also significant experience in leveraged transactions, high yield financings and restructurings.
The Private Credit Group and other investment professionals of the Adviser have extensive experience in the capital markets, including work on deal origination, due diligence, transaction structuring, and portfolio management in the public and private markets across a wide spectrum of securities and industries. The Adviser believes that the experience of its investment professionals, and the Private Credit Group in particular, should position us to achieve attractive risk-adjusted returns.
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The investment approach of the Private Credit Group is primarily to originate and invest in loans to middle market companies and generally focuses on the following:
| • | Investing in adjustable-rate, senior secured investment opportunities; |
| • | Maintaining a principal preservation/absolute return focus; |
| • | Investing capital in a disciplined manner with an eye towards finding opportunities in both positive and negative markets, without attempting to time markets; and |
| • | Evaluating investment opportunities on a risk-adjusted return basis. |
We will employ the investment approach and strategy the Private Credit Group developed and implemented over the past 21 years of investing in the middle markets. The approach will focus on the fundamental objectives of preserving capital and generating attractive risk-adjusted returns.
The Private Credit Group’s Investment Committee
The Private Credit Group’s investment committee (the “Investment Committee”) evaluates and approves all investments by the Adviser. The Investment Committee process is intended to bring the diverse experiences and perspectives of the committee members to the analysis and consideration of every investment. The Investment Committee determines appropriate investment sizing, structure, pricing, and ongoing monitoring requirements for each investment, thus serving to provide investment consistency and adherence to the Adviser’s investment philosophies and policies. In addition to reviewing investments, the Investment Committee meetings serve as a forum to discuss credit views and outlooks. Potential transactions and deal flow are also reviewed on a regular basis. The team’s investment professionals are encouraged to share information and views on credits with the Investment Committee early in their analysis. This process improves the quality of the analysis and enables the investment team members to work more efficiently. Each proposed transaction is presented to the Investment Committee for consideration in a formal written report. Each of our new investments, and the disposition or sale of each existing investment, must be approved by the Investment Committee.
The Adviser will keep our board of directors well informed as to the identity and title of each member of its Investment Committee and provide to the board of directors such other information with respect to such persons and the functioning of the Investment Committee and the Private Credit Group as the board of directors may from time to time request.
The Investment Committee will initially be composed of five members of the Private Credit Group. The members of the Investment Committee are Richard T. Miller, Suzanne Grosso, Ryan Carroll, Mark Gertzof and David Wang. Richard T. Miller, Suzanne Grosso, Mark Gertzof and David Wang, are referred to as “Key Persons” of the Company.
We expect to use the expertise of the members of the Investment Committee/Key Persons (including Mr. Miller, Ms. Grosso, Mr. Carroll, Mr. Gertzof, and Mr. Wang), and the Private Credit Group to assess investment risks and determine appropriate pricing for our investments. In addition, we expect that the relationships developed by the Private Credit Group will enable us to learn about, and compete effectively for, financing opportunities with attractive middle market companies. For additional information concerning the competitive risks we face. See “Item 1A. Risk Factors—Competition for Investment Opportunities.”
Investment Management and Advisory Agreement
Pursuant to the Advisory Agreement, the Adviser will:
| • | determine the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; |
| • | identify, evaluate and negotiate the structure of the investments we make (including performing due diligence on our prospective portfolio companies); |
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| • | determine the assets we will originate, purchase, retain or sell; |
| • | close, monitor and administer the investments we make, including the exercise of any rights in our capacity as a lender; and |
| • | provide us such other investment advice, research and related services as we may, from time to time, require. |
The Adviser’s services under the Advisory Agreement are not exclusive, and the Adviser is free to furnish similar or other services to others so long as its services to us are not impaired. Under the Advisory Agreement, the Adviser will receive a management fee and an incentive fee from us as described below.
The Advisory Agreement will be approved by our board of directors at the initial board meeting. Unless earlier terminated as described below, the Advisory Agreement will remain in effect for a period of two years from its effective date and will remain in effect from year to year thereafter if approved annually by (i) the vote of our board of directors, or by the vote of a majority of our outstanding voting securities, and (ii) the vote of a majority of our directors who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company, the Adviser or any of their respective affiliates (the “Independent Directors”). The Advisory Agreement will automatically terminate in the event of an assignment by the Adviser. The Advisory Agreement may be terminated by either party, or by a vote of the majority of our outstanding voting units or, if less, such lower percentage as required by the 1940 Act, without penalty upon not less than 60 days’ prior written notice to the applicable party. If the Advisory Agreement is terminated according to this paragraph, we will pay the Adviser a pro-rated portion of the Management Fee and Incentive Fee (each as defined below). See “Item 1A. Risk Factors—Dependence on Key Personnel and Other Management.”
The Adviser will not assume any responsibility to us other than to render the services described in, and on the terms of, the Advisory Agreement and the Administration Agreement, and will not be responsible for any action of our board of directors in declining to follow the advice or recommendations of the Adviser. Under the terms of the Advisory Agreement, the Adviser (and its members, managers, officers, employees, agents, controlling persons and any other person or entity affiliated with it) and any person who otherwise serves at the request of the board of directors on our behalf (in each case, an “Indemnitee”) will not, in the absence of its own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s respective position, be liable to us or to our investors for (a) any mistake in judgment, (b) any act performed or omission made by it or (c) losses due to the mistake, action, inaction or negligence of our other agents.
We will indemnify each Indemnitee for any loss, damage or expense incurred by such Indemnitee on our behalf or in furtherance of the interests of our investors or otherwise arising out of or in connection with the Company, except for losses (x) arising from such Indemnitee’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position or losses due to a violation of an applicable law or regulation by the Indemnitee or (y) arising from the Indemnitee defending an actual or threatened claim, action, suit or proceeding against the Indemnitee brought or initiated by the Company, the board of directors of the Company and/or the Adviser (or brought or initiated by the Indemnitee against the Company, the board of directors of the Company and/or the Adviser). If we do not have sufficient available funds to satisfy such an indemnification liability or obligation and each Unitholder has already made aggregate contributions pursuant to drawdowns equal to such Unitholder’s Commitment plus amounts that can be recalled as described below in “Item 9. Market Price of and Dividends on the Registrant s Common Equity and Related Unitholder Matters—Recallable Amounts,” then we may require that each Unitholder return distributions we have previously made to such Unitholder to satisfy its proportionate share of the shortfall; provided, however, that no Unitholder shall be required (i) to return an aggregate amount in excess of the lesser of (a) the aggregate amount of distributions we made to such Unitholder and (b) 25% of such Unitholder’s aggregate Commitment or (ii) to return amounts distributed to such Unitholder more than three years prior to the date such Unitholder is informed of a potential indemnification claim.
U.S. federal and state securities laws may impose liability under certain circumstances on persons who act in good faith. Nothing in the Advisory Agreement will constitute a waiver or limitation of any rights that we may have under any applicable federal or state securities laws.
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Management Fee
We will pay to the Adviser, quarterly in arrears, a management fee (the “Management Fee”) calculated as follows: 0.3125% (i.e., 1.25% per annum) of the average gross assets of the Company on a consolidated basis, with the average determined based on the gross assets of the Company as of the end of the three most recently completed calendar months. “Gross assets” means the amortized cost of our portfolio investments (including portfolio investments purchased with borrowed funds and other forms of leverage, such as preferred units, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) that have not been sold, distributed to members, or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any portfolio investment), and excluding cash and cash equivalents. The Management Fee for any partial month or quarter will be appropriately pro-rated. While the Management Fee will accrue from the Initial Closing Date, the Adviser intends to defer payment of such fee to the extent that such fee is greater than the aggregate amount of interest and fee income earned by the Company.
Incentive Fee
In addition, the Adviser will receive an incentive fee (the “Incentive Fee”) as follows:
| (a) | First, no Incentive Fee will be owed until the Unitholders have collectively received cumulative distributions pursuant to this clause (a) equal to their aggregate capital contributions in respect of all Units; |
| (b) | Second, no Incentive Fee will be owed until the Unitholders have collectively received cumulative distributions equal to a 6.5% internal rate of return on their aggregate capital contributions in respect of all Units (the “Hurdle”); |
| (c) | Third, the Adviser will be entitled to an Incentive Fee out of 100% of additional amounts otherwise distributable to Unitholders until such time as the Incentive Fee paid to the Adviser is equal to 15% of the sum of (i) the amount by which the Hurdle exceeds the aggregate capital contributions of the Unitholders in respect of all Units and (ii) the amount of Incentive Fee being paid to the Adviser pursuant to this clause (c); and |
| (d) | Thereafter, the Adviser will be entitled to an Incentive Fee equal to 15% of additional amounts otherwise distributable to Unitholders, with the remaining 85% distributed to the Unitholders. |
The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined and, if applicable, paid in accordance with the foregoing formula each time amounts are to be distributed to the Unitholders.
The following is a graphical representation of the incentive fee calculation pursuant to the Advisory Agreement:
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Example Incentive Fee Calculations
Case #1 (5.00% return on contributed capital)
Assume $100.00 of aggregate contributed capital, with the entire amount contributed on January 1.
The Company produces $5.00 of net profit over the year (after payment of all Company expenses including the Management Fee) and liquidates on December 31, designating $105.00 for distribution and Incentive Fee payments.
Step 1: Unitholders receive distributions totalling their $100.00 of aggregate contributed capital. There remains $5.00 designated for distribution and Incentive Fee payments.
Step 2: Unitholders are entitled to 100% of the remaining amount until they have received a 6.5% annual return on their unreturned contributed capital, which in this case totals $6.50. The remaining $5.00 is distributed to the Unitholders in satisfaction of this entitlement, leaving no further amounts designated for distribution and Incentive Fee payments.
In this case the total Incentive Fee received by the Adviser is $0.00, or 0% of the $5.00 of net profit to the Company.
Case #2 (8.75% return on contributed capital)
Assume $100.00 of aggregate contributed capital, with the entire amount contributed on January 1.
The Company produces $8.75 of net profit over the year (after payment of all Company expenses including the Management Fee) and liquidates on December 31, designating $108.75 for distribution and Incentive Fee payments.
Step 1: Unitholders receive distributions totalling their $100.00 of aggregate contributed capital. There remains $8.75 designated for distribution and Incentive Fee payments.
Step 2: Unitholders are entitled to 100% of the remaining amount until they have received a 6.5% annual return on their unreturned contributed capital, which in this case totals $6.50. $6.50 is distributed to the Unitholders in satisfaction of this entitlement. There remains $2.25 designated for distribution and Incentive Fee payments.
Step 3: The Adviser is entitled to 100% of the remaining amount until it has received 15% of total distributions and Incentive Fee payments in excess of contributed capital, which in this case totals approximately $1.15. Such amount is paid to the Adviser as an Incentive Fee, in satisfaction of this entitlement. There remains approximately $1.10 designated for distribution and Incentive Fee payments.
Step 4: Unitholders are entitled to 85% of the remaining amount and the Adviser is entitled to 15% of the remaining amount. Therefore, the Unitholders receive approximately $0.935 in additional distributions while the Adviser receives approximately $0.165 in additional Incentive Fee payments.
In this case the total Incentive Fee received by the Adviser is $1.315, or 15.00% of the $8.75 of net profit to the Company.
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Case #3 (12.00% return on contributed capital)
Assume $100 of aggregate contributed capital, with the entire amount contributed on January 1.
The Company produces $12.00 of net profit over the year (after payment of all Company expenses including the Management Fee) and liquidates on December 31, designating $112.00 for distribution and Incentive Fee payments.
Step 1: Unitholders receive distributions totalling their $100.00 of aggregate contributed capital. There remains $12.00 designated for distribution and Incentive Fee payments.
Step 2: Unitholders are entitled to 100% of the remaining amount until they have received a 6.5% annual return on their unreturned contributed capital, which in this case totals $6.50. $6.50 is distributed to the Unitholders in satisfaction of this entitlement. There remains $5.50 designated for distribution and Incentive Fee payments.
Step 3: The Adviser is entitled to 100% of the remaining amount until it has received 15% of total distributions and Incentive Fee payments in excess of contributed capital, which in this case totals approximately $1.15. Such amount is paid to the Adviser as an Incentive Fee in satisfaction of this entitlement. There remains approximately $4.35 designated for distribution and Incentive Fee payments.
Step 4: Unitholders are entitled to 85% of the remaining amount and the Adviser is entitled to 15% of the remaining amount. Therefore, the Unitholders receive approximately $3.70 in additional distributions while the Adviser receives approximately $0.65 in additional Incentive Fee payments.
In this case the total Incentive Fee received by the Adviser is $1.80, or 15.00% of the $12.00 of net profit to the Company.
If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) our terminating the agreement for cause (as set out in the Advisory Agreement), we will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date the Advisory Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all our investments were liquidated for their current value (but without taking into account any unrealized appreciation of any portfolio investment), and any unamortized deferred portfolio investment-related fees were deemed accelerated, (B) the proceeds from such liquidation were used to pay all our outstanding liabilities, and (C) the remainder were distributed to Unitholders and paid as Incentive Fee in accordance with the “waterfall” (i.e., clauses (a) through (d)) described above for determining the amount of the Incentive Fee. We will make the Final Incentive Fee Payment in cash on or immediately following the date the Advisory Agreement is so terminated.
In addition, on each fiscal year-end from and after December 31, 2024 (each, a “Interim Incentive Fee Date”) the Adviser shall be entitled to an interim incentive fee payment (each, and “Interim Incentive Fee Payment”), which shall be treated as an advance against future Incentive Fee Payments, in an amount equal to the Incentive Fee payment that would be made to the Adviser if all of the assets of the Company were fully realized for cash as of such Interim Incentive Fee Date in an amount equal to the fair market value of such assets, and the resulting proceeds, after payment or provision for expenses, liabilities and contingencies, were distributed to the common unitholders and the Adviser in accordance with the incentive fee calculation. The Adviser may, in its discretion, defer any such Interim Incentive Fee, and allocate it for future distribution pending expiration of the lookback period described below under Adviser Return Obligation.
Adviser Return Obligation
On each Interim Incentive Fee Date and after we have made our final distribution of assets in connection with our dissolution (“Final Incentive Fee Date”), if the Adviser has received aggregate payments of Final Incentive Fee, or with respect to the Interim Incentive Fee only, an amount equal to or greater than $1,000,000, in excess of the amount the Adviser was entitled to receive as described under “Incentive Fee” above, then the Adviser will return to us (“Adviser Return Event”), on or before 90 days after such Interim Incentive Fee Date or Final Incentive Fee Date,
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as the case may be, an amount equal to such excess (the “Adviser Return Obligation”). Notwithstanding the preceding sentence, in no event shall the Adviser Return Obligation exceed an amount greater than the aggregate amount of Incentive Fee payments previously received by (or allocated to) the Adviser by us with respect to the two Interim Incentive Fee Dates immediately preceding such Adviser Return Event, reduced by the excess (if any) of (a) the aggregate federal, state and local income tax liability the Adviser incurred in connection with the payment of such Incentive Fees (assuming the highest marginal applicable federal and New York City and State income tax rates applied to such payments), over (b) an amount equal to the U.S. federal and state tax benefits available to the Adviser by virtue of the payment made by the Adviser pursuant to its Adviser Return Obligation (assuming that, to the extent such payments are deductible by the Adviser, the benefit of such deductions will be computed using the then highest marginal applicable federal and New York City and State income tax rates), as reasonably determined by the Adviser.
Administration Agreement
We entered into an administration agreement (the “Administration Agreement”) with TCW Asset Management Company LLC (the “Administrator”) under which the Administrator will furnish us with office facilities and equipment, and clerical, bookkeeping and record keeping services. Pursuant to the Administration Agreement, the Administrator will oversee the maintenance of our financial records and otherwise assist with our compliance with BDC and RIC rules, monitor the payment of our expenses, oversee the performance of administrative and professional services rendered to us by others, be responsible for the financial and other records that we are required to maintain, prepare and disseminate reports to our Unitholders and reports and other materials to be filed with the SEC or other regulators, assist us in determining and publishing (as necessary or appropriate) our net asset value, oversee the preparation and filing of our tax returns, generally oversee the payment of our expenses and provide such other services as the Administrator, subject to review of our board of directors, shall from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. The Administrator may perform these services directly, may delegate some or all of them through the retention of a sub-administrator and may remove or replace any sub-administrator.
Payments under the Administration Agreement will be equal to an amount that reimburses the Administrator for the costs and expenses incurred by the Administrator in performing its obligations and providing personnel and facilities under the Administration Agreement. The amounts paid pursuant to the Administration Agreement are subject to the cap on offering and organizational expenses (as described below). The Administrator agrees that it would not charge total fees under the Administration Agreement that would exceed its reasonable estimate of what a qualified third party would charge to perform substantially similar services. The costs and expenses paid by the Company and the applicable caps on certain costs and expenses are described below under “Expenses” below.
The Administration Agreement provides that neither the Administrator, nor any director, officer, agent or employee of the Administrator, shall be liable or responsible to us or any of our Unitholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by such person or persons of their respective duties, except for liability resulting from willful misfeasance, bad faith, gross negligence, or reckless disregard of their respective duties. We will also indemnify the Administrator and its members, managers, officers, employees, agents, controlling persons and any other person or entity affiliated with it.
Expenses
We, and indirectly our Unitholders, will bear all costs, expenses and liabilities, other than Adviser Operating Expenses (which shall be borne by the Adviser), in connection with our organization, operations, administration and transactions (“Company Expenses”). Company Expenses shall include, without limitation: (a) organizational expenses and expenses associated with the issuance of the Units; (b) expenses of calculating our net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring our financial and legal affairs, providing administrative services, monitoring or administering our investments and performing due diligence reviews of prospective investments and the corresponding portfolio companies; (e) costs associated with our reporting and compliance obligations under the 1940 Act, the 1934 Act and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance our investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other
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securities; (h) Management Fees and Incentive Fees; (i) administrator fees and expenses payable under the Administration Agreement including payments based upon our allocable portion of the Administrator’s overhead in performing its obligations, including the allocable portion of the cost of our chief compliance officer, chief legal officer and chief financial officer and their respective staff; (j) transfer agent, sub-administrator and custodial fees; (k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes and other governmental charges assessed against us; (n) independent directors’ fees and expenses and the costs associated with convening a meeting of our board of directors or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of the Unitholders or holders of any Preferred Units, as well as the compensation of an investor relations professional responsible for the coordination and administration of the foregoing; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of our financial statements and tax returns; (r) our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to us; (u) compensation of other third party professionals to the extent they are devoted to preparing our financial statements or tax returns or providing similar “back office” financial services to us; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for us, monitoring our investments and disposing of any such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to us, including in each case services with respect to the proposed purchase or sale of securities by us that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying our operating agreement (the “LLC Agreement”) or Advisory Agreement or related documents of us or related entities; (aa) fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of the Company or related entities; and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering our business.
However, we will not bear more than (a) an amount equal to 10 basis points of our aggregate Commitments for organizational expenses and offering expenses in connection with the offering of Units.
“Adviser Operating Expenses” means overhead and operating and administrative expenses incurred by or on behalf of the Adviser or any of its affiliates, including us, in connection with maintaining and operating the Adviser’s office, including salaries and other compensation (including compensation due to its officers), rent, routine office equipment expense and liability and insurance premiums (other than (i) those incurred in maintaining fidelity bonds and Indemnitee insurance policies and (ii) the allocable portion of the Administrator’s overhead in performing its obligations), in furtherance of providing supervisory investment management services for us. For the avoidance of doubt, Adviser Operating Expenses include any expenses incurred by the Adviser or its affiliates in connection with the Adviser’s registration as an investment adviser under the Investment Advisers Act of 1940, as amended (“Advisers Act”), or with its compliance as a registered investment adviser thereunder.
All Adviser Operating Expenses and all our expenses that we will not bear, as set forth above, will be borne by the Adviser or its affiliates.
Transfer Agent
U.S. Bancorp Fund Services, LLC serves as our transfer agent and disbursing agent.
Employees
We do not currently have any employees and do not expect to have any employees. Services necessary for our business will be provided through the Administration Agreement and the Advisory Agreement. Each of our executive officers described under “Item 5. Directors and Executive Officers.”
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Competition
We will compete for investments with a number of business development companies and other investment funds (including private equity funds and venture capital funds), special purpose acquisition company sponsors, investment banks that underwrite initial public offerings, hedge funds that invest in private investments in public equities, traditional financial services companies such as commercial banks, and other sources of financing. Many of these entities have greater financial and managerial resources than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act and the Code will impose on us as a BDC and a RIC.
Derivatives
We do not expect derivatives to be a significant component of our investment strategy. We retain the flexibility, however, to utilize hedging techniques, such as interest rate swaps, to mitigate potential interest rate risk on our indebtedness. Such interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both short-term and long-term interest rates.
We also may use various hedging and other risk management strategies to seek to manage additional risks, including changes in currency exchange rates and market interest rates. Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against foreign currency fluctuations vis-à-vis the U.S. Dollar or possible adverse changes in the market value of securities held in our portfolio.
Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act and we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Although we have not made a determination whether to take advantage of any or all of these exemptions, we expect to remain an emerging growth company for up to five years following the completion of any initial public offering by us or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the 1934 Act which would occur if the market value of our Units that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 calendar months or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period. In addition, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
The Private Offering
In connection with its subscription for Units, each of our investors will make a Commitment to us and will receive one Unit for every one hundred dollars of such investor’s accepted Commitment (for example, an investor making a Commitment of $200 million would be issued two million Units). Each Unit will be issued for a purchase price of $0.01 per Unit (the “Original Issuance Price”) and will obligate the Unitholder to make additional future capital contributions of $99.99. The amount that remains to be drawn down with respect to a Unit is referred to as that Unit’s “Undrawn Commitment.” The minimum Commitment by an investor will be $10 million (i.e., 100,000 Units), although Commitments of lesser amounts may be accepted at our discretion.
Each investor will be required to enter into a subscription agreement in connection with its Commitment (a “Subscription Agreement”). The Subscription Agreement sets forth, among other things, the terms and conditions upon which the investors will purchase Units, the circumstances under which we may draw down capital from investors, certain covenants that all investors must agree to, and the remedies available to us in the event that an investor defaults on its obligation to make capital contributions. If an investor fails to fund its capital contribution, interest will accrue at the default rate (as defined herein) on the outstanding unpaid balance of such capital contribution, from and including the date such capital contribution was due until the earlier of the date of payment of such capital contribution by such investor. The “Default Rate” with respect to any period shall be the lesser of (a) a variable rate equal to the prime rate in effect, from time to time, during such period plus 6% or (b) the highest interest rate for such period permitted by applicable law. We may waive the requirement to pay interest, in whole or in part.
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In addition, the Subscription Agreement includes an Investor Suitability Questionnaire designed to ensure that all investors are “qualified purchasers” as defined in the 1940 Act, and also are either (i) “accredited investors,” as defined in Rule 501 of Regulation D under the Securities Act, or (ii) in the case of Units sold outside the United States, persons that are not “U.S. persons” in accordance with Regulation S under the Securities Act.
While we expect each Subscription Agreement to reflect the terms and conditions summarized in the preceding paragraph, we reserve the right to enter into Subscription Agreements that contain terms and conditions not found in the Subscription Agreements entered into with other investors, subject to applicable law. No Unitholder will be granted, in its Subscription Agreement, the right to invest in Units on more favorable economic terms and conditions than other Unitholders.
Initial Closing and Subsequent Closings
The first date on which we will accept Subscription Agreements and issue Units to persons not affiliated with the Adviser is referred to as the “Initial Closing Date.”
After the Initial Closing Date, we expect to hold a limited number of additional closings (“Subsequent Closings”) at which we will issue Units (each a “Subsequent Closing Date”). In advance of each Subsequent Closing Date, and as close to it as practicable, the Company will allocate its estimated profits and losses through that date, and distribute to Unitholders any undistributed estimated profits in cash to the extent there is available cash and through a deemed capital call and corresponding deemed distribution to the extent there is not sufficient available cash (on each occasion, a “Pre-Closing Distribution”).
Each investor participating in a Subsequent Closing (a “Later-Closing Investor”) will be issued Units in exchange for the Original Issuance Price and will be required to contribute to us in respect of each Unit newly issued to such investor:
| (i) | an amount equal to the amount of any additional capital contributions we had previously drawn down with respect to a Unit issued on the Initial Closing Date (a “True-Up Contribution”); |
| (ii) | an amount equal to any increase in the net asset value (as reflected in our books and records after giving effect to the applicable Pre-Closing Distribution) of a Unit issued on the Initial Closing Date through the closing date for the newly issued Unit, excluding any increase in net asset value attributable to additional capital contributions made by the applicable Unitholder or decrease attributable to distributions of True-Up Contributions as described in the paragraph below (an “NAV Balancing Contribution”); and |
| (iii) | an amount equal to a rate of 2.0% per annum on the True-Up Contribution for such newly issued Unit, calculated for the period from the Initial Closing Date to the closing date for such newly issued Unit as an administrative fee to compensate us for expenses and activities related to the Later-Closing Investor (a “Late-Closer Contribution”). |
True-Up Contributions may be retained by us and used for any purpose of the Company. If at any time we determine that because of the True-Up Contributions we have excess cash on hand, we may distribute that excess cash among all the Unitholders pro rata based on the number of Units held by each. Any distribution of True-Up Contributions will be treated as a return of previously made capital contributions in respect of the Units and, consequently, will correspondingly increase the Undrawn Commitment of the Units.
NAV Balancing Contributions will not reduce the Undrawn Commitment of the associated Units and will not be treated as capital contributions for purposes of calculating the Incentive Fee. NAV Balancing Contributions received by us will not be treated as amounts distributed to Unitholders for purposes of calculating the Incentive Fee.
Late-Closer Contributions will not reduce the Undrawn Commitment of the associated Units and will not be treated as capital contributions for purposes of calculating the Incentive Fee. Any distribution of Late-Closer Contributions will not be treated as an amount distributed to the Unitholders for purposes of calculating the Incentive Fee.
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Pre-Closing Distributions and NAV Balancing Contributions will be determined by us in good faith on the basis of best commercial efforts and likely will be approximate amounts.
Commitment Period
The “Commitment Period” of the Company will begin on the Initial Closing Date and end four years from the later of (a) the Initial Closing Date and (b) the date on which the Company first completes an investment; unless terminated pursuant to a Key Person Event, as described below, the Commitment Period shall be automatically extended for successive one-year periods beginning one year prior to each scheduled expiration of the Commitment Period (so that, immediately following any such extension, the Commitment Period will expire two years from that date). Supermajority in interest of all Unitholders may terminate the Commitment Period at any time upon 90 days written notice to the Company. After the expiration of the Commitment Period, Unitholders will be released from any further obligation with respect to their Undrawn Commitments, except as described under “Item 11. Description of Registrant’s Securities to be Registered—Delaware Law and Certain Limited Liability Company Agreement Provisions—Capital Call Mechanics.“A “Key Person Event” will occur if, during the Commitment Period, (i) Mr. Miller and one or more Ms. Grosso, Mr. Gertzof and Mr. Wang (each of such four Persons, a “Key Person” and collectively, the “Key Persons”) fail to devote substantially all (i.e. more than 85%) of his or her business time to the investment activities of the Company, the prior funds, any successor funds and any fund(s) managed by the Adviser or an affiliate of the Adviser that are managed within the Private Credit Group (together, the “Related Entities”); or (ii) Ms. Grosso, Mr. Gertzof and Mr. Wang all fail to devote substantially all of his or her business time to the investment activities of the Company and the Related Entities, in each case other than as a result of a temporary disability; provided that if a replacement has been approved as described in the paragraphs below, such replacement shall be specifically designated to take the place of one of the above-named individuals and the definition “Key Person Event” will be amended to take into account such successor.
Upon the occurrence of a Key Person Event, and in the event that the Adviser fails to replace the above-referenced individuals in the manner contemplated by the last sentence of this paragraph, the Commitment Period shall be automatically terminated upon such Key Person Event. The Commitment Period will be re-instated upon the vote or written consent of 66 2/3% in interest of the Unitholders. The Adviser is permitted at any time to replace any person designated above with a senior professional (including a Key Person) selected by the Adviser, provided that such replacement has been approved by a majority of the Unitholders (in which case, the approved substitute will be a Key Person in lieu of the person replaced). The determination of whether a Key Person Event has occurred will be made by the Company in accordance with the criteria set out above. The Company shall provide written notice to Unitholders of such Key Person Event within 30 days of the date of such Key Person Departure.
Regulation as a Business Development Company
We will be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters. In addition, a BDC must be organized for the purpose of investing in or lending primarily to private companies organized in the United States and making significant managerial assistance available to them.
As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our board of directors must be persons who are not “interested persons,” as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our Unitholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of any such person’s office. As a BDC, we are currently also required to meet a minimum coverage ratio of the value of total assets to total senior securities, which include all of our borrowings and any Preferred Units.
As a BDC, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of our outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company.
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We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company, or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate. We may, however, rely on recently adopted Rule 12d1-4 under the 1940 Act and invest in excess of the limits described above. However, to the extent we rely on Rule 12d1-4, we will be subject to certain conditions and requirements under Rule 12d1-4. The portion of our portfolio invested in securities issued by investment companies ordinarily will subject the Unitholders to additional expenses.
We have no intention to, and are generally not able to, issue and sell our Units at a price below net asset value per Unit. We may, however, issue and sell our Units at a price below the then-current net asset value of our Units if our board of directors determines that such sale is in our best interests and the best interests of the Unitholders, and the Unitholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities. In addition, we may generally issue new Units at a price below net asset value in rights offerings to existing Unitholders, in payment of distributions and in certain other limited circumstances.
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of the members of our board of directors who are not interested persons and, in some cases, prior approval by the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance). The Adviser has obtained exemptive relief from the SEC that, subject to certain conditions and limitations, permits us and other funds advised by the Adviser or certain affiliates of the Adviser (referred to herein as “potential co-investment funds”) to engage in certain co-investment transactions. Under the exemptive relief, in the case where the interest in a particular investment opportunity exceeds the size of the opportunity, then the investment opportunity will be allocated among us and such potential co-investment funds based on capital available for investment, which generally will be determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, targeted asset mix and other investment policies and restrictions set from time to time by the board or other governing body of the relevant fund or imposed by applicable laws, rules, regulations or interpretations. In situations where we cannot co-invest with other investment funds managed by the Adviser or an affiliate of the Adviser due to the restrictions contained in the 1940 Act that are not addressed by the exemptive relief or SEC guidance, the investment policies and procedures of the Adviser generally require that such opportunities be offered to us and such other investment funds on an alternating basis. There can be no assurance that we will be able to participate in all investment opportunities that are suitable for us.
We will be subject to periodic examination by the SEC for compliance with the 1940 Act.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any assets other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following:
| • | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
| • | is organized under the laws of, and has its principal place of business in, the United States; |
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| • | is not an investment company (other than a small business investment company wholly owned by us) or a company that would be an investment company but for certain exclusions under the 1940 Act; and |
| • | satisfies either of the following: |
| • | has a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange; or |
| • | is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of the eligible portfolio company. |
| • | Securities of any eligible portfolio company that we control. |
| • | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
| • | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
| • | Securities received in exchange for or distributed in connection with securities described above, or pursuant to the exercise of warrants or rights relating to such securities. |
| • | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
Managerial Assistance to Portfolio Companies
A BDC must be operated for the purpose of making investments in the types of securities described under “Qualifying Assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does in fact provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which is referred to herein, collectively, as temporary investments, such that at least 70% of our assets are qualifying assets.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of Preferred Units senior to the Units, if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. While any Preferred Units or, in certain limited circumstances, debt securities are outstanding, we may be prohibited from making distributions to Unitholders or repurchasing Units unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for generally up to 60 days without regard to the 200% asset coverage requirement described above. Finally, (i) Preferred Units must have the same voting rights as the Units (one Unit, one vote), and (ii) holders of Preferred Units (the “Preferred Unitholders”) must have the right, as a class, to appoint two directors to the board of directors.
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Code of Ethics
We will adopt, and the Adviser has adopted, a code of ethics of the Adviser (the “Code of Ethics”) pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel. The Code of Ethics generally contains restrictions on investments by our personnel in securities that we may purchase or hold. This information will be available at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549 and on the SEC’s website at www.sec.gov. The public may obtain information on the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of the Code of Ethics on the Adviser’s website at www.TCW.com or by written request addressed to the following: Gladys Xiques, Chief Compliance Officer, 865 South Figueroa Street, Suite 1800, Los Angeles, California 90017.
Compliance Policies and Procedures
We will adopt and implement, and the Adviser has adopted and implemented, written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws. We and the Adviser are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and to designate a chief compliance officer to be responsible for administering the policies and procedures.
Proxy Voting Policies and Procedures
We intend to delegate our proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are set forth below. The guidelines will be reviewed periodically by the Adviser and our Independent Directors, and, accordingly, are subject to change.
An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, the Adviser recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients. These policies and procedures for voting proxies for the Adviser’s investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
If the Adviser has responsibility for voting proxies in connection with its investment advisory duties, or has the responsibility to specify to an agent how to vote the client’s proxies, it exercises such voting responsibilities through the corporate proxy voting process. The Adviser believes that the right to vote proxies is a significant asset of its clients’ holdings. In order to provide a basis for making decisions in the voting of proxies for its clients, the Adviser and its affiliates have established a proxy voting committee (the “Proxy Committee”) and adopted proxy voting guidelines (the “Guidelines”) and procedures.
The Proxy Committee generally meets quarterly (or at such other frequency as determined by the Proxy Committee), and its duties include establishing proxy voting guidelines and procedures, overseeing the internal proxy voting process, and reviewing proxy voting issues. The members of the Proxy Committee include the Adviser’s personnel from the investment, compliance, legal and marketing departments. The Adviser also uses outside proxy voting services (each, an “Outside Service”) to help manage the proxy voting process. Each Outside Service facilitates its voting according to the Guidelines (or according to guidelines submitted by the Adviser’s clients) and helps maintain the Adviser’s proxy voting records. The Adviser’s proxy voting and record keeping is dependent on the timely provision of proxy ballots by custodians, clients and other third parties. Under circumstances described below involving potential conflicts of interest, the Adviser may also request an Outside Service to help decide certain proxy votes. In those instances, the Proxy Committee shall review and evaluate the voting recommendations of each Outside Service to ensure that recommendations are consistent with the Adviser’s clients’ best interest. In the event the Adviser inadvertently receives any proxy material on behalf of a client that has retained proxy voting responsibility, and where it is reasonably feasible by the Adviser to determine the identity of the client, the Adviser will promptly forward such materials to the client. As a matter of firm policy, the Adviser does not disclose to unaffiliated third parties how it expects to vote on upcoming proxies and does not disclose the way it voted proxies without a legitimate need to know such information.
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The Guidelines provide a basis for the Adviser’s decisions in the voting of proxies for clients. When voting proxies, the Adviser’s utmost concern is that all decisions be made solely in the interests of the client and with the goal of maximizing the value of the client’s investments. Generally, proposals will be voted in accordance with the Guidelines and any applicable guidelines provided by the Adviser’s clients. The Adviser’s underlying philosophy, however, is that the portfolio managers, who are primarily responsible for evaluating the individual holdings of the Adviser’s clients, are best able to determine how best to further client interests and goals. The portfolio managers may, in their discretion, take into account the recommendations of the Adviser’s management, the Proxy Committee, and any Outside Service.
Individual portfolio managers, in the exercise of their best judgment and discretion, may from time to time override the Guidelines and vote proxies in a manner that they believe will enhance the economic value of clients’ assets, keeping in mind the best interests of the beneficial owners. The Guidelines provide procedures for documenting and, as required, approving such overrides. In the event a potential conflict arises in the context of voting proxies for the Adviser’s clients, the primary means by which the Adviser will avoid a conflict of interest is by casting votes with the assistance of an Outside Service according to the Guidelines and any applicable guidelines provided by the Adviser’s clients. If a potential conflict of interest arises, and the proxy vote to be decided is predetermined under the Guidelines, then the Adviser will follow the Guidelines and vote accordingly. On the other hand, if a potential conflict of interest arises and there is no predetermined vote, or the Guidelines themselves refer such vote to the portfolio manager for decision, or the portfolio manager would like to override a predetermined vote, then the Guidelines provide procedures for determining whether a material conflict of interest exists and, if so, resolving such conflict.
The Adviser or an Outside Service will keep records of the following items for at least five years: (i) the Guidelines and any other proxy voting procedures; (ii) proxy statements received regarding client securities (unless such statements are available on the SEC’s EDGAR system); (iii) records of votes cast on behalf of clients (if maintained by an Outside Service, that Outside Service will provide copies of those records promptly upon request); (iv) records of written requests for proxy voting information and the Adviser’s response (whether a client’s request was oral or in writing); and (v) any documents the Adviser prepared that were material to making a decision on how to vote, or that memorialized the basis for the decision. Additionally, the Adviser or an Outside Service will maintain any documentation related to an identified material conflict of interest.
Privacy Principles
We are committed to maintaining the confidentiality, integrity and security of nonpublic personal information relating to our investors. The following information is provided to describe generally what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
We may collect nonpublic personal information regarding investors from sources such as subscription agreements, investor questionnaires and other forms; individual investors’ account histories; and correspondence between individual investors and the Company. We may share information that we collect regarding an investor with our affiliates and the employees of such affiliates for legitimate business purposes, for example, in order to service the investor’s accounts or provide the investor with information about other products and services offered by the Company or our affiliates that may be of interest to the investor. In addition, we may disclose information that we collect regarding investors to third parties who are not affiliated with us (i) as required by law or in connection with regulatory or law enforcement inquiries, or (ii) as otherwise permitted by law to the extent necessary to effect, administer or enforce investor or our transactions.
Any party that receives nonpublic personal information relating to investors from the Company is permitted to use the information only for legitimate business purposes or as otherwise required or permitted by applicable law or regulation. In this regard, for our officers, employees and agents and affiliates, access to such information is restricted to those who need such access in order to provide services to us and to our investors. We maintain physical, electronic and procedural safeguards to seek to guard investor nonpublic personal information.
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Reporting Obligations
In order to be regulated as a BDC under the 1940 Act, we are required to register a class of equity securities under the 1934 Act. As a result, we have filed this Registration Statement for our Units with the SEC under the 1934 Act. Subsequent to the effectiveness of this Registration Statement, we will be required to file annual reports, quarterly reports and current reports with the SEC. This information will be available at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549 and on the SEC’s website at www.sec.gov. The public may obtain information on the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330.
Because we do not currently maintain a corporate website, we do not intend to make available on a website our annual reports on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K. We do intend, however, to provide electronic or paper copies of our filings free of charge upon request.
Certain U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax considerations related to an investment in the Units. This summary is based upon the provisions of the Code, as amended, the U.S. Treasury regulations promulgated thereunder, published rulings of the Internal Revenue Service (the “IRS”) and judicial decisions in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. The discussion does not purport to describe all of the U.S. federal income tax consequences that may be relevant to a particular investor in light of that investor’s particular circumstances (including alternative minimum tax consequences) and is not directed to investors subject to special treatment under the U.S. federal income tax laws, such as banks, dealers in securities, persons holding Units as part of hedging transaction, wash sale, conversion transaction or integrated transaction, real estate investment trusts, regulated investment companies, tax-exempt entities, U.S. Holders (as defined below) whose functional currency is not the U.S. dollar, certain financial institutions and insurance companies. In addition, this summary does not discuss any aspect of state, local or non-U.S. tax law and assumes that investors will hold their Units as capital assets (generally, assets held for investment).
For purposes of this discussion, a “U.S. Holder” is a Unitholder that is, for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the United States; (b) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (c) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust if a court within the United States can exercise primary supervision over its administration and certain other conditions are met. A “Non-U.S. Holder” is a Unitholder who is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes. For tax purposes, our fiscal year is the calendar year.
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Units, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective investor that will own Units through a partnership should consult its tax advisors with respect to the purchase, ownership and disposition of those Units.
Tax matters are complex and prospective investors in the Units are urged to consult their own tax advisors with respect to the U.S. federal income tax and state, local and non-U.S. tax consequences of an investment in the Units, including the potential application of U.S. withholding taxes.
Classification of the Company as Corporation for Tax Purposes
As a limited liability company, the Company is an eligible entity that is entitled to elect its classification for U.S. federal tax purposes. The Company intends to make an election to cause it to be classified as an association that is taxable as a corporation for U.S. federal income tax purposes. If the Company is unable to qualify as a RIC (the requirements of which are discussed below) during the liquidation of its portfolio following the Commitment Period, it may consider filing a new election to cause the Company to be classified as a partnership for U.S. federal tax purposes (from the effective date of such new election forward). The Company has no current intention of making such a new election and would only make such election if it determines it is in the best interests of Unitholders to do so.
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Regulated Investment Company Classification
As a BDC, we intend to elect, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not be required to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our Unitholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment, we must distribute to our Unitholders, for each taxable year, the sum of at least 90% of our “investment company taxable income” for that year, which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, and 90% of its net tax-exempt interest (the “Annual Distribution Requirement”).
Taxation as a Regulated Investment Company
If we:
| • | qualify as a RIC; and |
| • | satisfy the Annual Distribution Requirement; |
then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to Unitholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to Unitholders.
We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, and on which we paid no federal income tax, in preceding years.
In order to maintain our qualification as a RIC for federal income tax purposes, we must, among other things:
| • | at all times during each taxable year, have in effect an election to be treated as a BDC under the 1940 Act; |
| • | derive in each taxable year at least 90% of our gross income from (a) dividends, interest, payments with respect to certain securities (including loans), gains from the sale of stock or other securities or currencies, or other income derived with respect to our business of investing in such stock, securities or currencies and (b) net income derived from an interest in a “qualified publicly traded partnership”; and |
| • | diversify our holdings so that at the end of each quarter of the taxable year: |
| • | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and |
| • | no more than 25% of the value of our assets is invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer, (ii) the securities, other than securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) the securities of one or more “qualified publicly traded partnerships.” |
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with increasing interest rates or debt instruments issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether
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cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to Unitholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
We may have difficulty satisfying the diversification requirements as we liquidate our portfolio following the Commitment Period, since we will not be making additional investments. While we generally will not lose our status as a RIC as long as we do not acquire any nonqualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition of nonqualifying securities or other property.
Because we may use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources or are otherwise limited in our ability to make distributions, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things: (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause us to recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed to occur; (vi) adversely alter the characterization of certain complex financial transactions; and (vii) produce income that will not be qualifying income for purposes of the 90% gross income test described above. We will monitor our transactions and may make certain tax elections in order to mitigate the potential adverse effect of these provisions.
If, in any particular taxable year, we do not qualify as a RIC, all of our taxable income (including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to Unitholders, and distributions will be taxable to the Unitholders as ordinary dividends to the extent of our current and accumulated earnings and profits.
In the event we invest in non-U.S. securities, we may be subject to withholding and other non-U.S. taxes with respect to those securities. We do not expect to satisfy the conditions necessary to pass through to our Unitholders their share of the non-U.S. taxes paid by the Company.
Taxation of U.S. Holders
Distributions by us generally will be taxable to U.S. Holders as ordinary income or capital gains. Distributions of our investment company taxable income will be taxable as ordinary income to U.S. Holders to the extent of our current or accumulated earnings and profits. Distributions of our net capital gains (that is, the excess of our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as “capital gain dividends” will be taxable to a U.S. Holder as long-term capital gains, regardless of the U.S. Holder’s holding period for its Units. Distributions of investment company taxable income that are reported by us as being derived from “qualified dividend income” will be taxed in the hands of non-corporate Unitholders at the rates applicable to long-term capital gain, provided that holding period and other requirements are met by both the Unitholders and us. “Qualified dividend income” reported by us may not exceed the aggregate dividends it receives from most U.S. corporations and certain foreign corporations. Dividends distributed by us will generally not be attributable to qualified dividend income.
Distributions in excess of our current and accumulated earnings and profits first will reduce a U.S. Holder’s adjusted tax basis in such U.S. Holder’s Units and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. Holder. For a summary of the tax rates applicable to capital gains, including capital gain dividends, see the discussion below.
Although we currently intend to distribute realized net capital gains (i.e., net realized long-term capital gains in excess of net realized short-term capital losses), if any, at least annually, we may in the future decide to retain some or all of our net capital gains, and to designate some or all of the retained amount as a “deemed distribution.” In that
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case, among other consequences, we will pay corporate-level tax on the retained amount, each U.S. Holder will be required to include its share of the deemed distribution in income as if it had been actually distributed to the U.S. Holder, and the U.S. Holder will be entitled to claim a credit or refund equal to its allocable share of the corporate-level tax we pay on the retained capital gain. The amount of the deemed distribution net of such tax will be added to the U.S. Holder’s cost basis for its Units. Since we expect to pay tax on any retained capital gains at our regular corporate capital gain tax rate, and since that rate is in excess of the maximum rate currently payable by non-corporate U.S. Holders on long-term capital gains, the amount of tax that non-corporate U.S. Holders will be treated as having paid will exceed the tax they owe on the capital gain dividend. Such excess generally may be claimed as a credit or refund against the U.S. Holder’s other U.S. federal income tax obligations. A U.S. Holder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to Unitholders prior to the expiration of 60 days after the close of the relevant tax year.
For purposes of determining (i) whether the Annual Distribution Requirement is satisfied for any year and (ii) the amount of dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, a U.S. Holder generally will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared in October, November, or December of any calendar year, payable to Unitholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by the U.S. Holders on December 31 of the year in which the dividend was declared.
U.S. Holders making NAV Balancing Contributions should consider that distributions of any amounts of the earnings requiring the NAV Balancing Contributions will be taxed upon receipt as dividends to the extent of our current and accumulated earnings and profits even though the distribution economically represents a return of the Unitholder’s investment.
You may recognize taxable gain or loss if you sell or exchange your Units (including a redemption of such Units or upon a liquidation of the Company). The amount of the gain or loss will be measured by the difference between your adjusted tax basis in your Units and the amount of the proceeds you receive in exchange for such Units. Any gain or loss arising from the sale or exchange of the Units (or, in the case of distributions in excess of the sum of our current and accumulated earnings and profits and your tax basis in the Units, treated as arising from the sale or exchange of your Units) generally will be a capital gain or loss if the Units are held as a capital asset. This capital gain or loss normally will be treated as a long-term capital gain or loss if you have held your Units for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or exchange of Units held for six months or less generally will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received, or treated as deemed distributed, with respect to such Units.
In general, individual U.S. Holders currently are subject to a maximum U.S. federal income tax rate of 20% on their net capital gain, i.e., the excess of net long-term capital gain over net short-term capital loss for a taxable year, including a long-term capital gain derived from an investment in the Units in the future. In addition, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly or $125,000 in the case of married individuals filing separately) and certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades or businesses). Corporate U.S. Holders currently are subject to U.S. federal income tax on net capital gain at the maximum 21% rate also applied to ordinary income. Dividends distributed by us to corporate Unitholders generally will not be eligible for the dividends-received deduction. Tax rates imposed by states and local jurisdictions on capital gain and ordinary income may differ.
We (or the applicable withholding agent) will send to each of the U.S. Holders, as promptly as possible after the end of each calendar year, a report detailing the amounts includible in such U.S. Holder’s taxable income for such year as ordinary income, long- term capital gain and “qualified dividend income,” if any. In addition, the U.S. federal tax status of each year’s distributions generally will be reported to the IRS. Distributions may also be subject to additional state, local, and non-U.S. taxes depending on a U.S. Holder’s particular situation.
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Limitation on Deduction for Certain Expenses
If the Units are not beneficially owned by at least 500 persons at all times during the taxable year, then a U.S. Holder that is an individual, estate or trust may be subject to limitations on miscellaneous itemized deductions in respect of its share of expenses that we incur, to the extent that the expenses would have been subject to these limitations if the holder had incurred them directly. However, for taxable years beginning after December 31, 2017 and before January 1, 2026, U.S. Holders are not permitted to take any miscellaneous itemized deductions. We do not expect the Units to be beneficially owned by 500 or more persons.
If we do not satisfy the 500-shareholder requirement, we would be required to report the relevant expenses, including the Management Fee and Incentive Fee, on Form 1099-DIV, and affected holders will be required to take into account as income an amount equal to their allocable share of such expenses and to take into account their allocable share of such expenses.
U.S. Taxation of Tax-Exempt U.S. Holders
A U.S. Holder that is a tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt from U.S. federal income taxation may nevertheless be subject to taxation to the extent that it is considered to derive unrelated business taxable income (“UBTI”). The direct conduct by a tax-exempt U.S. Holder of the activities we propose to conduct could give rise to UBTI. However, a BDC (and RIC) is a corporation for U.S. federal income tax purposes and its business activities generally will not be attributed to its Unitholders for purposes of determining their treatment under current law. Therefore, a tax-exempt U.S. Holder should not be subject to U.S. taxation solely as a result of the holder’s ownership of Units and receipt of dividends with respect to such Units. Moreover, under current law, if we incur indebtedness, such indebtedness will not be attributed to a tax-exempt U.S. Holder. Therefore, a tax-exempt U.S. Holder should not be treated as earning income from “debt-financed property” and dividends we pay should not be treated as “unrelated debt-financed income” solely as a result of indebtedness that we incur. Proposals periodically are made to change the treatment of “blocker” investment vehicles interposed between tax-exempt investors and non-qualifying investments. In the event that any such proposals were to be adopted and applied to BDCs (or RICs), the treatment of dividends payable to tax-exempt investors could be adversely affected.
Taxation of Non-U.S. Holders
Whether an investment in the Units is appropriate for a Non-U.S. Holder will depend upon that person’s particular circumstances. Non-U.S. Holders should consult their tax advisers before investing in the Units. Distributions of our “investment company taxable income” to Non-U.S. Holders (including interest income and realized net short-term capital gains in excess of realized long-term capital losses, which generally would be free of federal withholding tax if paid to Non-U.S. Holders directly) will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent such distributions do not exceed our current and accumulated earnings and profits unless an applicable exception applies. If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if a treaty applies, are attributable to a U.S. permanent establishment of the Non-U.S. Holder), we will not be required to withhold U.S. federal tax if the Non-U.S. Holder complies with applicable certification and disclosure requirements, (such as providing Form W-8ECI), although Non-U.S. Holder’s will be subject to U.S. federal income tax on distributions at the rates applicable to U.S. persons. Special certification requirements apply to a Non-U.S. Holder that is a non-U.S. partnership or a non-U.S. trust, and such entities are urged to consult their own tax advisers.
U.S.-source withholding taxes are generally not imposed on dividends paid by RICs to the extent the dividends are reported as “interest-related dividends” or “short-term capital gain dividends.” Interest-related dividends and short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to U.S. withholding tax at the source if they had been received directly by a non-U.S. person, and that satisfy certain other requirements. No assurance can be given as to whether any of the Company’s distributions will be reported as eligible for this exemption from withholding tax. In addition, Non-U.S. Holders should be aware that U.S. withholding rules require the Company (or its withholding agent) to withhold on distributions in the absence of certainty as to whether such distributions are eligible for the exemption from withholding tax. Since amounts designated as interest-related dividends may be reduced to the extent such amounts exceed the Company’s “qualified net interest income” for the taxable year in which such dividend is distributed, the Company will generally not be certain that the entire amount of mid-year distributions of interest-related dividends is,
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in fact, properly treated as such. Accordingly, such distributions to Non-U.S. Holders may be subject to overwithholding by the Company (or its withholding agent). The Company intends to take measures to minimize the risk of such overwithholding. In addition, the Company may choose to hold such amounts in escrow until the year-end determination of qualified net interest income can be made. In such cases, the Company intends to promptly return any overwithheld amounts to Non-U.S. Holders subsequent to making such determinations. Alternatively, however, there is a risk that such overwithheld amounts may be remitted to the Internal Revenue Service and that a Non-U.S. Holder would be required to file a return with the Internal Revenue Service in order to claim a refund of such overwithheld amounts.
Actual or deemed distributions of our net capital gains to a Non-U.S. Holder, and gains realized by a Non-U.S. Holder upon the sale or redemption of its Units (including a redemption of such Units or upon a liquidation of the Company), will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States) or, in the case of an individual, the Non-U.S. Holder was present in the United States for 183 days or more during the taxable year and certain other conditions are met. If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. Holder will be entitled to a U.S. federal income tax credit or tax refund equal to the allocable share of the corporate-level tax we pay on the capital gains deemed to have been distributed; however, in order to obtain the refund, the Non-U.S. Holder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. Holder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return.
If any actual or deemed distributions of our net capital gains, or any gains realized upon the sale or redemption of Units, are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if an income tax treaty applies, are attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder), such amounts will be subject to U.S. income tax, on a net-income basis, in the same manner, and at the graduated rates applicable to, a U.S. Holder. For a corporate Non-U.S. Holder, the after-tax amount of distributions (both actual and deemed) and gains realized upon the sale or redemption of its Units that are effectively connected to a U.S. trade or business (and, if a treaty applies, are attributable to a U.S. permanent establishment), may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty).
Non-U.S. Holders making NAV Balancing Contributions should consider that distributions of any amounts of the earnings requiring the NAV Balancing Contributions will be treated for U.S. tax purposes as dividends to the extent of our current and accumulated earnings and profits even though the distribution economically represents a return of the Unitholder’s investment. Such dividends would be subject to U.S. withholding tax or income tax in accordance with the rules discussed above.
Under legislation commonly referred to as the “Foreign Account Tax Compliance Act” (“FATCA”) a 30% withholding tax is imposed on payments of certain types of income to non-U.S. financial institutions that fail to enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by non-U.S. entities that have U.S. persons as substantial owners) or that fail to meet the requirements of a relevant intergovernmental agreement. The types of income subject to the tax include U.S. source interest and dividends paid after June 30, 2014. Under proposed U.S. Treasury regulations, which may be relied upon until final U.S. Treasury regulations are published, there is no FATCA withholding on gross proceeds from the sale of any property that could produce U.S.-source interest or dividends or on certain capital gains distributions.
The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. In addition, subject to certain exceptions, a 30% withholding is also imposed on payments to non-U.S. entities that are not financial institutions unless the non-U.S. entity certifies that it does not have a greater than 10% U.S. owner or provides the withholding agent with identifying information on each greater than 10% U.S. owner. Depending on the status of a Non-U.S. Holder and the status of the intermediaries through which they hold their Units, Non-U.S. Holders could be subject to this 30% withholding tax with respect to distributions on their Units. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes.
Non-U.S. persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and non-U.S. tax consequences of an investment in the Units.
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Backup Withholding and Information Reporting
Backup withholding may apply to distributions on the Units with respect to certain non-exempt U.S. Holders. Such a U.S. Holder generally will be subject to backup withholding unless the U.S. Holder provides its correct taxpayer identification number and certain other information, certified under penalties of perjury, to the dividend paying agent, or otherwise establishes an exemption from backup withholding. Any amount withheld under backup withholding is allowed as a credit against the U.S. Holder’s U.S. federal income tax liability, provided the proper information is provided to the IRS.
U.S. information reporting requirements and backup withholding tax will not apply to dividends paid on the Units to a Non-U.S. Holder, provided the Non-U.S. Holder provides a Form W-8BEN or Form W-8BEN-E (or satisfies certain documentary evidence requirements for establishing that it is a non-United States person) or otherwise establishes an exemption. Information reporting and backup withholding also generally will not apply to a payment of the proceeds of a sale of the Units affected outside the United States by a non-U.S. office of a non-U.S. broker. However, information reporting requirements (but not backup withholding) will apply to a payment of the proceeds of a sale of the Units effected outside the United States by a non-U.S. office of a broker if the broker (i) is a United States person, (ii) derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, (iii) is a “controlled foreign corporation” as to the United States, or (iv) is a non-U.S. partnership that, at any time during its taxable year is more than 50% (by income or capital interest) owned by United States persons or is engaged in the conduct of a U.S. trade or business, unless in any such case the broker has documentary evidence in its records that the holder is a non-U.S. holder and certain conditions are met, or the holder otherwise establishes an exemption. Payment by a United States office of a broker of the proceeds of a sale of the Units will be subject to both backup withholding and information reporting unless the holder certifies its non-United States status under penalties of perjury or otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld from payments made to a Unitholder may be refunded or credited against such Unitholder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
Item 1A. Risk Factors.
An investment in our securities involves certain risks relating to our structure and investment objective. The risks set forth below are not the only risks we face, and we face other risks which we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
Lack of Operating History. We will not commence investment operations until the Initial Closing Date and have no performance history. Past performance, including the past performance of the prior Direct Lending Funds or other investment entities and accounts managed by the Adviser, is not necessarily indicative of our future results.
Dependence on Key Personnel and Other Management. Unitholders have no right or power to participate in the management of the Company and may not receive detailed financial information regarding investments that is available to the Adviser. An investor in the Company must rely upon the ability of the Adviser (including the Private Credit Group and other investment professionals of the Adviser) to identify, structure and implement investments consistent with our investment objectives and policies. Accordingly, our success is dependent on the Adviser’s ability to retain and motivate highly qualified professionals. The loss of services of Mr. Richard Miller, Ms. Suzanne Grosso, Mr. Mark Gertzof and Mr. David Wang during the Commitment Period could have an adverse effect on our business, financial condition or results of operations. Our future success also depends on the Adviser’s ability to identify, hire, train and retain other highly qualified and experienced investment and management professionals. Competition for such professionals is significant, and there can be no assurance that the Adviser will be able to attract or retain other highly qualified professionals in the future. The inability of the Adviser to attract and retain such professionals could have a material adverse effect upon our business, financial condition or results of operations.
Reliance on Portfolio Company Management. The day-to-day operations of each portfolio company in which we invest will be the responsibility of such entity’s management team. In addition, we may make investments in portfolio companies where we have limited influence and the other investors in such portfolio company have economic or business interests or goals that are inconsistent with our business interests and goals. Although the Adviser will be responsible for monitoring the performance of each of our investments and we are required, pursuant to a specific
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1940 Act provision applicable to BDCs, to offer to provide each of our portfolio companies managerial assistance, there can be no assurance that the existing management team of a portfolio company or any successor will be able to operate any such entity in accordance with our expectations. In this situation, we may not be in a position to limit or otherwise protect the value of our investment.
No Assurance of Profits. There is no assurance that we will be able to generate returns for our investors or that the returns will be commensurate with the risks of investing in the types of companies and transactions described herein. The marketability and value of any of our investments will depend upon many factors beyond our control. We will incur organizational expenses, Management Fees and other operating expenses which may exceed our income, and a Unitholder could lose the entire amount of its contributed capital. Therefore, a prospective investor should only invest in the Company if such investor can withstand a total loss of his or her investment. The past investment performance of the entities and accounts with which the Adviser and its investment professionals have been associated cannot be taken to guarantee future results of any investment in the Company.
General Economic and Financial Conditions. The success of any investment activity is influenced by general economic and financial conditions, all of which are beyond our control and the control of the Adviser. These conditions, such as the recent global economic crisis and significant downturns in the financial markets, may materially adversely affect our operating results, financial condition and ability to implement our business strategy and/or meet our return objectives.
In late 2019 and early 2020, a novel coronavirus (SARS-CoV-2) and related respiratory disease (COVID-19) emerged in China and during 2020 spread rapidly across the world, including to the United States. This outbreak has led, is currently leading, and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. The disruptions caused by COVID-19 have included, and may continue to include, political, social, and economic disruptions and uncertainties.
The outbreak of COVID-19, and the political, social, and economic disruptions resulting therefrom could cause a negative effect on our operations and our service providers, including the Adviser (or any of the key personnel of the Adviser or its service providers). Adviser’s personnel have been and may continue or in the future become subject to stay-at home orders or employer work-from home programs, which could cause disruptions to the services provided to us.
General uncertainty surrounding the dangers and impact of COVID-19 (including the preventative measures taken in response thereto) and additional uncertainty regarding new variants of COVID-19, most notably the Delta and Omicron variants, has to date created significant disruption in supply chains and economic activity, contributed to labor difficulties and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries. Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events will, for at least some time, impact us and our portfolio companies. In many instances, the impact may be adverse and profound.
Competition for Investment Opportunities. There can be no assurance that there will be a sufficient number of suitable investment opportunities to enable us to invest all of the Commitments of the Unitholders in opportunities that satisfy our investment strategy, or that such investment opportunities will lead to completed investments by us. The activity of identifying, structuring, completing, implementing and realizing attractive investment opportunities is highly competitive. We will compete for investment opportunities with many other industry participants, including other BDCs, public and private funds, individual and institutional investors, and financial institutions. Many such entities have substantially greater economic and personnel resources than the Company and/or better relationships with borrowers and others and/or the ability to accept more risk than we believe can be prudently managed. Accordingly, competition for investments may have the effect of reducing the number of suitable prospective investments available to us and increasing the bargaining power of borrowers, thereby reducing our investment returns. Furthermore, the availability of investment opportunities generally will be subject to market conditions. It is possible that our capital will not be fully utilized if sufficient attractive investments are not identified and consummated by the Adviser.
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Status as Non-Diversified Investment Company. We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our asset diversification requirements as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
No Secondary Market for Securities. Our investments are generally heavily negotiated and, accordingly, do not have the liquidity of conventional securities. Due to their illiquid nature, we may not be able to dispose of our investments in a timely manner, at a fair price and/or in the manner that was thought to be viable when the investment was initiated (due to economic, legal, political or other factors). There is no assurance that we will be able to dispose of an investment in a particular security. The inability to dispose of a security could result in losses incurred by us, including the loss of our entire investment in such security. The debt of highly leveraged companies or companies in default also may be less liquid than other debt. If we voluntarily or involuntarily sold those types of debt securities, we might not receive the full value we expect.
Illiquidity of Collateral. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of those assets will satisfy a company’s obligations. If a company defaults on a secured investment, the Company may receive assets other than cash or securities in full or partial satisfaction of such company’s obligations. The Company might not be able to realize the benefit of the assets for legal, practical or other reasons. The Company might hold those assets until it is determined to be appropriate to dispose of them.
Portfolio Concentration. Although the regulatory restrictions applicable to RICs limit the amount that we may generally invest in any single portfolio company, our investments may not be diversified. See “Item 1(c). Description of Business—Regulation as a Business Development Company—Qualifying Assets” and “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences—Taxation as a Regulated Investment Company.” Aside from the diversification requirements that we will have to comply with as a RIC and other contractual investment limitations to which we are subject pursuant to the LLC Agreement, we do not have any specific portfolio diversification or concentration limits. As a result, our portfolio may include a relatively limited number of large positions. If our investments are concentrated in a few issuers or industries, any adverse change in one or more of such issuers or industries could have a material adverse effect on our investments. To the extent the aggregate Commitments of the Unitholders turn out to be substantially less than the amounts targeted, our portfolio may be even more concentrated than it would otherwise be.
Many of our portfolio securities may not have a readily available market price and we will value these securities at fair value as determined in good faith under procedures adopted by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment. The majority of our investments are expected to be in instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available will be determined in good faith under procedures adopted by our Board of Directors. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make.
Credit Risks. Debt investments are subject to credit risk. Credit risk relates to the ability of the borrower to make interest and principal payments on the loan or security as they become due. If the borrower fails to pay interest, our income might be reduced. If the borrower fails to repay principal, the value of that security and the value of the Company might be reduced. Our investments in debt securities are subject to risks of default. We may invest in debt securities made in connection with leveraged buy-out transactions, recapitalizations (i.e., a type of a corporate restructuring that aims to change a company’s capital structure) and other highly leveraged transactions. While our investments in senior loans typically will be secured by collateral, we may have difficulty liquidating the collateral or enforcing our rights under the terms of the senior loans in the event of the borrower’s default. There is no guarantee that the collateral securing a senior loan will be sufficient to protect us against losses or a decline in income in the event of a borrower’s non-payment of interest or principal. In the event that a borrower declares bankruptcy, a court could invalidate our security interest in the loan collateral or subordinate our rights under the senior loan to other creditors of the borrower. Also, we may invest part of our assets in loans and other debt obligations that are not fully secured.
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Interest Rate Risk. In general, the value of a debt security changes as prevailing interest rates change. For fixed-rate debt securities, when prevailing interest rates fall, the values of outstanding debt securities generally rise. When interest rates rise, the values of outstanding debt securities generally fall, and they may sell at a discount from their face amount. Our debt investments will generally have adjustable interest rates. For that reason, the Adviser expects that when interest rates change, the amount of interest we received in respect of such debt investments will change in a corresponding manner. However, the interest rates of some debt investments adjust only periodically. Between the times that interest rates on debt investments adjust, the interest rates on those investments may not correlate to prevailing interest rates.
Reliance Upon Unaffiliated Co-Lender. In certain circumstances we may co-invest with an unaffiliated lender, who will sometimes be responsible for performing some of the legal due diligence on the borrower and for negotiating some of the terms of the loan agreement that establishes the terms and conditions of the debt investment and the rights of the borrower and the lenders. In such circumstances, although we will perform our own due diligence, we may rely in part on the quality of the due diligence performed by the co-lender and will be bound by the negotiated terms of the loan documentation. There can be no assurance that the unaffiliated co-lender will perform the same level of due diligence as we would perform or that the co-lender will negotiate terms that are consistent with the terms generally negotiated and obtained by us. If the unaffiliated co-lender is acting as collateral agent under the loan documentation and becomes insolvent, the assets securing the debt investment may be determined by a court or regulatory authority to be subject to the claims of the co-lender’s creditors. If that were to occur, we might incur delays and costs in realizing payment on the loan, or we might suffer a loss of principal and/or interest.
Reliance upon Consultants. The Adviser may rely upon independent consultants in connection with its evaluation of proposed investments; however, no assurance can be given that these consultants will accurately evaluate such investments and we may incur liability as a result of such consultants’ actions.
Use of Investment Vehicles. In general, the risks associated with indirect investments in portfolio companies through a joint venture, partnership or other special purpose vehicle (each, an “Investment Vehicle”) are similar to those associated with a direct investment in a portfolio company. While we will analyze the credit and business of a potential portfolio company in determining whether or not to make an investment in an Investment Vehicle, we will nonetheless be exposed to the creditworthiness of the Investment Vehicle. In the event of a bankruptcy proceeding against the Investment Vehicle, the risks outlined below under “—Insolvency Considerations with Respect to Portfolio Companies” will be applicable with equal effect. Additionally, in the case of a bankruptcy proceeding against the portfolio company, the assets of the portfolio company may be used to satisfy its obligations prior to the satisfaction of our investment in the Investment Vehicle (i.e., our investment in the Investment Vehicle would be structurally subordinated to the other obligations of the portfolio company).
Insolvency Considerations with Respect to Portfolio Companies. Various laws enacted for the protection of creditors may apply to our debt investments. A bankruptcy proceeding against a borrower could delay or limit our ability to collect the principal and interest payments on that borrower’s debt obligations. In a lawsuit brought by creditors of a borrower, a court or a trustee in bankruptcy could take certain actions that would be adverse to us. For example:
| • | Other creditors might convince the court to set aside or subordinate a loan or the security interest in a loan as a “fraudulent conveyance,” a “preferential transfer” or for other equitable considerations. In that event, the court could recover from us the interest and principal payments that the borrower made before becoming insolvent. There can be no assurance that we would be able to prevent such recapture. |
| • | A bankruptcy court may restructure the payment obligations under debt securities so as to reduce the amount to which we would be entitled. |
| • | The court might discharge the amount of a loan we make that exceeds the value of the collateral securing the loan. The court could subordinate our rights to the rights of other creditors of the borrower under applicable law. |
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| • | Although our senior secured position under a senior loan provides some assurance that we would be able to recover some of our investment in the event of a borrower’s default, the collateral might be insufficient to cover the borrower’s debts. A bankruptcy court might find that the collateral securing the senior loan is invalid or require the borrower to use the collateral to pay other outstanding obligations. If the collateral consists of stock of the borrower or its subsidiaries, the stock may lose all of its value in the event of a bankruptcy, which would leave us exposed to greater potential loss. |
| • | If a borrower defaults on a scheduled interest or principal payment on a debt obligation, we may experience a reduction of our income. In addition, the value of the debt investment would decline, which may, in turn, cause our value to decline. |
Lender Liability. In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories (collectively termed “Lender Liability”). Generally, Lender Liability is founded upon the premise that an institutional lender has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Lender Liability claims generally arise in bankruptcy, but can also arise under state law claims. Lender Liability often involves claims of misconduct where a lender (a) intentionally takes an action that exacerbates the insolvency of a borrower or issuer or that results in the undercapitalization of a borrower or issuer to the detriment of other creditors of such borrower or issuer, (b) engages in other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (d) uses its influence as a shareholder to dominate or control a borrower or issuer to the detriment of other creditors of such borrower or issuer. We could be subject to allegations of Lender Liability because of the nature of certain of our investments. There is also a risk that where Lender Liability is alleged, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors (a remedy called “Equitable Subordination”). We do not intend to engage in conduct that would give rise to a claim of Lender Liability or Equitable Subordination. However, as a BDC, we are obligated to offer managerial assistance to each of our portfolio companies. To the extent any of our portfolio companies elect to accept such offer to provide managerial assistance, that level of involvement with a portfolio company could strengthen a Lender Liability claim against us. Therefore, claims for Lender Liability or Equitable Subordination affecting our investments could arise as a result of any managerial assistance that we provide in order to fulfill our obligations as a BDC. Moreover, because of the nature of our investments, we may not always be the lead creditor, and security or other agents may act on behalf of the investors in a security owned by us. Therefore, claims for Lender Liability or Equitable Subordination affecting our investments could also arise without our direct managerial or other involvement.
Special Risks of Highly Leveraged or other Risky Portfolio Companies. We can invest up to 100% of our total assets in debt and equity securities of portfolio companies that are highly leveraged and whose debt securities would be considered well below investment grade. We may also invest in obligations of portfolio companies in connection with a restructuring under Chapter 11 of the U.S. Bankruptcy Code (i.e., a debtor in possession financing) if the obligations meet the credit standards of the Adviser. Debtor in possession financings are arranged when an entity seeks the protections of the bankruptcy court under Chapter 11 of the U.S. Bankruptcy Code. These financings allow an entity to continue its business operations while reorganizing under Chapter 11. Such financings are senior liens on unencumbered security (i.e., security not subject to other creditor claims). These debt obligations tend to offer higher yields than investment grade securities to compensate investors for the higher risk, and are commonly referred to as “high risk securities” or, in the case of bonds, “junk bonds.” Similarly, we may also invest in obligations of portfolio companies in connection with rescue situation and Chapter 11 exit financings. Rescue situation financings may avoid a company’s need to resort to bankruptcy and provide the company with working capital it needs to continue uninterrupted operations. Chapter 11 exit financings allow a company to deleverage its balance sheet and to emerge from a Chapter 11 bankruptcy. Lending to highly leveraged or other risky borrowers is highly speculative. These investments may expose us to financial market risks, interest rate risks and credit risks that are significantly greater than the risks associated with other securities in which we may invest. An economic downturn or a period of rising interest rates, for example, could cause a decline in the prices of such securities. The prices of securities structured as zero-coupon or pay-in-kind securities may be more volatile than securities that pay interest periodically and in cash. In the event of a default by a portfolio company, we would experience a reduction of our income and could expect a decline in the fair value of the defaulted securities and may incur significant additional expenses to seek recovery.
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Risk of Bridge Financing. If we make or invest in a bridge loan or interim financing for a portfolio company that intends to refinance all or a portion of that loan, there is a risk that the borrower will be unable to complete such refinancing successfully. Such failure could lead to the portfolio company having to pay interest at increasing rates along with additional fees and expenses, the result of which may reduce the value of the portfolio company.
Risk of Subordinated or Mezzanine Financing. Our investments in subordinated or mezzanine financing will generally be unsecured or, if secured, will be subordinated to the interests of the senior lender in the borrower’s capital structure. In the event of a bankruptcy or insolvency involving the borrower where there are insufficient assets to satisfy the obligations of the borrower to its senior lender, there may be no assets available to meet its obligations to the holders of its subordinated or mezzanine debt, including the Company.
Non-U.S. Investment Risk. We may invest up to 30% of our gross assets in portfolio companies domiciled outside of the United States (assuming that the remaining 70% of our gross assets constitute “qualifying assets” (as defined in the 1940 Act and as described under “Item 1(c). Description of Business—Regulation as a Business Development Company—Qualifying Assets”)). Non-U.S. obligations have risks not typically involved in domestic investments. For example, non-U.S. obligations not denominated in U.S. dollars will cause our investment performance to vary based on changes in the applicable currency exchange rate. Moreover, even if we attempt to hedge the currency exchange risk, these hedges may be expensive and may not completely protect us in all circumstances. Non-U.S. investing can also result in higher transaction and operating costs for the Company. Non-U.S. issuers may not be subject to the same accounting and disclosure requirements that U.S. issuers are subject to. The value of non-U.S. investments may be affected by exchange control regulations, expropriation or nationalization of a company’s assets, non-U.S. taxes, delays in settlement of transactions, changes in governmental economic or monetary policies in the United States or abroad, or other political and economic factors. We may have greater difficulty taking appropriate legal actions in non-U.S. courts. Non-U.S. countries may impose withholding taxes on income paid on the debt securities of issuers in those countries.
Risks of Using Derivative Instruments. We may use derivative financial instruments for hedging or managing the risks associated with the assets we hold. The risks posed by such instruments can be extremely complex and difficult to evaluate, including (i) risks relating to our counterparties in such a transaction; (ii) imperfect correlation between movements in the currency, interest rate or other reference on which the derivative is based and movements in the assets of the underlying portfolio; and (iii) reduced ability to meet short-term obligations because of the percentage of our assets segregated to cover derivative obligations. In addition, by hedging a particular position, any potential gain from an increase in value of such position may be limited.
In November 2020, the SEC adopted a rulemaking regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations. Under the newly adopted rule, BDCs that use derivatives will be subject to a value-at-risk (“VaR”) leverage limit, a derivatives risk management program and testing requirements and requirements related to board reporting. These new requirements will apply, unless a BDC qualifies as a “limited derivatives user,” as defined under the adopted rule. Under the new rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
Economic Interest of the Adviser. Because the Adviser will be compensated in part on a basis tied to our performance, the Adviser may have an incentive to make investments that are risky or speculative.
Effect of Fees and Expenses on Returns. We will pay Management Fees and Incentive Fees to the Adviser and generally will bear our other Company Expenses. Generally, other than the Incentive Fee, fees and expenses will be paid regardless of whether we produce positive investment returns. The fees and expenses will reduce the actual returns to Unitholders, the distributions we make to Unitholders, and the overall value of the Unitholders’ investment. In addition, because the Management Fees payable by us to the Adviser will be calculated based on average gross assets of the Company on a consolidated basis, including the amortized cost of portfolio investments purchased with borrowed funds and other forms of leverage, the Adviser may be incentivized to use leverage, but will not utilize more than is permitted by applicable law or regulation. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of the Units. Furthermore, the Adviser may receive incentive fee payments on unrealized gains that may not be subsequently realized.
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Retention of Proceeds. The Company may retain, in whole or in part, any proceeds attributable to portfolio investments during the Commitment Period and may use the amounts so retained to make investments, pay Company fees and expenses, repay Company borrowings, or fund reasonable reserves for future Company expenses or other obligations (including obligations to make indemnification advances and payments), provided, that, after the expiration of the Commitment Period, no part of such retained amounts will be used to make any investment for which the Adviser would not be permitted to draw down Commitments. To the extent such retained amounts are reinvested in investments, a Unitholder will remain subject to investment and other risks associated with such investments.
Effect of Varying Terms of Classes of Units. Although we have no current intention to do so, pursuant to the LLC Agreement, we may issue Preferred Units. If we issue Preferred Units, there can be no assurance that such issuance would result in a higher yield or return to the holders of the Units. The issuance of Preferred Units would likely cause the net asset value of the Units to become more volatile. If the dividend rate on the Preferred Units were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the Units would be reduced. If the dividend rate on the Preferred Units were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of the Units than if we had not issued Preferred Units. Any decline in the net asset value of our investments would be borne entirely by the holders of the Units. Therefore, if the fair value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of the Units than if we were not leveraged through the issuance of Preferred Units.
Rights of Preferred Unitholders. Holders of any Preferred Units that we might issue would have the right, voting separately as a single class, to elect two members of the board at all times. In addition, if dividends for Preferred Units become two full years in arrears, the holders of those Preferred Units would have the right to elect a majority of the board until such arrearage is completely eliminated. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of the Units and Preferred Units, both by the 1940 Act and by the terms of our debt financings (if any), might impair our ability to qualify as a RIC for federal income tax purposes. While we would intend to redeem the Preferred Units to the extent necessary to enable us to distribute our income as required to qualify as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.
Regulations Governing our Operation as a BDC. We may issue debt securities or Preferred Units and/or borrow money from banks or other financial institutions, which are collectively referred to herein as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act currently in force, we will be permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. Also, any amounts that we use to service our indebtedness would not be available for distributions to our Unitholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
If we issue Preferred Units, the Preferred Units would rank “senior” to the Units in our capital structure, the Preferred Unitholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of the Unitholders.
We will incur significant costs as a result of being registered under the Exchange Act. We will incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act once this Registration Statement becomes effective. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. We will implement procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We expect to incur significant annual expenses related to these steps and directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to the Administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses associated with being a public company.
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The systems and resources necessary to comply with public company reporting requirements will increase further once we cease to be an “emerging growth company” under the JOBS Act. As long as we remain an emerging growth company we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
Borrowing Money. The use of leverage magnifies the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in the Company. Subject to the borrowing limitation imposed on us by the 1940 Act, the Company and any wholly owned subsidiary of the Company may borrow from or issue senior debt securities to banks, insurance companies and other lenders in the future. Our lenders will have fixed dollar claims on our assets that are superior to the claims of the Unitholders, and we would expect such lenders to seek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures.
As a BDC, we generally will be required to meet a coverage ratio of total assets to total borrowings and other senior securities, which will include all of our borrowings and any Preferred Units that we may issue in the future, of at least 200%. Any wholly owned subsidiary of the Company will be subject to the requirements of the 1940 Act governing investment policies, capital structure and leverage on an aggregate basis with the Company. In addition, any wholly owned subsidiary will comply with the provisions relating to affiliated transactions and custody of the 1940 Act and the custodian for such wholly owned subsidiary would be disclosed in applicable regulatory filings. The Company does not currently intend to create or acquire primary control of any entity which engages in investment activities in securities or other assets, other than entities wholly owned by the Company.
In addition, any debt facility into which we may enter would likely impose financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. In particular, it is anticipated that the credit facility would contain certain financial covenants, which may include requiring us to maintain a minimum amount of equity supporting the credit facility or comply with certain collateral quality and coverage tests.
Obligations of Unitholders Relating to Credit Facilities. If the Company or any of its subsidiaries enters into a credit facility, we may grant security over and transfer our right to drawdowns of capital from investors to our lenders or other creditors. Unitholders will be required to fund drawdowns up to the amount of their respective Undrawn Commitments if an event of default under a credit facility or any other borrowing agreement occurs in order to repay any indebtedness of the Company or any of its subsidiaries, and the payment by a Unitholder of any such amounts that have become due and payable by the Company out of such Unitholder’s Undrawn Commitment may be a condition to the effectiveness of (i) any transfer, withdrawal, termination or reduction of Commitments of such Unitholder, (ii) such Unitholder’s ability to cease funding its Commitment.
Failure to Qualify as a RIC. We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code. To qualify as a RIC under Subchapter M of the Code, we must meet certain source-of-income, asset diversification and distribution requirements. The distribution requirement for a RIC is satisfied if we distribute the sum of at least 90% of our net ordinary income, net short-term capital gains in excess of net long-term capital losses, if any, and 90% of its net tax-exempt interest (if any) to the Unitholders on an annual basis. Because we intend to incur debt, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax. To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in the Company having to dispose of certain investments quickly in order to qualify as a RIC, or to prevent the loss of such qualification after becoming a RIC. Because most of our investments will be in private or thinly traded public
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companies, any such dispositions may be made at disadvantageous prices and may result in substantial losses. In addition, we may have difficulty satisfying the diversification requirements after the Commitment Period as we liquidate our portfolio since we will not be making additional investments. While we generally will not lose our status as a RIC as long as we do not acquire any non-qualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition of non-qualifying securities or other property. If we fail to qualify as a RIC for any reason and become subject to corporate income tax, the resulting corporate income taxes could substantially reduce our net assets, the amount of income available for distributions to the Unitholders and the amount of funds available for new investments. Such a failure would have a material adverse effect on us and the Unitholders. See “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences—Taxation as a Regulated Investment Company.”
Withholding Risk for Foreign Investors. U.S. withholding tax rules require 30% withholding on distributions to Non-U.S. Holders unless there is certainty that such distributions are not subject to such withholding. The Company may make distributions at times of the year when there is uncertainty as to whether the amounts distributed are subject to such withholding. Accordingly, such distributions to Non-U.S. Holders may be subject to overwithholding by the Company (or its withholding agent) and Non-U.S. Holders may be required to file a return with the Internal Revenue Service in order to receive a refund of such overwithheld amounts. Non-U.S. Holders should see the discussion under the heading “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences—Taxation of Non-U.S. Holders.”
Recourse to Our Assets. Our assets, including any investments made by us and any capital held by us, are available to satisfy all our liabilities and other obligations. If we become subject to a liability, parties seeking to have the liability satisfied may have recourse to our assets generally and not be limited to any particular asset, even in the circumstance where a specific investment gave rise to the liability.
Need for Follow-On Investments. We may be called upon to provide follow-on funding or additional loans for, or have the opportunity to increase our investment in, our portfolio companies. There can be no assurance that we will be able to make or arrange for follow-on investments or loans or that we will have sufficient funds to do so. Any decision not to make follow-on investments or loans or the inability to make them may have a substantial negative impact on a portfolio company in need of funds or may diminish our proportionate ownership in such entity and thus our ability to influence the entity’s future conduct. The inability to make follow-on investments or loans may also impede, diminish or reduce the number of attractive investments made available to us.
Litigation Risks. We will be subject to a variety of litigation risks, particularly if one or more of our portfolio companies face financial or other difficulties. Legal disputes, involving any or all of the Company, the Adviser, or their affiliates, may arise from our activities and investments and could have a significant adverse effect on us.
Consequences of Failure to Pay Commitment in Full. If a Unitholder fails to pay any installment of its Commitment, other Unitholders who have an outstanding Commitment may be required to fund their respective Commitments sooner than they otherwise would have absent such a default. In addition, if funding of Commitments by other Unitholders and our borrowings are inadequate to cover defaulted Commitments, we may be unable to pay our obligations when due or be subjected to penalties or may otherwise suffer adverse consequences that could materially adversely affect the returns to the Unitholders (including non-defaulting Unitholders). If a Unitholder defaults, there is no guarantee that we will recover the full amount of the defaulted Commitment, and such defaulting Unitholder may lose all or a portion of its economic interest in us, as described under “Item 11. Description of Registrant’s Securities to be Registered—Default Provisions.”
Limited Liability of the Adviser. To the extent permissible by law, the Adviser will not be liable, responsible or accountable in damages or otherwise to us or to any Unitholder for any breach of duty to us or the Unitholders or for any act or failure to act pursuant to the Advisory Agreement or otherwise, except in certain limited circumstances provided by the 1940 Act and as set forth in the Advisory Agreement. In general, we will be required to indemnify the Adviser (and other related and/or affiliated parties) for certain losses arising out of its activities on behalf of us. Such obligations could reduce significantly the returns to the Unitholders.
Conflicts of Interest. Conflicts of interest may exist from time to time between the Adviser and certain of its affiliates involved with us. See “Item 7. Certain Relationships and Related Transactions, and Director Independence—Relationship with the Adviser and Potential Conflicts of Interest.”
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Inability to Take Advantage of Investment Opportunities with Affiliated Funds or Investors. The 1940 Act limits our ability to engage in transactions with affiliated funds and investors. For example, we are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our Independent Directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of the Independent Directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include co-investments in the same portfolio company, without prior approval of the Independent Directors and, in some cases, of the SEC. Although the Company will be able to benefit from exemptive relief obtained from the SEC by the Adviser and other funds advised by the Adviser to engage in certain “joint” transactions, the relief is limited and subject to certain conditions. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or controls us (such as the Adviser) or certain of that person’s affiliates (such as other investment funds managed by the Adviser), or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by the Adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us. In situations where we cannot co-invest with other investment funds managed by the Adviser due to the restrictions contained in the 1940 Act, the investment policies and procedures of the Adviser generally require that such opportunities be offered to us and such other investment funds on an alternating basis. Therefore, there can be no assurance that we will be able to participate in all investment opportunities identified by the Adviser that are suitable for us. See “Item 7. Certain Relationships and Related Transactions, and Director Independence—Relationship with the Adviser and Potential Conflicts of Interest.”
Effect of BDC and RIC Rules on Investment Strategy. Our having to comply with the various rules necessary to remain qualified as a BDC and a RIC could adversely impact the implementation of our investment strategy and thus reduce returns to investors. For example, the diversification requirements imposed by the RIC rules could, in certain situations, preclude us from making certain investments.
No Registration; Limited Transferability of Units. The Units are being offered without registration under the Securities Act or any other laws of applicable jurisdictions. All dispositions and transfers of the Units shall be made pursuant to an effective registration statement or in accordance with an exemption from registration contained in the Securities Act. Unitholders will not be permitted to transfer their Units unless (i) we and, if required by our lending arrangements, our lenders give consent and (ii) the Transfer is made in accordance with applicable securities laws. Furthermore, the transferability of the Units may be subject to certain restrictions contained in the Subscription Agreement and the LLC Agreement and may be affected by restrictions on resale imposed under U.S. federal, U.S. state or another jurisdiction’s securities laws. A public market does not currently exist for the Units and one is not expected to develop. Withdrawal from an investment in the Units will not generally be permitted. In light of the restrictions imposed on any such transfer and in light of the limitations imposed on a Unitholder’s ability to withdraw all or part of its investment in Units, an investment in the Units should be viewed as illiquid and subject to high risk.
Tax Risks. Tax consequences to Unitholders from an investment in the Units are complex. Potential Unitholders are strongly urged to review the discussion in “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences.”
Changes in Applicable Law. We must comply with various legal requirements, including requirements imposed by United States and non-U.S. anti-money laundering laws, securities laws, commodities laws, tax laws and pension laws. Should any of those laws change over the life of the Company, the legal requirements to which we and the Adviser may be subject could differ materially from current requirements. In addition, if a Unitholder fails to comply with applicable anti-money laundering laws and similar laws, the Company may mandatorily repurchase such Unitholder’s Units. If such repurchases were to occur, they would be conducted on such terms as may be determined by our Board of Directors and in accordance with the requirements of applicable law, including Section 23(c) of the 1940 Act, as modified by section 63 of the 1940 Act, and the rules thereunder, and Regulation M under the Exchange Act.
Terrorist Action. There is a risk of terrorist attacks on the United States and elsewhere causing significant loss of life and property damage and disruptions in global market. Economic and diplomatic sanctions may be in place or imposed on certain states and military action may be commenced. The impact of such events is unclear, but could have a material effect on general economic conditions and market liquidity.
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General Risk Factors.
Cybersecurity Risk. We are highly dependent on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the value of our Units and our ability to pay distributions. Our business depends on the communications and information systems of our Adviser and its affiliates. These systems are subject to potential attacks, including through adverse events that threaten the confidentiality, integrity or availability of our information resources (i.e., cyber incidents). Cyber hacking could also cause significant disruption and harm to the companies in which we invest. The U.S. government has issued warnings that certain essential assets, specifically those related to energy and infrastructure, including exploration and production facilities, pipelines and transmission and distribution facilities, might be specific targets of terrorist activity. Additionally, digital and network technologies (collectively, “cyber networks”) might be at risk of cyberattacks that could potentially seek unauthorized access to digital systems for purposes such as misappropriating sensitive information, corrupting data or causing operational disruption. Cyberattacks might potentially be carried out by persons using techniques that could range from efforts to electronically circumvent network security or overwhelm websites to intelligence gathering and social engineering functions aimed at obtaining information necessary to gain access. These attacks could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could, in turn, have a material adverse effect on our operating results and negatively affect the value of our securities and our ability to pay distributions to our unitholders. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by the Adviser and third-party service providers.
We and many of our third-party service providers are currently impacted by quarantines and similar measures being enacted by governments in response to COVID-19, which are obstructing the regular functioning of business workforces (including requiring employees to work from external locations and their homes). In response to the COVID-19 pandemic, our Adviser has instituted a work from home policy until it is deemed safe to return to the office. Such a policy of an extended period of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risks and other risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic.
LIBOR Phase-Out Risk. The U.K. Financial Conduct Authority (“FCA”), which regulates LIBOR, and administrator, ICE Benchmark Administration, Limited, announced that the publication of the one-week and two-month U.S. dollar LIBOR maturities and non-U.S. dollar LIBOR maturities will cease immediately after December 31, 2021, with the remaining U.S. dollar LIBOR maturities ceasing immediately after June 30, 2023. As of January 1, 2022, consistent with FCA’s prior announcement, British pound, euro, Swiss franc and Japanese yen settings and the one-week and two-month U.S. dollar LIBOR settings are no longer available. Until the end of 2022, one-month, three-month, and six-month British pound and Japanese yen LIBOR settings will continue publication on a changed methodology (i.e., “synthetic”) basis, but these synthetic rates may only be used in legacy LIBOR contracts, other than cleared derivatives, that have not been changed at or ahead of the end of 2021. The remaining U.S. dollar LIBOR settings will permanently cease immediately after June 30, 2023, providing additional time to address the legacy contracts that reference such U.S. dollar LIBOR settings.
In the United States, the Alternative Rates Reference Committee, a group of market participants convened in 2014 to help ensure a successful transition away from U.S. dollar LIBOR, has identified the Secured Overnight Financing Rate (the “Secured Overnight Financing Rate,” or “SOFR”) as its preferred alternative rate. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. In addition, for contracts that are governed by New York state law, recent New York state legislation effectively codified the use of SOFR as the alternative in the absence of another chosen replacement rate.
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The elimination of LIBOR or when LIBOR degrades to the degree that it is no longer representative of the underlying market, or uncertainty related to such changes, may adversely affect the market for LIBOR based securities, including our portfolio of LIBOR indexed, floating rate debt securities, or the cost of our borrowings. Additionally, because no replacement rate is a perfect match for LIBOR, even when the transaction documents contain robust fallback language, the value of LIBOR-linked securities, and consequently their potential returns, may experience material changes upon LIBOR’s discontinuation. Given the inherent differences between LIBOR and SOFR, or any other alternative reference rates that may be established, the transition from LIBOR may disrupt the overall financial markets and adversely affect the market for LIBOR-based securities, including LIBOR-indexed, floating-rate debt securities, or the cost of borrowings. In addition, changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market for LIBOR-based securities, including the value and/or transferability of the LIBOR-indexed, floating-rate debt securities, or the cost of borrowings. The transition from LIBOR to SOFR or other alternative reference rates may also introduce operational risks in accounting, financial reporting, loan servicing, and liability management. We are assessing the impact of a transition from LIBOR; however, we cannot reasonably estimate the impact of the transition at this time.
Political, Social and Economic Uncertainty Risk. Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the U.S. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.
The U.S. and global capital markets experienced extreme volatility and disruption in recent years, leading to recessionary conditions and depressed levels of consumer and commercial spending. For instance, uncertainty related to the global outbreak of COVID-19, the partial U.S. government shutdown in December 2018 and January 2019, U.S. trade policies and the referendum by British voters to exit the European Union (“Brexit”) in June 2016 and the United Kingdom’s subsequent invocation of Article 50 of the Treaty on the European Union in March 2017 and subsequent withdrawal have led to disruption and instability in the global markets.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
For example, there is an outbreak of a highly contagious form of a novel coronavirus known as “COVID-19,” which the World Health Organization has declared a global pandemic. In December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States. The United States declared a national emergency, and for the first time in its history, every state in the United States was under a federal disaster declaration. Many states issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. While countries have relaxed their public health restrictions relative to those imposed during the spring and summer of 2020, they have been forced to re-introduce such restrictions and business shutdowns at various points in time due to surges in the reported number of cases, hospitalizations and deaths related to the COVID-19 pandemic. Health advisors warn that recurring COVID-19 outbreaks will continue if reopening is pursued too soon or in the wrong manner, which may lead to the re-introduction or continuation of certain public health restrictions (such as instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other
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public venues). Additionally, certain countries instituted travel restrictions during various parts of the pandemic. While many of these travel restrictions have been lifted, reintroduction of such restrictions in the future, may impact the global economy. Even after the COVID-19 pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession.
Effective from December 31, 2020, the United Kingdom left the Council of the European Union and also ceased to be subject to international trade agreements to which the European Union is a party. As a result, and subject to the terms of a trade and cooperation agreement entered into on December 24, 2020, which sets out the terms of the United Kingdom’s future relationship with the European Union, the rules of the European Union relating to free movement of persons, goods, services and capital between the United Kingdom and the European Union end, and the European Union and the United Kingdom formed two separate markets and two distinct regulatory and legal spaces. The trade agreement offers United Kingdom and European Union businesses preferential access to each other’s markets ensuring imported goods will be free of tariffs and quotas. However, economic relations between the United Kingdom and European Union will now be on more restricted terms than previously existed, and the trade agreement does not incorporate the full scope of the services sector, and businesses such as banking and finance face a more uncertain future. While the talks on a separate memorandum of understanding regarding financial services concluded in 2021, the memorandum of understanding has not been formally signed or entered into force. As a result, at this time, the impact that the trade agreement and any future agreements, including the memorandum of understanding, will have on business interests in the European Union and the United Kingdom cannot be predicted and, given the lack of comparable precedent, it is unclear what financial, trade and legal implications the withdrawal of the United Kingdom will have on business interests. As a result of the original referendum and other geopolitical developments leading to Brexit, as well as the United Kingdom’s subsequent withdrawal, the financial markets experienced increased levels of volatility and it is likely that, in the near term, Brexit will continue to bring about higher levels of uncertainty and volatility.
Commencing in 2021, Russian President Vladimir Putin ordered the Russian military to begin massing thousands of military personnel and equipment near its border with Ukraine and in Crimea, representing the largest mobilization since the illegal annexation of Crimea in 2014. President Putin has initiated troop movements into the eastern portion of Ukraine and continues to threaten an all-out invasion of Ukraine. On February 22, 2022, the United States and several European nations announced sanctions against Russia in response to Russia’s actions. On February 24, 2022, President Putin commenced a full-scale invasion of Russia’s pre-positioned forces into Ukraine, which could have a negative impact on the economy and business activity globally (including in the countries in which the Fund may invest), and therefore could adversely affect the performance of our investments. Furthermore, the conflict between the two nations and the varying involvement of the United States and other NATO countries could preclude prediction as to their ultimate adverse impact on global economic and market conditions, and, as a result, presents material uncertainty and risk with respect to us and the performance of our investments or operations, and our ability to achieve our investment objectives. Additionally, to the extent that third parties, investors, or related customer bases have material operations or assets in Russia or Ukraine, they may have adverse consequences related to the ongoing conflict.
We will also be negatively affected if the operations and effectiveness of us or a portfolio company (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.
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ITEM 2. FINANCIAL INFORMATION.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We were formed on March 7, 2022 as a limited liability company under the laws of the State of Delaware. We are an externally managed, closed-end, non-diversified management investment company, that intends to elect to be regulated as a BDC under the 1940 Act following the Initial Closing Date. In addition, we intend to elect to be treated for U.S. federal income tax purposes as a RIC. As such, we will be required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest. See “Item 1(c). Description of Business—Regulation as a Business Development Company” and “Item 1(c). Description of Business—Certain U.S. Federal Income Tax Consequences—Regulated Investment Company Classification.”
Units issued on the Initial Closing Date will be issued for the Original Issuance Price. In addition, pursuant to the LLC Agreement, Unitholders will be obligated to make additional capital contributions to us of $99.99 in respect of each Unit.
We are currently in the development stage and have not commenced investment operations. Since inception, there has been no activity. The Adviser contributed an initial $1,000 capital contribution to us in exchange for 10 Units. To date, our efforts have been limited to organizational activities, the cost of which has been borne by the Adviser and its affiliates. We have agreed to repay the Adviser and its affiliates for organization and offering expenses incurred up to a maximum of an amount equal to 10 basis points of the aggregate Commitments, in connection with the offering of Units, upon receipt of a formal commitment of external capital. In the event receipt of a formal commitment of external capital does not occur, all organization and offering expenses will be borne by the Adviser or its affiliates.
Revenues
We plan to generate revenues in the form of interest income and capital appreciation by providing private capital to middle market companies operating in a broad range of industries primarily in the United States. The historical investment philosophy, strategy and approach of the Private Credit Group has not involved the use of payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, or similar arrangements. Although we do not currently expect the Private Credit Group to originate investments for us with PIK interest features, from time to time we may make investments that contain such features or that subsequently incorporate such features after origination. Our highly negotiated private investments may include senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, notes and other non-convertible debt securities, equity securities, and equity-linked securities such as options and warrants. However, our investment bias will be towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments.
We will be primarily focused on investing in senior secured debt obligations, although there may be occasions where the investment may be unsecured. We will also consider an equity investment as the primary security, in combination with a debt obligation, or as a part of total return strategy. Our investments will mostly be in corporations, partnerships or other business entities. Additionally, in certain circumstances, we may co-invest with other investors and/or strategic partners indirectly in a company through an Investment Vehicle. While we will invest primarily in U.S. companies, there may be certain instances where we will invest in companies domiciled elsewhere.
Expenses
We do not currently have any employees and do not expect to have any employees. Services necessary for our business will be provided through the Administration Agreement and the Advisory Agreement.
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We, and indirectly our Unitholders, will bear all costs, expenses and liabilities in connection with our operations, administration and transactions, including, without limitation: (a) organizational expenses and expenses associated with the issuance of the Units and issuance of interests in a Related Entity organized and managed by TCW as a feeder fund for the Company; (b) expenses of calculating our net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring our financial and legal affairs, providing administrative services, monitoring or administering our investments and performing due diligence reviews of prospective investments and the corresponding portfolio companies; (e) costs associated with our reporting and compliance obligations under the 1940 Act, the 1934 Act and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance our investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other securities; (h) Management Fees and Incentive Fees; (i) administrator fees and expenses payable under the Administration Agreement, provided that any such fees payable to the Administrator shall be limited to what a qualified third party would charge to perform substantially similar services; (j) transfer agent, sub-administration and custodial fees; (k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes or other governmental charges assessed against us; (n) independent directors’ fees and expenses and the costs associated with convening a meeting of our board of directors or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of the Unitholders or holders of any Preferred Units; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of our financial statements and tax returns; ® our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to us; (u) compensation of other personnel (including employees and secretarial and other staff of the Administrator) to the extent they are devoted to preparing our financial statements or tax returns or providing similar “back office” financial services to us; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for us, monitoring our investments and disposing of any such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to us, including in each case services with respect to the proposed purchase or sale of securities by us that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying the LLC Agreement or Advisory Agreement or related documents of us or related entities; (aa) fees, costs, and expenses incurred in connection with our termination, liquidation or dissolution or related entities; and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering our business.
However, we will not bear more than (a) an amount equal to 10 basis points of our aggregate Commitments for organizational expenses and offering expenses in connection with the offering of Units.
We are permitted to enter into a credit facility. In connection with borrowings, our lenders may require us to pledge assets, Commitments and/or the right to draw down on Commitments. In this regard, the Subscription Agreement contractually obligates each of our investors to fund their respective Commitments in order to pay amounts that may become due under any borrowings or other financings or similar obligations.
Financial Condition, Liquidity and Capital Resources
We are currently in the development stage and have not commenced investment operations. The Adviser contributed an initial $1,000 capital contribution to us in exchange for 10 Units. We have agreed to repay the Adviser and its affiliates for organization and offering expenses incurred up to a maximum amount equal to 10 basis points of the aggregate Commitments, in connection with the offering of Units.
We expect to generate cash from (1) drawing down capital in respect of Units, (2) cash flows from investments and operations and (3) borrowings from banks or other lenders. We will seek to enter into any bank debt, credit facility or other financing arrangements on at least customary market terms; however, we cannot assure you we will be able to do so.
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Our primary use of cash will be for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including expenses, the Management Fee, the Incentive Fee, and any indemnification obligations), (3) debt service of any borrowings and (4) cash distributions to the Unitholders.
Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates. We plan to invest primarily in illiquid debt securities of private companies. Most of our investments will not have a readily available market price, and we will value these investments at fair value as determined in good faith by the board of directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. See “Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Unitholder Matters—Valuation of Portfolio Securities.”
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We maintain our principal executive office at 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116. We do not own any real estate. We believe that our present facilities are adequate to meet our current needs. If new or additional space is required, we believe that adequate facilities are available at competitive prices in the same area.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
We have not yet commenced commercial activities and will not do so until the Initial Closing Date. The Adviser contributed an initial $1,000 capital contribution to us in exchange for 10 Units. We will not raise additional capital prior to the Initial Closing Date, at which point we will raise capital from the issuance of privately offered Units.
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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
Our business and affairs will be managed under the direction of our board of directors. The majority of the members of our board of directors will at all times consist of Independent Directors.
Board of Directors
Our board of directors will have ultimate authority over our operations, but will delegate the authority to manage our assets to the Adviser. Pursuant to the LLC Agreement, our board of directors will initially consist of six members.
Our board of directors will be divided into three classes, each serving staggered, three-year terms. However, the initial members of the three classes have initial terms of one, two and three years, respectively. The terms of our Class I directors will expire at the 2023 annual meeting of Unitholders; the terms of our Class II directors will expire at the 2024 annual meeting of Unitholders; and the terms of our Class III directors will expire at the 2025 annual meeting of Unitholders. At each annual meeting of the Unitholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of Unitholders held in the third year following the year of their election. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualified.
Duties of Officers and Directors
The LLC Agreement provides that our business and affairs will be managed under the direction of our board of directors, which will have the power to appoint our officers. On a regular basis, the board of directors will primarily be responsible for the determination of the net asset value of the Units.
Election of Directors
The LLC Agreement provides that the affirmative vote of the holders of a plurality of the outstanding Units entitled to vote in the election of directors cast at a meeting of Unitholders duly called and at which a quorum is present will be required to elect a director. Pursuant to the LLC Agreement, our board of directors may amend the LLC Agreement to alter the vote required to elect directors; provided, that, to the extent required by the 1940 Act, at any time when there are outstanding Preferred Units, the Preferred Unitholders shall have the right, as a class, to elect (i) two additional directors to the board, but shall not elect or vote for the other directors, and (ii) if and for so long as dividends on the Preferred Units are unpaid in an amount equal to two full years of dividends on the Preferred Units, a majority of the directors.
Number of Directors; Vacancies; Removal
The LLC Agreement provides that the number of directors will be set only by the board of directors. The LLC Agreement provides that a majority of the entire board of directors may at any time increase or decrease the number of directors. However, the number of directors may never be less than one or more than twelve unless the LLC Agreement is amended in which case we may have more than twelve directors but never less than one. The LLC Agreement provides any and all vacancies on the board of directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is duly elected and qualifies, subject to any applicable requirements of the 1940 Act.
The LLC Agreement provides that a director elected by the Unitholders may be removed only for cause, as defined therein, and then only by the affirmative vote of the holders of 66 2/3% of the then outstanding authorized Units entitled to vote.
Committees of the Board of Directors
Our board of directors has two committees: an audit committee (“Audit Committee”) and a special transactions committee (“Special Transactions Committee”).
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Our board of directors also has the authority to form additional committees of the board of directors from time to time to the extent that it determines that it is appropriate to do so.
Audit Committee
The Audit Committee operates pursuant to a charter that has been approved by the board of directors. The Audit Committee is responsible for selecting, engaging and discharging our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, approving professional services provided by our independent accountants (including compensation therefor), reviewing the independence of our independent accountants and reviewing the adequacy of our internal control over financial reporting, as well as establishing guidelines and making recommendations to our board of directors regarding the valuation of our assets for which market quotations are not readily available. The members of the Audit Committee are Sheila A. Finnerty, Saverio M. Flemma, R. David Kelly and Andrew W. Tarica each of whom is an Independent Director. Saverio M. Flemma serves as the chairman of the Audit Committee, and has been designated by our board of directors as an “Audit Committee financial expert” under the rules of the SEC.
Special Transactions Committee
The Special Transactions Committee is comprised of Sheila A. Finnerty, Saverio M. Flemma, R. David Kelly and Andrew W. Tarica each of whom is considered an independent director of the Company.
The Special Transactions Committee will be responsible for reviewing and making certain findings in respect of co-investment transactions under the conditions of the exemptive relief that the Adviser has been granted by the SEC as well as certain other matters pertaining to actual or potential conflicts of interest.
Directors
Information regarding each person who is a member of our board of directors is as follows:
| Name |
Age |
Position(s) |
Expiration of | |||
| Interested Directors |
||||||
| Sheila A. Finnerty |
56 | Director | 2023 | |||
| Saverio M. Flemma |
60 | Director | 2024 | |||
| R. David Kelly |
58 | Director | 2025 | |||
| Andrew W. Tarica |
63 | Director | 2023 | |||
| Interested Directors |
||||||
| Richard T. Miller |
59 | President, Director | 2023 | |||
| Laird Landmann |
58 | Director | 2024 | |||
Executive Officers Who Are Not Directors
Information regarding each person who is an executive officer of the Company but who is not a director is as follows:
| Name |
Age |
Position(s) | ||
| David Wang | 46 | Chief Operating Officer | ||
| Andrew Kim | 43 | Chief Financial Officer and Treasurer | ||
| Gladys Xiques | 49 | Chief Compliance Officer | ||
| Gayle Espinosa | 41 | Secretary | ||
| Joseph Magpayo | 58 | Assistant Secretary |
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Biographical Information
Independent Directors
Ms. Finnerty, served as an Executive Managing Director at Liberty Mutual Insurance, a Fortune 100 Company, until her retirement. She has 34 years of experience and is widely respected as a successful investor and strong partner both in the financial markets and in business strategy. As an investor at both Liberty Mutual Investments and Morgan Stanley Investment Management, Sheila successfully managed leveraged finance and alternative credit portfolios as well as being an active member of the internal Investment Committee and the leadership teams that oversaw asset allocation and strategy for these businesses. Prior to joining Liberty Mutual, Sheila held several roles at Morgan Stanley Investment Management (MSIM) including Managing Director as Global Head of High Yield Investments as well as Head of Leveraged Loan Investments. Ms. Finnerty serves on the Board of Trustees of Manhattanville College and the Philanthropy Committee of the May Institute. Sheila is a strong proponent of diversity and inclusion initiatives and is a founding member of Women in Alternative Debt. Ms. Finnerty is a 1988 graduate of The New York University Stern School of Business and a 1986 graduate of Manhattanville College. She is a Charter Holder of the CFA Institute.
Saverio M. Flemma is the founder and President of SF Advisors LLC, a financial advisory firm. He advises companies and business owners on capital structure and financing-related issues as well as company sales. Prior to SF Advisors, Mr. Flemma was a Senior Banker at Drexel Hamilton, LLC, an investment banking and securities brokerage firm. Mr. Flemma joined Drexel Hamilton in 2016 and was responsible for advising on mergers and acquisitions and capital raising transactions. Previously, Mr. Flemma served as a Managing Director in Investment Banking at Deutsche Bank Securities, Chase Securities and Banc of America Securities. Mr. Flemma earned a B.A. in Economics from Rollins College.
R. David Kelly serves as the lead independent director. Mr. Kelly has investment experience serving both public companies and private companies in the financial advisory, real estate development and operating company sectors. Mr. Kelly has served as the Chief Executive Officer and Chairman of the board of directors of Croesus and Company, a real estate investment and advisory firm, since 2014. Mr. Kelly is the managing partner of StraightLine Realty Partners, LLC, an alternative investment platform with investments in real estate financial services and venture capital, which he founded in 2010. Mr. Kelly serves as Lead Director on the Board of Directors of TCW Direct Lending Funds VII and VIII. He also serves as Lead Director on the Board of Directors of Invesco’s INREIT and is an at large director of Ashton Woods Homes. He also serves as an Independent Direct of Acadia Healthcare. Mr. Kelly serves on the Governing Body of the Children’s Medical Center of Dallas, serving on the Finance Operating and Investment Committees. Mr. Kelly served as Chairman of the Teacher’s Retirement System of Texas from 2007 to 2017. He also served as Chairman of the Texas Public Finance Authority from 2002 to 2006 as a gubernatorial appointee. Mr. Kelly earned a B.A. in Economics from Harvard University and an M.B.A. from Stanford University.
Mr. Tarica is the founder and CEO of Meadowbrook Capital Management (“MCM”), a fixed income credit asset management business he founded in 2001. Prior to founding MCM, he was the global head of the high grade corporate bond department at Donaldson, Lufkin & Jenrette from 1992 to 1999. From 1990 to 1992 he ran the investment grade sales and trading department at Kidder Peabody. He began his career at Drexel Burnham in 1983 in the investment grade trading area, where he eventually became the head of trading. He is a member of the Board of Directors of TCW Funds, Inc., TCW Strategic Income Fund, TCW Direct Lending VII, LLC, TCW Direct Lending VIII, LLC and Chairman of the TCW/MetWest Mutual Funds board. Mr. Tarica is a graduate of Northeastern University.
Interested Directors
Mr. Miller serves as Group Managing Director, Chief Investment Officer and Chairman of the Investment Committee of the Private Credit Group. Mr. Miller joined TCW in 2013 with the acquisition of the Special Situations Funds Group from Regiment Capital Advisors, LP which he led since the group’s inception in 2001. Mr. Miller has over 30 years of experience in the capital markets and previously was ranked on the Institutional Investor “All American High Yield Research Team” for six consecutive years, focusing primarily on the Metals and Mining sector. Prior to his involvement in high yield research, he was at Chase Manhattan Bank in the Mergers & Acquisitions Group. He then moved on to become a Managing Director with the High Yield Group. Subsequently, he became the Head of High Yield Research at BankBoston Securities and in 1999, Mr. Miller joined UBS as a Managing Director and Head of the Global High Yield Research Group. Mr. Miller currently serves as an ex officio Trustee of the University of Rochester Endowment and is a member of the Nativity Preparatory School board and former member the Dexter Southfield School board. Mr. Miller received his BS from Syracuse University and his MBA from the University of Rochester.
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Mr. Landmann is a Generalist Portfolio Manager in the Fixed Income Group. He joined TCW in 2009 during the acquisition of Metropolitan West Asset Management LLC (MetWest). Mr. Landmann currently serves on the boards of the TCW and Metropolitan West Mutual Funds. Mr. Landmann currently co-manages many of TCW and MetWest’s mutual funds, including the MetWest Total Return Bond Fund, the MetWest High Yield Bond Fund and the TCW Core Fixed Income Fund, and leads the fixed income group’s risk management efforts. He is a leader of the MetWest investment team that was recognized as Morningstar’s Fixed Income Manager of the Year for 2005 and has been nominated for the award eight times. Prior to founding MetWest in 1996, Mr. Landmann was a principal and the co-director of fixed income at Hotchkis and Wiley. He also served as a portfolio manager and vice president at PIMCO. Mr. Landmann holds an BA in Economics from Dartmouth College and an MBA from the University of Chicago Booth School of Business.
Executive Officers Who Are Not Directors
David Wang is our Chief Operating Officer. Mr. Wang serves as Managing Director, Chief Operating Officer and a member of the Investment Committee of the TCW Private Credit Group. Prior to joining TCW in 2013, Mr. Wang served as Director in the Capital Markets Group at Houlihan Lokey where he provided financing advisory services to middle market companies and financial sponsors. Prior to joining Houlihan Lokey, he served as Chief Financial Officer of Xinhua Finance, a publicly-traded international provider of financial indices, news, ratings and corporate communications products and services, where he led the company’s global restructuring. Prior to that, Mr. Wang was a Vice President in the leveraged finance investment banking division of Libra Securities and its predecessor firm, U.S. Bancorp Libra. He also previously served as Chief Financial Officer of Kentucky Electric Steel, a highly successful distressed acquisition and turnaround sponsored by Everest Capital and Libra Securities. Mr. Wang serves or has previously served on the boards of the Center for Duchenne Muscular Dystrophy at UCLA and the California Science Center. Mr. Wang is a graduate of The Wharton School at the University of Pennsylvania where he received a BS in Economics.
Andrew Kim is our Chief Financial Officer and Treasurer. Mr. Kim is a Managing Director in the Client and Fund Reporting group focusing on financial reporting and operations for the Direct Lending group. He joined TCW in March 2020. Prior to joining TCW, Mr. Kim was the Chief Financial Officer of a boutique investment fund focused on structured lending and private credit. Prior to that role, he was the Vice President of Finance at Tennenbaum Capital Partners which focused on direct lending, primarily investing in leveraged loans through various complex fund structures. He holds a BS of Finance from the University of Illinois at Urbana-Champaign and an accounting certificate from UCLA. In addition, he is a CFA charterholder.
Gladys Xiques is our Chief Compliance Officer. Ms. Xiques is the Global Chief Compliance officer for TCW, having joined in 2015 as Deputy Chief Compliance Officer. Prior to joining TCW, she was a Director and Compliance Counsel of Kohlberg Kravis Roberts & Co. L.P. where she covered the capital markets business and the distribution of KKR funds and products. She also helped to oversee the cross-border marketing and distribution of those funds and products. Prior to joining KKR, Ms. Xiques was a Vice President in the Legal Department for Barclays Wealth, formerly Lehman Brothers, where she covered the broker dealer and investment advisory businesses in the wealth management division. She was also a senior counsel for MetLife. Ms. Xiques holds a BA in Public Policy from Brown University and a JD from the George Washington University Law School. She is admitted to practice law in Maryland and New York.
Gayle Espinosa is our Secretary. Ms. Espinosa joined TCW in 2016 as Financial Reporting Director, working primarily on corporate and adviser entity financial statements, BDC SEC financial reporting, internal controls, and technical accounting. Prior to TCW, Ms. Espinosa served as Financial Reporting Manager for Tennenbaum Capital Partners during which she led the SOX implementation efforts for TCP Capital Corp., a publicly-traded BDC. Ms. Espinosa also previously worked for the Public Company Accounting Oversight Board in addition to her nearly 10 years tenure at PricewaterhouseCoopers, LLP, where she worked in audit as well as capital markets. Ms. Espinosa received a BA in Economics with a minor in Accounting from the University of California, Los Angeles. She is a licensed CPA in the state of California.
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Joseph Magpayo is our Assistant Secretary. Mr. Magpayo manages the Client Services operations teams with responsibilities including wrap fee SMA and mutual fund operations, sales and marketing analytics, client relationship management (CRM) administration, request for proposals (RFP), and consultant databases. He has supervisory responsibilities as a Registered Principal over the Private Client Services group, and is also responsible for vendor management over several of TCW’s key outsourcing partners. He has extensive operational, organizational, and people management expertise. Mr. Magpayo joined TCW in 1991. He earned a BA in History from St. Mary’s College, an MA in American Studies from Pepperdine University, and an MBA with a Strategic Management emphasis from Azusa Pacific University.
Our board of directors will adopt a corporate code of ethics that applies to our executive officers. See “Item 1(c). Description of Business—Regulation as a Business Development Company—Code of Ethics.”
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ITEM 6. EXECUTIVE COMPENSATION.
| (a) | Compensation of Executive Officers |
We do not currently have any employees and do not expect to have any employees. Services necessary for our business, including such services provided by our executive officers, will be provided by individuals who are employees of the Adviser, pursuant to the terms of our Advisory Agreement, or through the Administration Agreement. Therefore, our day-to-day investment operations will be managed by the Adviser, and most of the services necessary for the origination and administration of our investment portfolio will be provided by investment professionals employed by the Adviser.
None of our executive officers will receive direct compensation from us. We will reimburse the Administrator for expenses incurred by it on our behalf in performing its obligations under the Administration Agreement. Certain of our executive officers, through their ownership interest in or management positions with the Adviser, may be entitled to a portion of any profits earned by the Adviser, which includes any fees payable to the Adviser under the terms of our Advisory Agreement, less expenses incurred by the Adviser in performing its services under our Advisory Agreement. The Adviser may pay additional salaries, bonuses, and individual performance awards and/or individual performance bonuses to our executive officers in addition to their ownership interest.
| (b) | Compensation of Independent Directors |
Each of our Independent Directors will receive an annual retainer fee of $56,250, payable once per year, if the director attends at least 75% of the meetings held during the previous year. In addition, Independent Directors will receive $1,875 for each board meeting that they participate in. Independent directors will also be reimbursed for all reasonable out-of-pocket expenses incurred in connection with participating in each board meeting.
The Independent Directors will also receive $750 for each Audit Committee meeting that they participate in. With respect to each Audit Committee meeting not held concurrently with a board meeting, Independent Directors will be reimbursed for all reasonable out-of-pocket expenses incurred in connection with participating in such Audit Committee meeting. In addition, each of the chairperson of the Audit Committee and the lead independent director will receive an annual retainer of $11,250.
No compensation will be paid to directors who are “interested persons,” as that term is defined in the 1940 Act.
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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
| (a) | Transactions with Related Persons; Review, Approval or Ratification of Transaction with Related Persons |
Investment Management and Advisory Agreement; Administration Agreement
We will enter into the Advisory Agreement with our Adviser pursuant to which we will pay Management Fees and Incentive Fees to the Adviser, and we will enter into the Administration Agreement with the Administrator pursuant to which we will make payments equal to an amount that reimburses the Administrator for the costs and expenses incurred by the Administrator in performing its obligations and providing personnel and facilities under the Administration Agreement.
The Advisory Agreement and the Administration Agreement was approved by our board of directors at the initial board meeting. Unless earlier terminated as described below, each of the Advisory Agreement and the Administration Agreement will remain in effect for a period from their effective date to the second anniversary of such effective date and will remain in effect from year to year thereafter if approved annually by (i) the vote of our board of directors, or by the vote of a majority of our outstanding voting securities, and (ii) the vote of a majority of our Independent Directors. The Advisory Agreement will automatically terminate in the event of an assignment by the Adviser; see “Item 1A. Risk Factors—Dependence on Key Personnel and Other Management,” and the Administration Agreement will automatically terminate in the event of an assignment by the Administrator. Notwithstanding the foregoing, each of the Advisory Agreement and the Administration Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice, provided, that, such termination will be directed or approved by the vote of a majority of our outstanding voting securities, by the vote of our directors, or by the Adviser or Administrator (as applicable). If the Advisory Agreement is terminated according to this paragraph, we will pay the Adviser a pro-rated portion of the Management Fee and Incentive Fee.
Relationship with the Adviser and Potential Conflicts of Interest
We, the Adviser and our respective direct or indirect members, partners, officers, directors, employees, agents and affiliates may be subject to certain potential conflicts of interest in connection with our activities and investments. For example, the terms of the Adviser’s management and incentive fees may create an incentive for the Adviser to approve and cause us to make more speculative investments than we would otherwise make in the absence of such fee structure.
The Private Credit Group is separated from those partners and employees of the Adviser and its affiliates involved in the management of the investments of other funds and other accounts (the “Other Employees”) by an ethical wall, and accordingly, the Other Employees may be unable to make certain material information available to the Private Credit Group. In addition, the Adviser’s other funds and separate accounts may take positions in securities and/or issuers that are in a different part of the capital structure of an issuer or adverse to ours.
The members of the senior management and investment teams and the Investment Committee of the Adviser serve or may serve as officers, directors, principals or investment committee members of entities that operate in the same or a related line of business as we do, or of investment funds managed by the Adviser or its affiliates. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in our best interests or in the best interest of the Unitholders. For example, Mr. Miller and the other members of the Investment Committee have management responsibilities for other investment funds, accounts or other investment vehicles managed by the Adviser or its affiliates.
Our investment objective may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. For example, the Adviser concurrently manages accounts that are pursuing an investment strategy similar to our strategy, and we may compete with these and other entities managed by affiliates of the Adviser for capital and investment opportunities. As a result, those individuals at the Adviser may face conflicts in the allocation of investment opportunities between us and other investment funds or accounts advised by principals of, or affiliated with, the Adviser.
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The Adviser has obtained exemptive relief from the SEC that, subject to certain conditions and limitations, permits us and other funds advised by the Adviser or certain affiliates of the Adviser (referred to herein as “potential co-investment funds”) to engage in certain co-investment transactions. Under the exemptive relief, in the case where the interest in a particular investment opportunity exceeds the size of the opportunity, then the investment opportunity will be allocated among us and such potential co-investment funds based on capital available for investment, which generally will be determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, targeted asset mix and other investment policies and restrictions set from time to time by the board or other governing body of the relevant fund or imposed by applicable laws, rules, regulations or interpretations. In situations where we cannot co-invest with other investment funds managed by the Adviser or an affiliate of the Adviser due to the restrictions contained in the 1940 Act that are not addressed by the exemptive relief or SEC guidance, the investment policies and procedures of the Adviser generally require that such opportunities be offered to us and such other investment funds on an alternating basis. There can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
Certain Business Relationships
Certain of our current directors and officers are directors or officers of the Adviser.
Indebtedness of Management
None.
| (b) | Promoters and Certain Control Persons |
The Adviser may be deemed a promoter of the Company. We will enter into the Advisory Agreement with the Adviser. The Adviser, for its services to us, will be entitled to receive Management Fees and Incentive Fees. In addition, under the Advisory Agreement, we expect, to the extent permitted by applicable law and in the discretion of our board of directors, to indemnify the Adviser and certain of its affiliates. See “Item 1(c). Description of Business—Investment Management and Advisory Agreement.”
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We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
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ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND
RELATED UNITHOLDER MATTERS. MARKET INFORMATION
Our outstanding Units will be offered and sold in transactions exempt from registration under the Securities Act under section 4(a) (2) and Regulation D. See “Item 10. Recent Sales of Unregistered Securities” for more information. There is currently no public market for the Units, and we do not expect one to develop.
Because the Units are being acquired by investors in one or more transactions “not involving a public offering,” they are “restricted securities” and may be required to be held indefinitely. Our Units may not be sold, transferred, assigned, pledged or otherwise disposed of unless (i) our consent is granted, and (ii) the Units are registered under applicable securities laws or specifically exempted from registration (in which case the Unitholder may, at our option, be required to provide us with a legal opinion, in form and substance satisfactory to us, that registration is not required). Accordingly, an investor must be willing to bear the economic risk of investment in the Units until we are liquidated. No sale, transfer, assignment, pledge or other disposition, whether voluntary or involuntary, of Units may be made except by registration of the transfer on our books. Each transferee will be required to execute an instrument agreeing to be bound by these restrictions and the other restrictions imposed on the Units and to execute such other instruments or certifications as are reasonably required by us.
Unitholders
Please see “Item 4. Security Ownership of Certain Beneficial Owners and Management” for disclosure regarding the Unitholders.
Valuation of Portfolio Securities
We will determine the net asset value per Unit quarterly. The net asset value per Unit is equal to the value of our total assets minus liabilities and any Preferred Units outstanding divided by the total number of Units outstanding. At present, we do not have any Preferred Units outstanding.
Oversight for determining fair value is the responsibility of our board of directors of the Company. We and the Adviser value the investments at fair value on a quarterly basis and whenever required by our operating agreement and the 1940 Act. Assets that are not publicly traded or whose market prices are not readily available are valued at fair value as determined in good faith by the valuation committee of our Adviser and reviewed by the Audit Committee of our board of directors. We have engaged an external, independent valuation firm to assist the board in determining the fair market value of our investments for which market quotations are not readily available. Substantially all of our investments are expected to be in loans that do not have readily ascertainable market prices. In connection with that determination, investment professionals from the Adviser will prepare portfolio company valuations using sources and/or proprietary models depending on the availability of information on our assets and the type of asset being valued, all in accordance with our valuation policy. The participation of the Adviser in our valuation process could result in a conflict of interest, since the Management Fee is based in part on our gross assets including the amortized cost of portfolio investments purchased with borrowed funds and other forms of leverage.
Because fair valuations, and particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, our determinations of fair value may differ materially from the values that would have been determined if a ready market for these securities existed. This could make it more difficult for investors to value accurately our portfolio investments and could lead to undervaluation or overvaluation of our Units. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.
FASB Accounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
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ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.
The three-level hierarchy for fair value measurement is defined as follows:
| • | Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets. |
| • | Level 2—inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs. |
| • | Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs. |
We anticipate that the majority of our investments will fall within Level 3 of the fair value hierarchy.
Rule 2a-5 under the Investment Company Act was adopted by the SEC and establishes requirements for determining fair value in good faith for purposes of the 1940 Act. We intend to comply with the new rule’s requirements on or before the compliance date in September 2022.
Distributions
Subject to the requirements of Section 852(a) of the Code and the terms of any indebtedness or Preferred Units, distributions of proceeds will be made to the Unitholders pro rata based on the number of Units held by each Unitholder.
Retention of Proceeds
Subject to the requirements of Section 852(a) of Subchapter M of the Code and the terms of any indebtedness or Preferred Units, during the Commitment Period, we may retain, in whole or in part, any proceeds attributable to portfolio investments. Any retained proceeds that represent net investment income will be treated as a deemed distribution by us to the Unitholders and a deemed re-contribution by the Unitholders to us, and the aggregate Undrawn Commitments of all Unitholders will be reduced accordingly. We may use the amounts so retained to make investments, pay our fees and expenses, repay our borrowings, or fund reasonable reserves for our future expenses or other obligations (including obligations to make indemnification advances and payments); provided, however, that, after the expiration of the Commitment Period, no part of such retained amounts will be used to make any investment for which we would not be permitted to draw down Commitments. We will treat any retained proceeds that represent net investment income as a deemed distribution to Unitholders and a deemed re-contribution by the Unitholders, and the aggregate Undrawn Commitments of all Unitholders will be reduced accordingly. For the avoidance of doubt, even if the Undrawn Commitment of the Units becomes zero, we may continue to retain proceeds that represent net investment income as described above for the purpose of paying our operating costs (including expenses, the Management Fee, the Incentive Fee, payments to the Administrator and any indemnification obligations) and debt service of any borrowings we have made.
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Recallable Amounts
Subject to the limitations set forth in “Item 11. Description of Registrant’s Securities to be Registered—Delaware Law and Certain Limited Liability Company Agreement Provisions—Capital Call Mechanics,” a Unitholder may be required to re-contribute amounts previously distributed to it with respect to its Units. The amount that a Unitholder may be required to re-contribute to the Company is referred to as that Unitholder’s “Recallable Amount.” A Unitholder’s “Recallable Amount” is equal to (a) such Unitholder’s share of all portfolio investments that are repaid to the Company, or otherwise recouped by the Company, and distributed to the Unitholder, in whole or in part, during or after the Commitment Period, reduced by (b) all re-contributions made by such Unitholder.
Reports to Unitholders
We plan to furnish or make available to our Unitholders an annual report for each fiscal year ending December 31 containing financial statements audited by our independent registered public accounting firm. Additionally, we intend to comply with the periodic reporting requirements of the 1934 Act.
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ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
We have not yet issued any unregistered securities. We sold 10 Units at an aggregate purchase price of $1,000 to the Adviser. It is expected that all Units will be issued and sold in reliance upon the available exemptions from registration requirements of Section 4(a)(2) of the Securities Act.
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ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.
Description of our Units
Limited Liability Company Units
Under the terms of the LLC Agreement, we retain the right to issue our Units at Initial Closing and Subsequent Closings, and payment for such Units may be made over time as the board of directors determines. In addition, Unitholders are entitled to one vote for each Unit held on all matters submitted to a vote of Unitholders and do not have cumulative voting rights. Accordingly, subject to the rights of any outstanding Preferred Units, holders of a majority of the Units entitled to vote in any election of directors may elect all of the directors standing for election. Any Units held by the Adviser shall be voted by or on behalf of the Adviser in the same proportion as the Units not held by the Adviser are voted. Unitholders are entitled to receive proportionately any dividends declared by the board of directors, subject to any preferential dividend rights of outstanding Preferred Units. Upon our liquidation, dissolution or winding up, the Unitholders will be entitled to receive ratably our net assets available after the payment of all debts and other liabilities and will be subject to the prior rights of any outstanding Preferred Units. Unitholders have no redemption or preemptive rights. The rights, preferences and privileges of Unitholders are subject to the rights of the holders of any series of Preferred Units that we may designate and issue in the future.
Preferred Units
Under the terms of the LLC Agreement, our board of directors is authorized to issue Preferred Units in one or more series without Unitholder approval. Prior to the issuance of Preferred Units of each series, our board of directors is required by the LLC Agreement to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption for each series.
The 1940 Act as currently in force limits our flexibility as certain rights and preferences of the Preferred Units require, among other things: (i) immediately after issuance and before any distribution is made with respect to Units, we must meet a coverage ratio of total assets to total senior securities, which include all of our borrowings and Preferred Units, of at least 200%; and (ii) the holders of Preferred Units, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if and for so long as dividends on the Preferred Units are unpaid in an amount equal to two full years of dividends on the Preferred Units.
Transfer and Resale Restrictions
Unitholders may not sell, assign, transfer or otherwise dispose of (a “Transfer”) any Units unless (i) we and, if required by our lending arrangements, our lenders give consent, such consent by us not to be unreasonably withheld, and (ii) the Transfer is made in accordance with applicable securities laws. No Transfer will be effectuated except by registration of the Transfer on our books. Each transferee must agree to be bound by these restrictions and all other obligations as a Unitholder. There is currently no market for the Units, and there can be no assurance that a market for the Units will develop in the future.
Delaware Law and Certain Limited Liability Company Agreement Provisions
Organization and Duration
We were formed on March 7, 2022, and will remain in existence until dissolved in accordance with our LLC Agreement or pursuant to Delaware law.
Purpose
Under the LLC Agreement, we are permitted to engage in any business activity that lawfully may be conducted by a limited liability company organized under Delaware law and, in connection therewith, to exercise all of the rights and powers conferred upon us pursuant to the agreements relating to such business activity.
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Agreement to be Bound by the LLC Agreement; Power of Attorney
By subscribing for the Units, investors will be admitted as a member of the Company and will be deemed to have agreed to be bound by the terms of the LLC Agreement. Pursuant to the LLC Agreement, each Unitholder and each person who acquires Units from a Unitholder grants to certain of our officers (and, if appointed, a liquidator) a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants our board of directors the authority to make certain amendments to, and to make consents and waivers under and in accordance with, the LLC Agreement.
Capital Call Mechanics
From time to time in its discretion, the Adviser may draw down all or any portion of the Undrawn Commitment with respect to each Unit upon at least ten business days’ prior written notice to the Unitholders (except that only five business days’ prior written notice will be required with respect to the initial drawdown). The Undrawn Commitment per Unit will equal $100 reduced by the Original Issuance Price and any amounts that have already been contributed (or deemed contributed) with respect to such Unit; provided, that (a) the Undrawn Commitment of a Unit will not be reduced for any NAV Balancing Contributions or Late-Closer Contributions made by a Unitholder, (b) the Undrawn Commitment will be increased for certain distributions attributable to True-Up Contributions (as defined herein), and (c) the Undrawn Commitment will be increased for any Recallable Amount.
Each capital call will be issued in the amount per Unit specified by us, and such amount will be applicable to all Units outstanding as of the date such capital call is due to be contributed to us; provided that in connection with the issuance of any new Units, the amount to be contributed as payment for such newly issued Units will be determined in accordance with “Item 1(c). Description of Business—The Private Offering—Initial Closings and Subsequent Closings.”
During the Commitment Period, the Adviser may issue capital calls for any permitted purpose. After the expiration of the Commitment Period, Unitholders will be released from any further obligation with respect to their Undrawn Commitments, except to the extent necessary to: (i) cover expenses, liabilities (including the repayment of any of our indebtedness) and our obligations or reserves therefor, including, without limitation, indemnification obligations, Management Fees and Incentive Fees, (ii) complete investments by us in transactions that were significantly in process as of the end of the Commitment Period and as to which we and the prospective portfolio company have commenced, in good faith, negotiating the terms of the investment and which the Adviser reasonably expects to be consummated prior to the date that is 90 days after the date of the expiration of the Commitment Period, and (iii) effect follow-on investments in existing portfolio companies up to an aggregate maximum of 10% of aggregate cumulative invested amounts.
In addition to making contributions of its Undrawn Commitments, a Unitholder may be required to re-contribute amounts previously distributed to it with respect to its Units, as described under “Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Unitholder Matters—Recallable Amounts.” For the avoidance of doubt, if the amount of any deemed contribution or deemed distribution is disregarded, the sum of total contributions and re-contributions, minus any distributions, will not exceed a Unitholder’s Commitment.
Action by Unitholders
Under the LLC Agreement, Unitholder action can be taken only at an annual or special meeting of Unitholders or by written consent in lieu of a meeting by Unitholders representing at least the number of Units required to approve the matter in question. The LLC Agreement provides that with respect to an annual or special meeting of Unitholders, nominations of persons for election to the board of directors and the proposal of business to be considered by Unitholders may be made only pursuant to our notice of the meeting, as determined by our board of directors.
Amendment of the Limited Liability Company Agreement; No Approval by Unitholders
Except as otherwise provided in the LLC Agreement, the terms and provisions of the LLC Agreement may be amended (which term includes any waiver, modification, or deletion of the LLC Agreement) during or after the term of the Company, with the prior written consent of (i) in the case of an amendment not affecting the rights of the Preferred Unitholders, a majority in interest of the Unitholders, (ii) in the case of an amendment not affecting the
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rights of a Unitholder (including rights or protections with respect to tax consequences of Unitholders), a majority in interest of the Preferred Unitholders, and (iii) in case of an amendment affecting the rights (including rights or protections with respect to tax consequences of Unitholders) of both the Unitholders and the Preferred Unitholders, a majority in interest of the Unitholders and a majority in interest of the Preferred Unitholders. Notwithstanding the immediately preceding sentence, certain limited amendments, as set forth in the LLC Agreement, may be made with the consent of the board of directors and without the need to seek the consent of any Unitholder.
Default Provisions
Pursuant to the LLC Agreement, if a Unitholder fails to make a capital contribution when due, interest will accrue at the Default Rate on the outstanding unpaid balance of such capital contribution. The “Default Rate” with respect to any period will be the lesser of (a) a variable rate equal to the prime rate of interest (as reported in The Wall Street Journal) during such period plus 6% or (b) the highest interest rate for such period permitted by applicable law. The Adviser may waive the requirement to pay interest, in whole or in part.
In addition, if any Unitholder fails to make a capital contribution when due, and has also failed to make such payment on or before the date that is seven business days after the Adviser has given written notice to such Unitholder of such Unitholder’s failure to make such contribution, then the Adviser may, in its discretion, and subject to applicable law, take any actions available under the LLC Agreement or at law or at equity, which may include causing such defaulting Unitholder to forfeit a significant portion of its Units or to transfer its Units to a third party for a price that is less than the net asset value of such Units.
Merger, Sale or Other Disposition of Assets
The board of directors may, without the approval of holders of our outstanding Units, cause us to, among other things, sell, exchange or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, or approve on our behalf the sale, exchange or other disposition of all or substantially all of our assets. The board of directors may also cause the sale of all or substantially all of our assets under a foreclosure or other realization without Unitholder approval. Unitholders are not entitled to dissenters’ rights of appraisal under the LLC Agreement or applicable Delaware law in the event of a merger or consolidation, a sale of all or substantially all of our assets or any other similar transaction or event.
Term of the Company
Under the terms of the LLC Agreement, our term will expire on the eighth anniversary of the date of the LLC Agreement, unless (a) such term is extended as provided in the LLC Agreement, (b) the Commitment Period is extended as provided for in the LLC Agreement (in which case the term of the LLC Agreement shall be extended by an equal amount) or (c) the Company is sooner dissolved as provided in LLC Agreement or by operation of law. Thereafter, our term may be extended by the Adviser for successive one-year periods, in each case with the prior written notice to the unitholders, at least 90 days prior to the expiration of the term.
The Company shall be dissolved (i) upon the expiration of its term (as such term may be extended pursuant to the preceding paragraph), (ii) upon the determination by our board of directors in its sole discretion to dissolve the Company because it has determined that there is a substantial likelihood that due to a change in the text, application or interpretation of the provisions of the U.S. federal securities laws (including the Securities Act, the 1940 Act and the Advisers Act) or the provisions of the United States Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (including the applicable regulations of the U.S. Department of Labor included within 29 C.F.R. section 2510.3-101, as modified by Section 3(42) of ERISA and otherwise from time to time), the Code, or any other applicable statute, regulation, case law, administrative ruling or other similar authority (including changes that result in the Company being taxable as a corporation or association under U.S. federal income tax law), the Company cannot operate effectively in the manner contemplated herein, (iii) if there are no Unitholders, unless the business of the Company is continued in accordance with the LLC Agreement or applicable law, or (iv) upon the entry of a decree of judicial dissolution under applicable law.
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Books and Reports
We are required to keep appropriate books of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis in accordance with U.S. generally accepted accounting principles (“GAAP”). For tax and financial reporting purposes, our fiscal year is a calendar year ending December 31, unless otherwise required by the Code or permitted by law.
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ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses
Under the LLC Agreement, we will fully indemnify any person who was or is involved in any actual or threatened action, suit or proceeding by reason of the fact that such person is or was one of our directors or officers. So long as we are regulated under the 1940 Act, the above indemnification and limitation of liability is limited by the 1940 Act or by any valid rule, regulation or order of the SEC thereunder. The 1940 Act provides, among other things, that a company may not indemnify any director or officer against liability to it or its security holders to which he or she might otherwise be subject by reason of his or her willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office unless a determination is made by final decision of a court, by vote of a majority of a quorum of directors who are disinterested, non-party directors or by independent legal counsel that the liability for which indemnification is sought did not arise out of the foregoing conduct. In addition, we have obtained liability insurance for our officers and directors.
Under the Advisory Agreement, we may, to the extent permitted by applicable law, in the discretion of our board of directors, indemnify the Adviser and certain of its affiliates, as described under “Item 1(c). Description of Business—General—Investment Management and Advisory Agreement.”
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
We set forth below a list of our audited financial statements included in this Registration Statement.
| Page | ||||
| TCW Star Direct Lending LLC, Index to Financial Statement |
F-1 | |||
| Report of Independent Registered Public Accounting Firm |
F-2 | |||
| Statement of Assets and Liabilities July 21, 2022 (Inception) |
F-3 | |||
| Notes to Financial Statements |
F-4 | |||
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ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are not and have not been any disagreements between us and our accountant on any matter of accounting principles, practices, or financial statement disclosure.
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ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
| (a) | List separately all financial statements filed |
The financial statements included in this Registration Statement are listed in Item 13 and commence on page F-3.
| (b) | Exhibits |
Exhibit Index
| (1) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| TCW STAR DIRECT LENDING LLC | ||
| By: | /s/ Andrew Kim | |
| Name: Andrew Kim | ||
| Title: Chief Financial Officer and Treasurer | ||
Date: August 16, 2022
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TCW Star Direct Lending LLC – Index to Financial Statement
| Report of Independent Registered Public Accounting Firm |
F-2 | |||
| Statement of Assets and Liabilities as of July 21, 2022 (Inception) |
F-3 | |||
| Notes to Financial Statements |
F-4 |
F-1
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unitholder and Board of Directors
of TCW Star Direct Lending LLC:
Opinion on the Financial Statement
We have audited the accompanying statement of assets and liabilities of TCW Star Direct Lending LLC (the “Company”), as of July 21, 2022 (Inception), and the related notes. In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of July 21, 2022 (Inception), in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
Los Angeles, California
August 16, 2022
We have served as the Company’s auditor since 2022
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TCW Star Direct Lending LLC
Statement of Assets and Liabilities
July 21, 2022 (Inception)
| As of July 21, 2022 (Inception) |
||||
| Assets |
||||
| Cash |
$ | 1,000 | ||
|
|
|
|||
| Total Assets |
$ | 1,000 | ||
|
|
|
|||
| Member’s Capital |
||||
| Units (10 units issued and outstanding) |
$ | 1,000 | ||
|
|
|
|||
| Total Member’s Capital |
$ | 1,000 | ||
|
|
|
|||
| Net Asset Value Per Unit |
$ | 100.00 | ||
|
|
|
|||
The accompanying notes are an integral part of this financial statement
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TCW Star Direct Lending LLC
Statement of Assets and Liabilities
July 21, 2022 (Inception)
1. Organization and Basis of Presentation
Organization: TCW Star Direct Lending LLC (the “Company”), was formed as a Delaware limited liability company on March 7, 2022. The Company expects to conduct a private offering of its common limited liability company units (the “Units”) to investors in reliance on exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”). In addition, the Company may issue preferred units, though it currently has no intention to do so. On July 21, 2022 (“Inception Date”), the Company sold and issued 10 Units at an aggregate purchase price of $1,000 to TCW Asset Management Company LLC (“TAMCO”), an affiliate of the TCW Group, Inc. As of July 21, 2022, no operations have occurred other than the sale of the Units to TAMCO.
The Company intends to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company also intends to elect to be treated for U.S. federal income tax purposes as a Regulated Investment Company (a “RIC”) under Subchapter M of the U.S Internal Revenue Code of 1986, as amended (the “Code”). As a BDC and a RIC, the Company will be required to meet the minimum distribution and other requirements for RIC qualification and as a BDC and a RIC, the Company will be required to comply with certain regulatory requirements.
2. Significant Accounting Policies
Basis of Presentation: The Company’s statement of assets and liabilities was prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies (“ASC Topic 946”).
Use of Estimates: The preparation of the Company’s statement of assets and liabilities in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the statement of assets and liabilities. Actual results could differ from those estimates, and such differences could be material.
Organization and Offering Costs: Costs incurred to organize the Company are expensed as incurred. Offering costs will be accumulated and charged directly to Member’s Capital at the end of the period during which the Units will be offered (the “Closing Period”). The Company will not bear more than an amount equal to 10 basis points of the aggregate capital commitments to the Company through the Units (the “Commitments”) of the Company for organization and offering expenses in connection with the offering of the Units through the Closing Period. If the initial offering is not successful, the Company’s adviser or its affiliates will incur such costs. As there has been no formal commitment of external capital as of the date of issuance of this financial statement, no such costs have been recorded by the Company.
Cash: Cash is comprised of cash in a bank account.
3. Member’s Capital
As of July 21, 2022, the Company sold and issued 10 Common Units at an aggregate purchase price of $1,000 to TAMCO.
4. Subsequent Events
The Company has evaluated subsequent events through the date of issuance of the financial statement. There have been no subsequent events that require recognition or disclosure in this financial statement.
F-4
State of Delaware
Limited Liability Company
CERTIFICATE OF FORMATION
of
N MIDDLE MARKET LENDING, LLC
The undersigned, an authorized natural person, for the purpose of forming a limited liability company under the provisions and subject to the requirements of the State of Delaware (particularly Chapter 18, Title 6 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified and referred to as the “Delaware Limited Liability Company Act”), hereby certifies that:
1. The name of the limited liability company (hereinafter called the “Company”) is N Middle Market Lending, LLC.
2. The address of the Company’s registered office in the State of Delaware is c/o Corporation Service Company, 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808. The name of the registered agent of the Company at such address is Corporation Service Company.
Executed on March 7, 2022
| /s/ Zach Edelman |
| Name: Zach Edelman |
| Title: Authorized Person |
Execution Version
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF FORMATION
OF
N MIDDLE MARKET LENDING, LLC
This Certificate of Amendment to Certificate of Formation of N Middle Market Lending, LLC, a Delaware limited liability company (the “LLC”), dated as of May 17, 2022, has been duly executed and is being filed by the undersigned, as an authorized person, in accordance with the provisions of 6 Del. C. §18-202, to amend the Certificate of Formation of the LLC, as filed in the office of the Secretary of State of the State of Delaware (the “Secretary of State”) on March 7, 2022 (the “Certificate”).
1. The name of the LLC is N Middle Market Lending, LLC.
2. Paragraph 1 of the Certificate is hereby amended to read as follows:
“1. The name of the limited liability company (hereinafter called the “Company”) is TCW Star Direct Lending LLC.”
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment to Certificate of Formation as of the date first-above written.
| /s/ Zach Edelman |
| Zach Edelman |
| Authorized Person |
Execution Version
TCW STAR DIRECT LENDING LLC
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement (this “Agreement”) of TCW Star Direct Lending LLC (formerly known as N Middle Market Lending, LLC), a Delaware limited liability company (the “Company”), is entered into this 17th day of May, 2022, and made effective among the Members as of March 7, 2022, by TCW Asset Management Company LLC, a Delaware limited liability company, as initial sole member (the “Sole Member”). The Sole Member and any other members admitted from time to time in accordance with the terms hereof are collectively referred to herein as “Members” and each is individually referred to herein as a “Member”.
WITNESSETH:
WHEREAS, the Company was formed under the name of “N Middle Market Lending, LLC” as a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.) (as amended from time to time, the “Act”), pursuant to a Certificate of Formation of the Company, which was filed with the Secretary of State of the State of Delaware on March 7, 2022, as amended through the date hereof, and the adoption of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Sole Member hereby agrees as follows:
| 1. | Formation and Name. |
The name of the Company is TCW Star Direct Lending LLC. The business of the Company may be conducted under any other name deemed necessary or desirable by the Board (or, if the Board is not yet appointed, the Sole Member) in order to comply with local law. Zach Edelman is hereby designated as an “authorized person” of the Company within the meaning of the Act, and has executed, delivered and filed the Certificate of Formation of the Company under the name “N Middle Market Lending, LLC” with the Secretary of State of the State of Delaware, which execution, delivery and filing are hereby ratified and approved. The name of the Company is hereby changed pursuant to the execution, delivery and filing by Zach Edelman, as an authorized person of the Company within the meaning of the Act, of a Certificate of Amendment of Certificate of Formation of the Company, which execution, delivery and filing are hereby authorized, ratified and approved. Upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, his powers as an “authorized person” of the Company ceased, and each Officer (as defined below) thereupon became a designated “authorized person” of the Company and shall continue as the designated “authorized person” of the Company within the meaning of the Act.
| 2. | Business. |
The business purpose of the Company shall be to engage in any and all lawful acts and activities for which limited liability companies may be organized under the Act and to engage in any and all activities necessary or incidental to the foregoing.
| 3. | Registered Office; Registered Agent. |
The name and address of the registered agent and registered office of the Company for service of process on the Company in the State of Delaware is Corporation Service Company, 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808.
| 4. | Principal Place of Business. |
The principal office of the Company shall be located at c/o The TCW Group, Inc., 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116, or such other place as the Sole Member or the Board (or, if the Board is not yet appointed, the Sole Member) may designate from time to time.
| 5. | Duration. |
The term of the Company began on the date the Certificate of Formation was filed with the Secretary of State of the State of Delaware and the Company shall continue in existence perpetually unless the Company is dissolved and its affairs wound up in accordance with the Act or as determined by the Board (or, if the Board is not yet appointed, the Sole Member).
| 6. | Fiscal Year. |
The fiscal year of the Company shall begin on January 1 of each year and end on December 31 of that year; provided that the Company’s first fiscal year shall begin on the date of formation of the Company and the Company’s last fiscal year shall end on the date of termination of the Company.
| 7. | Members. |
Unless other Members are admitted to the Company in the Board’s (or, if the Board is not yet appointed, the Sole Member’s) sole discretion, the Sole Member shall be the only member of the Company.
| 8. | Management. |
| (a) | Sole Member. The Company shall be managed by the Sole Member until such time as the Board is appointed by the Sole Member in accordance with 8(b). |
| (b) | Board of Directors. |
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| i. | When a board of managers (the “Board”) is appointed by the Sole Member, the Company shall be managed by the Board. Upon the appointment by the Sole Member of the initial Board, the Sole Member shall update Schedule A hereto to reflect the managers who have been appointed to the Board (each, a “Director”). A majority of the Directors may at any time increase or decrease the number of Directors; provided that the number of Directors may never be less than one or more than 12 unless this Agreement is amended, in which case the Company may have more than 12 Directors but never less than one. |
| ii. | A quorum of the Board shall consist of a majority of the number of Directors fixed from time to time in accordance with 8(b). At each meeting of the Board at which a quorum is present, all questions and business shall be determined by a vote of a majority of the Directors present, unless a different vote is required by law, or this Agreement. Directors may participate in a meeting by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. |
| iii. | At any time there are three or more Directors serving on the Board, the Directors will be divided into three classes, each serving staggered three-year terms. At each annual meeting of the Members, the successors to the class of Directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of the Members held in the third year following the year of their election. Each Director may be appointed to the Board with the affirmative vote of a plurality of the Members entitled to vote in the election of such Director at which a quorum is present; provided that the Board may amend this Agreement to alter the vote required to elect Directors. Each Director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualified. |
| iv. | The names of each Director, such Director’s class, and the term of expiration of such Director shall be listed on Schedule A, which shall be updated by an Officer as necessary. |
| v. | A Director may resign as such from the Board at any time. If a Director is determined to have committed an act that constitutes cause, such Director may be removed from his position by a vote of 75% in interest of the Members. In addition, any Director may be removed from his position by a vote at a duly called meeting of the Board of least 80% of the Directors then seated. |
| vi. | Any and all vacancies on the Board as a result of resignation or removal may be filled only by the affirmative vote of a majority of the remaining Directors in office, even if the remaining Directors do not constitute a quorum, and any Director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is duly elected and qualifies, subject to any applicable requirements of the Investment Company Act of 1940, as amended (the “1940 Act”). |
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| vii. | A majority of the Directors have the authority to form committees of the Board from time to time to the extent that it determines that it is appropriate to do so. |
| (c) | Powers of Board. Except as otherwise explicitly provided herein, the Board (or, if the Board is not yet appointed, the Sole Member) shall have the power on behalf and in the name of the Company to implement the objectives of the Company and to exercise any rights and powers the Company may possess, including, without limitation, the power to cause the Company to (a) make any elections available to the Company under applicable tax or other laws, (b) make any investments permitted under this Agreement or any amendment to this Agreement, (c) satisfy any Company obligations, (d) make any disposition of Company assets, or (e) take such other actions to further the business purposes of the Company. Notwithstanding any other provision of this Agreement, without the consent of any Member or other person being required, the Company is hereby authorized to execute, deliver and perform, and the Board (or, if the Board is not yet appointed, the Sole Member) on behalf of the Company is hereby empowered to authorize an Officer of the Company or other representative to execute and deliver, (w) a subscription agreement with each Member, (x) an advisory agreement, (y) a licensing agreement with an investment adviser, and (z) any amendment of any such document (to the extent such amendment is approved in accordance with the terms of the relevant agreement and is consistent with the terms of this Agreement) and any other agreement, document or other instrument contemplated thereby or related thereto (to the extent that such other agreement, document or other instrument is consistent with the terms of the relevant agreement or this Agreement). Such authorization shall not be deemed a restriction on the power of the Board (or, if the Board is not yet appointed, the Sole Member) to cause the Company to enter into other documents. |
| (d) | Delegation of Authority and Duties. |
| i. | The management, policies and control of the Company shall be vested exclusively in the Board (or, if the Board is not yet appointed, the Sole Member); provided, however, that the Board (or, if the Board is not yet appointed, the Sole Member) may delegate its rights and powers to third parties, including to an investment adviser, as it may determine. Unless otherwise specified in this Agreement, consent or approval by the Company shall be determined by the Board (or, if the Board is not yet appointed, the Sole Member). |
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| ii. | The Board (or, if the Board is not yet appointed, the Sole Member) may appoint and elect (as well as remove or replace with or without cause), as it deems necessary, a President, Vice Presidents, a Treasurer, a Chief Financial Officer, a Secretary, a Chief Compliance Officer and any other officer of the Company (collectively, the “Officers”). The compensation, if any, of the Officers shall be determined by the Board (or, if the Board is not yet appointed, the Sole Member). The names of each Officer and such Officer’s position shall be listed on Schedule B, which shall be updated by an Officer, as necessary. |
| iii. | The Officers shall perform such duties and may exercise such powers as may be assigned to them by the Board (or, if the Board is not yet appointed, the Sole Member). |
| iv. | Unless the Board (or, if the Board is not yet appointed, the Sole Member) decides otherwise, if the title of any person authorized to act on behalf of the Company under this 8(d) is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such title shall constitute the delegation to such person of the authority and duties that are normally associated with that office, subject to any specific delegation of, or restriction on, authority and duties made pursuant to this 8(d). Any number of titles may be held by the same person. Any delegation pursuant to this 8(d) may be revoked at any time by the Board (or, if the Board is not yet appointed, the Sole Member). |
| v. | The Board (or, if the Board is not yet appointed, the Sole Member) may authorize any person, including any Officer, to sign on behalf of the Company. Zach Edelman is hereby authorized to sign any document or instrument approved by the Board (or, if the Board is not yet appointed, the Sole Member) on behalf of the Company. Unless authorized to do so by the Board (or, if the Board is not yet appointed, the Sole Member), no Officer shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it liable for any purpose. |
| 9. | Capital Contributions. |
Capital contributions shall be made in cash or in other assets as from time to time may be determined by the Board (or, if the Board is not yet appointed, the Sole Member). The Sole Member intends to make an initial capital contribution of $1,000 to the Company, but shall not be required to make any additional capital contribution to the Company.
| 10. | Limited Liability of Members, Directors and Agents. |
| a) | Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and neither any Member nor any Director nor any Officer nor any “authorized person” (within the meaning of the Act) of the Company shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member, Director, Officer or “authorized person” of the Company. |
5
| b) | To the maximum extent permitted by law, no Covered Person (as defined below) shall be liable to the Company or any Member or any other person or entity bound by this Agreement for (a) any mistake in judgment, (b) any act performed or omission made by such Covered Person, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company (x) if such Covered Person did not act in bad faith, and (y) if such conduct did not constitute willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person’s respective position. For purposes of this section 10, “Covered Person” shall mean the Sole Member, the Directors, the Officers, the investment adviser, the Company’s administrator and each of their members, managers, officers, employees, agents, controlling persons and any other affiliate and any person or entity who otherwise serves at the request of the Board (or, if the Board is not yet appointed, the Sole Member) on behalf of the Company, each to the extent such person was serving in such capacity at the time the loss or cause of action arose. The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities of a Covered Person to the Company or any Member otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person. |
| c) | To the maximum extent permitted by law (including, without limitation, ERISA), no Covered Person shall, in the absence of its own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s respective position, be liable to the Company or any Member for the negligence, whether by action or omission, dishonesty or bad faith of any broker or other agent of the Company. |
| d) | To the maximum extent permitted by law (including, without limitation, ERISA), no Person serving as liquidator shall be liable to the Company or any Member or any other person or entity bound by this Agreement for any loss suffered by the Company or any Member which arises out of any action or omission of such Person, provided that such Person did not act in bad faith. |
| e) | To the maximum extent permitted by law (including, without limitation, ERISA), no Covered Person and no Person serving as liquidator shall be liable to the Company or any Member or any other person or entity bound by this Agreement with respect to any action or omission taken or suffered by any of them in good faith if such action or omission is taken or suffered in reliance upon and in accordance with the opinion or advice of legal counsel (as to matters of law), or of accountants (as to matters of accounting), or of investment bankers, accounting firms, or other appraisers (as to matters of valuation), provided that any such professional or firm is selected with reasonable care. |
6
| f) | To the maximum extent permitted by law, the Covered Persons, each liquidator, and each partner, member, stockholder, director, officer, manager, trustee, employee, agent and Affiliate of any of the foregoing (each, an “Indemnitee”) shall be indemnified, subject to the other provisions of this Agreement, by the Company (only out of Company assets, including the proceeds of liability insurance and the right to require contributions or other payments by the Members under this Agreement) against any claim, demand, controversy, dispute, cost, loss, damage, expense (including attorneys’ fees), judgment and/or liability incurred by or imposed upon the Indemnitee in connection with any action, claim, suit, investigation or proceeding (including any proceeding before any court, arbitrator, administrative or legislative body or other agency) or any settlement thereof (subject to this section 10, to which the Indemnitee may be made a party or otherwise involved or with which the Indemnitee shall be threatened, arising out of (a) any mistake in judgment, (b) any action or omission done on behalf of the Company or in furtherance of the interests of the Company or the Members or otherwise arising out of or in connection with the Company, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company, except for such losses (x) arising from such Indemnitee’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position or losses due to a violation of an applicable law or regulation by the Indemnitee or (y) arising from the Indemnitee defending an actual or threatened claim, action, suit or proceeding against the Indemnitee brought or initiated by the Company, the Board (or, if the Board is not yet appointed, the Sole Member) and/or the investment adviser (or brought or initiated by the Indemnitee against the Company, the Board (or, if the Board is not yet appointed, the Sole Member) and/or the investment adviser). |
| g) | Notwithstanding section 10(f), an Indemnitee shall not be indemnified with respect to matters as to which the Indemnitee shall have been finally adjudicated in any such action, suit or proceeding to have acted in bad faith or to have acted in a manner that constituted willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position. |
| h) | In the event of settlement of any action, suit or proceeding brought or threatened, such indemnification shall apply to all matters covered by the settlement except for matters as to which the Company is advised by counsel (who may be counsel regularly retained to represent the Company) that the person or entity seeking indemnification, in the opinion of counsel: (a) acted in bad faith or (b) acted with willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position. |
| i) | Promptly after receipt by an Indemnitee of notice of the commencement of any action, such Indemnitee shall, if a claim in respect thereof is to be made against the Company pursuant to this section 10, notify the Company in writing of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability which it may have to any Indemnitee under this section 10 (other than under this 10(i)). Once the Company is so notified, the Company will be entitled to participate in such action and, if desired, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee. If the Company so assumes the defense, the Company shall not be liable to such Indemnitee under this section 10 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee in connection with the defense thereof, provided, however, that if (i) the Company and the Indemnitee mutually agree otherwise, (ii) the Company has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnitee, (iii) |
7
| the Indemnitee shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Company or (iv) the named parties in any such proceedings (including any impleaded parties) include both the Company and the Indemnitee and the Indemnitee shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Company shall be liable to such Indemnitee under this section 10(i) for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee. |
| j) | The Company and the Indemnitee shall inform any other Indemnitee of any such settlement, compromise or judgment, prior to the completion of such settlement, compromise or judgment. The Company shall not, without the written consent of the Indemnitee, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnitee is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnitee from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnitee. |
| k) | Except to the extent described above in this section 10, the Company may pay the expenses incurred by an Indemnitee in connection with any such action, suit or proceeding, or in connection with claims arising in connection with any potential or threatened action, suit or proceeding, in advance of the final disposition of such action, suit or proceeding, upon receipt of an enforceable undertaking by such Indemnitee to repay such payment if the Indemnitee shall be determined to be not entitled to indemnification for such expenses pursuant to this section 10; provided, however, that in such instance the Indemnitee is not defending an actual or threatened claim, action, suit or proceeding brought or initiated by Members constituting at least a majority in interest of the Members. |
| l) | Insurance. The Company may maintain, at the expense of the Company, (i) insurance policies for the protection of any Indemnitee or potential Indemnitee against any liability incurred in any capacity which results in such person or entity being an Indemnitee (provided that such Person is serving in such capacity at the request of the Company or the Board (or, if the Board is not yet appointed, the Sole Member), to the extent such policies are consistent with the investment adviser’s customary practice in maintaining insurance for its other registered investment vehicles advised by the investment adviser and its affiliates and (ii) one or more fidelity bonds that meet the requirements of the 1940 Act. For the avoidance of doubt, the Company will not bear the cost of insurance and/or fidelity bonds that are extraordinary for similarly-situated business development companies. |
| m) | The foregoing right of indemnification shall inure to the benefit of the executors, administrators, personal representatives, successors or assigns of each such Indemnitee and shall survive the termination of this Agreement. |
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| n) | The rights to indemnification and advancement of expenses conferred in this section 10 shall not be exclusive and shall be in addition to any rights to which any Indemnitee may otherwise be entitled or hereafter acquire under any law, statute, rule, regulation, charter document, by-law, contract or agreement. |
| o) | Insurance and Other Sources for Indemnity. |
| p) | Each Indemnitee shall, as a condition to obtaining payments under this section 10, use commercially reasonable efforts to seek payment from any applicable portfolio company, its insurance carriers and/or the insurance carriers of the investment adviser and/or the Company. The Company shall, in good faith, determine whether any such Indemnitee has used commercially reasonable efforts to seek such payments. In no event, however, shall the Company be precluded from making payments under section 10 to any such Indemnitee if reasonable uncertainty exists as to the likelihood of payment by any such portfolio company or insurance carrier in a timely manner or on reasonably acceptable terms. |
| q) | any Covered Person or Indemnitee or the Company itself is subject to any federal or state law, rule or regulation which restricts the extent to which any Person may be exonerated or indemnified by the Company, the exculpation and indemnification provisions set forth in this section 10, shall be deemed to be amended, automatically and without further action by the Members, to the minimum extent necessary to conform to such restrictions. |
| 11. | Amendments. |
This Agreement may be amended at any time by written instrument adopted by the majority of the Board (or if the Board is not yet appointed, the Sole Member). Any such amendment shall be filed with the books and records of the Company. Pending any replacement or amendment of this Agreement, it is intended that the provisions of the Act be controlling as to any matters not set forth in this Agreement.
| 12. | Miscellaneous. |
| (a) | Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. |
| (b) | Captions. All captions used in this Agreement are for convenience only and shall not affect the meaning or construction of any provision hereof. |
| (c) | Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. |
| (d) | Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Members and their respective successors and assigns. |
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
| SOLE MEMBER | ||
| TCW Asset Management Company LLC | ||
| By: | /s/ Meredith Jackson | |
| Name: Meredith Jackson | ||
| Title: Executive Vice President & General Counsel | ||
| By: | /s/ Zach Edelman | |
| Name: Zach Edelman | ||
| Title: Vice President | ||
10
SCHEDULE A
Schedule of Directors
| Name |
Class |
Expiration of Term | ||
| Sheila A. Finnerty | Class I | 2023 | ||
| Saverio M. Flemma | Class II | 2024 | ||
| R. David Kelly | Class III | 2025 | ||
| Andrew W. Tarica | Class I | 2023 | ||
| Richard T. Miller | Class II | 2024 | ||
| Laird Landmann | Class III | 2025 | ||
A-1
SCHEDULE B
Schedule of Officers
| Name |
Position | |
| David Wang | Chief Operating Officer | |
| Andrew Kim | Chief Financial Officer and Treasurer | |
| Gladys Xiques | Chief Compliance Officer | |
| Gayle Espinosa | Secretary | |
| Joseph Magpayo | Assistant Secretary | |
B-1
Confidential & Proprietary
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
TCW STAR DIRECT LENDING LLC
(A Delaware Limited Liability Company)
Dated as of August [ ], 2022
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE 1 DEFINITIONS |
1 | |||||
| 1.1 |
Definitions | 1 | ||||
| ARTICLE 2 ORGANIZATION; POWERS |
1 | |||||
| 2.1 |
Formation of Limited Liability Company; Withdrawal; Amendment to and Restatement of LLC Agreement | 1 | ||||
| 2.1.1 Formation |
1 | |||||
| 2.1.2 Admission |
1 | |||||
| 2.1.3 Amendment and Restatement |
2 | |||||
| 2.1.4 Name |
2 | |||||
| 2.1.5 Address |
2 | |||||
| 2.2 |
Purpose; Powers | 2 | ||||
| ARTICLE 3 MEMBERS, VOTING AND CONSENTS |
2 | |||||
| 3.1 |
Names, Addresses and Subscriptions | 2 | ||||
| 3.2 |
Status of Members | 3 | ||||
| 3.2.1 Limited Liability |
3 | |||||
| 3.2.2 Effect of Death, Dissolution or Bankruptcy |
3 | |||||
| 3.2.3 No Control of Company |
3 | |||||
| 3.2.4 Dual Status |
3 | |||||
| 3.3 |
Later-Closing Investors | 3 | ||||
| 3.3.1 Common Units Issued After the Initial Closing Date |
3 | |||||
| 3.3.2 Special Treatment of Contributions Made by a Later-Closing Investor |
4 | |||||
| 3.3.3 Accession to Agreement |
5 | |||||
| 3.3.4 Anti-Money Laundering and Other Information Provisions |
5 | |||||
| 3.4 |
Managementand Control of Company |
8 | ||||
| 3.4.1 Board of Directors |
8 | |||||
| 3.4.2 Management by the Board |
9 | |||||
| 3.4.3 Powers of Board |
10 | |||||
| 3.4.4 Certain Related Transactions |
11 | |||||
| 3.5 |
Activities of Members | 11 | ||||
| 3.6 |
Parallel Funds | 12 | ||||
- i -
| 3.7 |
Meetings of Members | 12 | ||||
| 3.8 |
Member Voting and Consents | 12 | ||||
| ARTICLE 4 INVESTMENTS AND ACTIVITIES |
13 | |||||
| 4.1 |
Investment Objectives | 13 | ||||
| 4.2 |
Investment Limitations | 13 | ||||
| 4.2.1 Investments in Portfolio Companies |
13 | |||||
| 4.2.2 Additional Investment Limitations |
13 | |||||
| 4.2.3 Conflicts of Interest |
14 | |||||
| 4.3 |
Borrowing | 15 | ||||
| 4.3.1 General |
15 | |||||
| 4.3.2 Member Acknowledgements |
16 | |||||
| 4.3.3 Beneficiary Rights |
16 | |||||
| 4.4 |
Preferred Units | 16 | ||||
| 4.5 |
Retention and Reinvestment of Proceeds | 16 | ||||
| 4.5.1 Limited Retention and Reinvestment |
16 | |||||
| 4.5.2 Required Distributions of Amounts Not Retained |
17 | |||||
| 4.5.3 Recallable Amounts |
17 | |||||
| ARTICLE 5 FEES AND EXPENSES; ADVISORY AGREEMENT |
18 | |||||
| 5.1 |
Company Expenses | 18 | ||||
| 5.2 |
Advisory Agreement; Management Fee and Incentive Fee | 19 | ||||
| 5.2.1 Advisory Agreement |
19 | |||||
| 5.2.2 Management Fee |
19 | |||||
| 5.2.3 Incentive Fee |
20 | |||||
| 5.2.4 Transaction; Advisory Fees |
20 | |||||
| ARTICLE 6 CAPITAL OF THE COMPANY |
20 | |||||
| 6.1 |
Obligation to Contribute | 20 | ||||
| 6.1.1 General |
20 | |||||
| 6.1.2 Original Issuance Price |
21 | |||||
| 6.1.3 Drawdowns of Undrawn Commitment; Deficiency Drawdowns |
21 | |||||
| 6.1.4 Commitment Period |
22 | |||||
| 6.1.5 No Interest |
22 | |||||
| 6.2 |
Failure to Make Required Payment | 22 | ||||
| 6.2.1 Interest |
22 | |||||
| 6.2.2 Default |
23 | |||||
- ii -
| 6.2.3 Default Charge |
24 | |||||
| 6.2.4 Distributions to Defaulting Members |
24 | |||||
| 6.2.5 Effect of Default on Remaining Interest in Company |
25 | |||||
| 6.3 |
Key Person Event | 25 | ||||
| ARTICLE 7 DISTRIBUTIONS |
26 | |||||
| 7.1 |
Amount, Timing and Form | 26 | ||||
| 7.1.1 General | 26 | |||||
| 7.2 |
Certain Distributions Prohibited | 27 | ||||
| ARTICLE 8 DURATION OF THE COMPANY |
27 | |||||
| 8.1 |
Term of Company | 27 | ||||
| 8.2 |
Events of Dissolution | 27 | ||||
| ARTICLE 9 LIQUIDATION OF ASSETS ON DISSOLUTION |
28 | |||||
| 9.1 |
General | 28 | ||||
| 9.2 |
Liquidating Distributions; Priority | 28 | ||||
| 9.3 |
Duration of Liquidation | 28 | ||||
| 9.4 |
Liability for Returns | 28 | ||||
| 9.4.1 General |
28 | |||||
| 9.4.2 Distribution of Returned Amounts |
28 | |||||
| 9.5 |
Post-Dissolution Investments and Drawdowns | 29 | ||||
| ARTICLE 10 LIMITATIONS ON TRANSFERS AND REDEMPTIONS OF COMPANY UNITS |
29 | |||||
| 10.1 |
Transfers of Units | 29 | ||||
| 10.1.1 General |
29 | |||||
| 10.1.2 Consent of Company |
29 | |||||
| 10.1.3 Required Representations by Parties |
29 | |||||
| 10.1.4 Other Prohibited Legal Consequences |
29 | |||||
| 10.1.5 Opinion of Counsel |
30 | |||||
| 10.1.6 Reimbursement of Transfer Expenses |
30 | |||||
| 10.2 |
Admission of Substituted Members | 31 | ||||
| 10.2.1 General |
31 | |||||
| 10.2.2 Effect of Admission |
31 | |||||
| 10.2.3 Non-Compliant Transfer |
31 | |||||
| 10.3 |
Multiple Ownership | 31 | ||||
| 10.4 |
Adviser’s Interest Upon Removal | 31 | ||||
- iii -
| ARTICLE 11 EXCULPATION AND INDEMNIFICATION |
32 | |||
| 11.1 |
Exculpation | 32 | ||
| 11.1.1 General |
32 | |||
| 11.1.2 Activities of Others |
32 | |||
| 11.1.3 Liquidator |
32 | |||
| 11.1.4Advice of Experts |
32 | |||
| 11.2 |
Indemnification | 33 | ||
| 11.2.1 General |
33 | |||
| 11.2.2 Effect of Judgment |
33 | |||
| 11.2.3 Effect of Settlement |
33 | |||
| 11.2.4 Process; Advance Payment of Expenses |
34 | |||
| 11.2.5 Insurance |
34 | |||
| 11.2.6 Successors and Survival |
35 | |||
| 11.2.7 Rights to Indemnification from Other Sources |
35 | |||
| 11.2.8 Insurance and Other Sources for Indemnity |
35 | |||
| 11.3 |
Limitation by Law | 35 | ||
| 11.4 |
Return of Certain Distributions | 35 | ||
| ARTICLE 12 AMENDMENTS |
37 | |||
| 12.1 |
Amendments | 37 | ||
| 12.1.1 By Consent |
37 | |||
| 12.1.2 Amendments Affecting Members’ Economic Rights |
38 | |||
| 12.1.3 Consent to Amend Special Provisions |
38 | |||
| 12.1.4 Notice of Amendments |
38 | |||
| 12.1.5 Other Agreements |
39 | |||
| ARTICLE 13 ADMINISTRATIVE PROVISIONS |
39 | |||
| 13.1 |
Keeping of Accounts and Records; Certificate of Formation; Administrator | 39 | ||
| 13.1.1 Accounts and Records |
39 | |||
| 13.1.2 Certificate of Formation |
39 | |||
| 13.1.3 Administrator |
39 | |||
| 13.2 |
Inspection Rights | 39 | ||
| 13.3 |
Financial Reports | 40 | ||
| 13.3.1 Annual Financial Statements |
40 | |||
| 13.3.2 Additional Reporting |
40 | |||
| 13.3.3 Web Site |
40 | |||
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| 13.4 |
Valuation | 40 | ||||
| 13.4.1 Valuation by Board |
40 | |||||
| 13.4.2 Freely Tradable Securities |
41 | |||||
| 13.4.3 Other Assets |
41 | |||||
| 13.4.4 Goodwill and Intangible Assets |
41 | |||||
| 13.4.5 Independent Valuation Firm |
42 | |||||
| 13.5 |
Notices | 42 | ||||
| 13.6 |
Accounting Provisions | 42 | ||||
| 13.6.1 Fiscal Year |
42 | |||||
| 13.6.2 Independent Auditors |
42 | |||||
| 13.7 |
Tax Provisions | 42 | ||||
| 13.7.1 Classification of the Company as Corporation for Tax Purposes |
42 | |||||
| 13.7.2 RIC Requirements |
43 | |||||
| 13.7.3 Tax Information |
43 | |||||
| 13.7.4 Listed Transactions |
44 | |||||
| 13.8 |
GeneralProvisions |
44 | ||||
| 13.8.1 Power of Attorney |
44 | |||||
| 13.8.2 Execution of Additional Documents |
45 | |||||
| 13.8.3 Binding on Successors |
45 | |||||
| 13.8.4 Governing Law |
45 | |||||
| 13.8.5 Submission to Jurisdiction; Venue; Waiver of Jury Trial |
45 | |||||
| 13.8.6 Waiver of Partition |
46 | |||||
| 13.8.7 Securities Law Matters |
46 | |||||
| 13.8.8 Confidentiality |
46 | |||||
| 13.8.9 Compliance with Laws |
49 | |||||
| 13.8.10 Notices to Members |
49 | |||||
| 13.8.11 Contract Construction; Headings; Counterparts |
49 | |||||
| ARTICLE 14 SPECIAL REGULATORY MATTERS |
50 | |||||
| 14.1 |
ERISA Compliance | 50 | ||||
| 14.1.1ERISA Plan Assets |
50 | |||||
| 14.1.2Distributions in Kind to ERISA Members |
50 | |||||
| 14.1.3Plan Assets Notice |
50 | |||||
| 14.2 |
ERISA Withdrawal | 51 | ||||
| 14.2.1General |
51 | |||||
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| 14.2.2 Cure Period | 52 | |||||
| 14.2.3 Withdrawal | 52 | |||||
| 14.2.4 Distributions to Withdrawing ERISA Member | 52 | |||||
| 14.3 |
Public Plan Members | 53 | ||||
| 14.4 |
Foundation Members | 54 | ||||
| 14.5 |
Bank Holding Company Member | 54 | ||||
| 14.5.1 Withdrawal | 54 | |||||
| 14.5.2 Right to Decline Distributions | 55 | |||||
| 14.6 |
Conforming Amendment | 55 | ||||
| Signature Pages of Members | ||
| Appendix I | Definitions | |
| Appendix II | Member Acknowledgements | |
| Schedule A | Schedule of Directors | |
| Schedule B | Schedule of Audit Committee Members | |
| Schedule C | Schedule of Officers | |
| Exhibit 1 | Investment Advisory and Management Agreement | |
| Exhibit 2 | Adviser Representations Letter | |
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TCW STAR DIRECT LENDING LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of TCW Star Direct Lending LLC (formerly known as N Middle Market Lending, LLC) (the “Company”), dated as of August [ ], 2022, by and among TCW Asset Management Company LLC, a limited liability company formed under the laws of the State of Delaware (“TCW”) and those Persons who have entered into Subscription Agreements with the Company for the purchase of common limited liability company units (collectively, the “Common Units”) in the Company as members, or who are subsequently admitted to the Company as holders of Common Units (collectively, the “Common Unitholders”).
ARTICLE 1
DEFINITIONS
| 1.1 | Definitions. |
Capitalized terms used herein and not otherwise defined have the meanings assigned to them in Appendix I hereto. Appendix I also indicates certain other sections of this Agreement in which certain other terms used in this Agreement are defined.
ARTICLE 2
ORGANIZATION; POWERS
| 2.1 | Formation of Limited Liability Company; Withdrawal; Amendment to and Restatement of LLC Agreement. |
| 2.1.1 | Formation. |
The Company was formed as a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.) (as amended from time to time, the “Delaware Act”) pursuant to a Certificate of Formation of the Company, which was filed with the Secretary of State of the State of Delaware on March 7, 2022 (as amended to date and as amended from time to time hereafter, the “Certificate”). TCW, as initial member of the Company, executed the Limited Liability Company Agreement, dated as of May 17, 2022 (the “Original LLC Agreement”).
| 2.1.2 | Admission. |
The Persons who have entered into Subscription Agreements with the Company for the purchase of Common Units as Common Unitholders have been or are hereby being admitted to the Company as Common Unitholders upon the execution and delivery of the LLC Agreement by or on behalf of such Persons. This Agreement may be executed on behalf of such Members by an authorized representative of the Company, as attorney-in-fact for such Members, with the same force and effect as if executed directly by the Members.
| 2.1.3 | Amendment and Restatement. |
TCW and the other Members hereby amend and restate the Original LLC Agreement in the form of this Amended and Restated Limited Liability Company Agreement (as so amended and restated and as amended from time to time hereafter, and including Appendices I and II hereto, the “LLC Agreement” or this “Agreement”) and agree to carry on a limited liability company subject to the terms of this Agreement in accordance with the Delaware Act.
| 2.1.4 | Name. |
The name of the Company is “TCW Star Direct Lending LLC.”
| 2.1.5 | Address. |
The principal office of the Company shall be located at c/o The TCW Group, Inc., 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02116. The address of the Company’s registered office in Delaware is 160 Greentree Drive, Suite 101, Dover, Delaware 19904. The name of the Company’s registered agent at that address is National Registered Agents, Inc. The Company may change the locations of the principal office and registered office of the Company to such other locations, and may change the registered agent of the Company in Delaware to such other Person, as the Company may specify from time to time in a written notice to the Members by amending this Agreement and the Certificate, as appropriate.
| 2.2 | Purpose; Powers. |
In furtherance of the investment objectives of the Company, the Company may engage in any lawful act or activity for which limited liability companies may be formed under the laws of the State of Delaware and shall have all the powers available to it as a limited liability company formed under the laws of the State of Delaware.
ARTICLE 3
MEMBERS, VOTING AND CONSENTS
| 3.1 | Names, Addresses and Subscriptions. |
The name, address, e-mail address, facsimile number, and the number of Units held and corresponding Commitment of each Member are set forth in the books and records of the Company. The Company shall maintain such books and records in a manner consistent with this Agreement and shall cause such books and records to be revised to reflect (a) the admission of any additional or substituted Member occurring pursuant to the terms of this Agreement, (b) the withdrawal, or partial withdrawal, of any Member pursuant to the terms of this Agreement, (c) any change in the identity, address, e-mail address or facsimile number of a Member, (d) any changes in the Commitments of the Members occurring pursuant to the terms of this Agreement or (e) the identity, e-mail address, address and facsimile number of any trustee or nominee named pursuant to 10.3.
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| 3.2 | Status of Members. |
| 3.2.1 | Limited Liability. |
No Member, in its capacity as such, shall be liable for the debts and obligations of the Company; provided, however, that each Member shall be required to pay to the Company (a) any capital contributions that such Member has agreed to make to the Company pursuant to this Agreement; (b) the amount of any distribution that such Member is required to return to the Company pursuant to this Agreement or the Delaware Act; and (c) the unpaid balance of any other payments that such Member expressly is required to make to the Company pursuant to this Agreement or pursuant to such Member’s Subscription Agreement, as the case may be.
| 3.2.2 | Effect of Death, Dissolution or Bankruptcy. |
Upon the death, incompetence, bankruptcy, insolvency, liquidation or dissolution of a Member, the rights and obligations of such Member under this Agreement, to the maximum extent permitted by law, shall inure to the benefit of, and shall be binding upon, such Member’s successor(s), estate or legal representative. Each such Person shall be treated as provided in the second sentence of 10.2.2 unless and until such Person is admitted as a substituted Member pursuant to 10.2. Any Transfer of the interest so acquired by such successor, estate or legal representative shall be subject to the requirements of Article 10.
| 3.2.3 | No Control of Company. |
Except as otherwise provided herein, no Member shall have the right or power to: (a) withdraw its contribution to the capital of the Company or reduce its Commitment; (b) to the maximum extent permitted by law and other than as set out in Section 8.2, cause the dissolution and winding up of the Company or (c) demand property in return for its capital contributions. No Member, in its capacity as such, shall take any part in the control of the affairs of the Company, undertake any transactions on behalf of the Company, or have any power to sign for or otherwise to bind the Company.
| 3.2.4 | Dual Status. |
A Member may hold both Common Units and, if issued, Preferred Units. A Member who holds both Common Units and Preferred Units shall be treated separately as a Common Unitholder with respect to its Common Units and as a Preferred Unitholder with respect to its Preferred Units, except as otherwise provided in the Agreement.
| 3.3 | Later-Closing Investors. |
| 3.3.1 | Common Units Issued After the Initial Closing Date. |
The Company may hold Subsequent Closings, in the Board’s discretion, and issue additional Common Units to newly admitted Members (a “Later-Closing Investor”) or to existing Members (who will be treated as Later-Closing Investors with respect to such newly issued Common Units); provided, however, investors admitted as Initial Closing Members that participate in a Subsequent Closing, and existing Members receiving newly issued Common Units because
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their initial commitment did not reflect their total commitment due to regulatory, legal, or other constraints applicable to the Company’s or investor’s portfolio at the time of initial commitment, shall not be deemed Later-Closing Investors. In addition, Affiliate investors shall not be treated as Later-Closing Investors other than with respect to the obligations set out under 3.3.1(a) and (b). Later-Closing Investor status shall be determined on a look-through basis with respect to any feeder fund. In advance of each Subsequent Closing Date, and as close to it as practicable, the Company will allocate its estimated profits and losses through that date, and distribute to Unitholders any undistributed estimated profits in cash to the extent there is available cash and through a deemed capital call and corresponding deemed distribution to the extent there is not sufficient available cash (on each occasion, a “Pre-Closing Distribution”). Each Later-Closing Investor will be required to contribute to the Company in respect of each newly issued Common Unit the sum of the following:
(a) an amount equal to the Aggregate Contributions drawn down with respect to a Common Unit issued on the Initial Closing Date (but reduced by such contributions returned as described in 3.3.2(a)) through the closing date for the newly issued Common Unit (a “True-Up Contribution”);
(b) an amount equal to any increase in the net asset value (as reflected in the Company’s books and records, after giving effect to the applicable Pre-Closing Distribution) of a Common Unit issued on the Initial Closing Date through the closing date for the newly issued Common Unit, excluding any increase in net asset value attributable to additional capital contributions or decrease attributable to distributions of True-Up Contributions as described in 3.3.2(a) (an “NAV Balancing Contribution”); and
(c) an amount equal to a rate of 2.0% per annum on the True-Up Contribution for such newly issued Common Unit, calculated for the period from the Initial Closing Date to the closing date for such newly issued Common Unit as an administrative fee to compensate the Company for expenses and activities related to the Later-Closing Investor (a “Late-Closer Contribution”).
| 3.3.2 | Special Treatment of Contributions Made by a Later-Closing Investor. |
(a) True-Up Contributions may be retained by the Company and used for any Company purpose or if at any time the Company determines that because of the True-Up Contributions it has excess cash on hand, the Company may distribute that excess cash among all the Common Unitholders in accordance with 7.1.1. As provided in 6.1.1, any distribution of True-Up Contributions will be treated as a return of previously made capital contributions in respect of the Common Units and, consequently, will correspondingly increase the Undrawn Commitment of the Common Units.
(b) As provided in 6.1.1, NAV Balancing Contributions and Late-Closer Contributions will not reduce the Undrawn Commitment of the associated Common Units and, as set forth in the Advisory Agreement, will not be treated as capital contributions for purposes of calculating the Incentive Fee. NAV Balancing Contributions received by the Company will not be treated as amounts distributed to Common Unitholders for purposes of calculating the Incentive Fee.
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(c) The Company shall specially distribute Late-Closer Contributions made with respect to Common Units that are issued on a particular closing date to the Common Unitholders that were issued Common Units prior to such closing date pro rata based on the number of Common Units held by such Common Unitholders immediately prior to such closing date. If necessary in order to cause the Company to maintain its status as a RIC, or in order to comply with tax, regulatory or other requirements, the Company shall increase the amount of Late-Closer Contributions that a Later-Closing Investor is required to make pursuant to 3.3.1(c), but only if the increased amount is distributed to such Later-Closing Investor (i.e., so the net Late-Closer Contribution made and distributed to other Common Unitholders is the same as the amount described in 3.3.1(c)). As set forth in the Advisory Agreement, the special distribution of Late-Closer Contributions will not be treated as an amount distributed to the Common Unitholders for purposes of calculating the Incentive Fee.
| 3.3.3 | Accession to Agreement. |
Each Person who is to be admitted as a Later-Closing Investor pursuant to this Agreement shall be admitted to the Company as a Member upon, executing (whether on its own behalf or via an attorney-in-fact), (i) a Subscription Agreement or other written document pursuant to which such Person agrees to become a Member and be bound by this Agreement together with the Company’s acceptance of such document and (ii) a counterpart signature page to this Agreement, which shall not require the consent or approval of any other Member. The Company shall make any necessary filings with the appropriate governmental authorities and take such actions as are necessary under applicable law to effectuate such admission.
| 3.3.4 | Anti-Money Laundering and Other Information Provisions. |
(a) Each Member hereby agrees that:
(1) None of the monies that such Member will contribute or pay to the Company shall be derived from, or related to, any activity in violation of United States laws, orders, rules and regulations or any other applicable laws, orders, rules and regulations, including Anti-Money Laundering and Sanctions Laws (as defined in (a)(2) below); and
(2) No contribution or payment by such Member to the Company, and no distribution to such Member (assuming such distribution is made in accordance with instructions provided to the Company by such Member), shall cause the Company, the Board, the Adviser or any Officer to be in violation of U.S. anti-money laundering laws, orders, rules or regulations (including the U.S. Bank Secrecy Act, as amended by the USA PATRIOT Act, and the U.S. Money Laundering Control Act of 1986), or U.S. sanctions laws, orders, rules or regulations (including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”)), each such statute as amended, including any successor statute thereto, and including all rules and regulations promulgated thereunder, or any other applicable anti-money laundering or sanctions laws, orders, rules or regulations (collectively, the “Anti-Money Laundering and Sanctions Laws”).
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(b) Each Member will promptly notify the Company if, to the knowledge of such Member, such Member has made a contribution or payment to the Company, or received a distribution from the Company, in each case in a manner inconsistent with (a) above.
(c) Each Member will provide the Company, promptly upon receipt of the Company’s written request therefor, with any additional information regarding such Member or its beneficial owner(s) that the Company reasonably deems necessary or advisable in order to determine or ensure compliance with the Anti-Money Laundering and Sanctions Laws and all other applicable laws, orders, rules, regulations and administrative pronouncements concerning money laundering, bank secrecy, economic sanctions and other criminal activities and to complete tax-related filings.
(d) Each Member understands and agrees that if, at any time, such Member has made a contribution or payment to the Company in a manner inconsistent with (a) above, or if otherwise required by any applicable laws, orders, rules, regulations or pronouncements related to money laundering, bank secrecy or economic sanctions or similar laws, the Company may take appropriate actions, including the actions in (k) below, to ensure that it, the Board, the Adviser and each of the Officers is in compliance with all such applicable laws, orders, rules, regulations and pronouncements, including the Anti-Money Laundering and Sanctions Laws.
(e) Each Member will not use any distributions or other monies received by such Member from the Company to finance any activities in violation of United States laws, orders, rules and regulations or any other applicable laws, orders, rules and regulations, including Anti-Money Laundering and Sanctions Laws.
(f) Each Member acknowledges that United States federal statutes, regulations and executive orders administered by OFAC prohibit, among other things, the engagement in transactions or dealings with, and the provision of goods or services involving, certain foreign countries, territories, entities and individuals pursuant to the sanctions programs administered by OFAC (“OFAC Sanctions Programs”), including entities and individuals included on OFAC’s Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List and Sectoral Sanctions Identification List (collectively, the “OFAC Lists”), which can be found on the OFAC website at https://sanctionssearch.ofac.treas.gov/. In addition, each Member acknowledges that the OFAC Sanctions Programs target dealings with individuals or entities in certain countries regardless of whether such individuals or entities appear on the OFAC Lists.
(g) Each Member hereby agrees that none of the Persons controlling, under common control with, or controlled by such Member, Persons having a beneficial interest in such Member (with respect to Members that are privately held entities); or Persons for whom such Member will be acting as agent, trustee, representative, intermediary or nominee or in any similar capacity in connection with its contribution or payment to the Company, will be:
(1) an individual or entity targeted by the OFAC Sanctions Programs, including any individual or entity named on the OFAC Lists, and any other applicable sanctions laws, orders, rules or regulations, or is a party which the Company, the Board, the Adviser or any Officer is prohibited from dealing with under United States laws, orders, rules or regulations, and any other applicable laws, orders, rules or regulations.
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(2) a senior foreign political figure or politically exposed Person, or any immediate family member or close associate of a senior foreign political figure or politically exposed Person (in each case as defined in Appendix I), unless such Person is otherwise disclosed in writing to the Company prior to the Member’s contribution or payment to the Company.
(h) If a Member is a non-U.S. banking institution (a “Non-U.S. Bank”) or if the Member receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Non-U.S. Bank, such Member hereby agrees to use its reasonable efforts to ensure that: (1) the Non-U.S. Bank has a fixed address (other than solely a post office box or an electronic address) in a country in which the Non-U.S. Bank is authorized to conduct banking activities; (2) the Non-U.S. Bank employs one or more individuals on a full-time basis; (3) the Non-U.S. Bank maintains operating records related to its banking activities; (4) the Non-U.S. Bank is subject to inspection by the banking authority that licensed the Non-U.S. Bank to conduct banking activities; and (5) the Non-U.S. Bank does not provide banking services to any other Non-U.S. Bank that does not have a physical presence in any country and that is not a regulated affiliate.
(i) Each Member agrees that any distributions paid to it will be paid to the same account from which such Member’s contribution or payment to the Company will be originally remitted, unless such Member notifies the Company of another account of such Member to which payment shall be made or the Company shall agree otherwise.
(j) Each Member agrees that it will not transfer all or any part of its Units (or offer to do so) if such transfer will cause (1) the Company, the Board, the Adviser or any Officer to be in violation of the Anti-Money Laundering and Sanctions Laws; or (2) the Units to be held by an entity with which the Company, the Board, the Adviser or any Officer is prohibited from dealing under the Anti-Money Laundering and Sanctions Laws.
(k) In addition to any actions authorized in the Subscription Agreement, actions that may be taken by the Company in the event of a violation of (a), (e), (g), (h) or (j) above, or as the Company otherwise deems reasonably necessary to comply with United States laws, orders, rules and regulations or any other applicable laws, orders, rules and regulations, including Anti-Money Laundering and Sanctions Laws, include, but are not limited to, the following:
(1) The Company, upon delivery of notice to that effect to the affected Member, may (in the Board’s discretion) “freeze” such Member’s Units and, in that event: the Company (A) shall not accept any additional capital contributions from such Member; (B) shall not draw down any additional capital contributions from such Member so long as the Units are frozen; or (C) shall not make any distributions to such Member in respect of its frozen Units after the delivery of such notice other than liquidating distributions pursuant to 9.2, after payment to each other Member of its final liquidating distribution in accordance with 9.2 and subject in all events to compliance with applicable law.
(2) The Company, subject to compliance with applicable law, may (in the discretion of the Board) redeem such Member’s Units using Company funds at a price equal to the lesser of (A) the Aggregate Contributions of such Member with respect to such Units and (B) the fair market value of such Units (as determined by the Board); provided, however, that if required by law, regulation or government order, the price shall equal such other price as may be required by applicable law, regulation or government order.
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(l) Each Member acknowledges and agrees that (1) the Company may release confidential information regarding such Member and, if applicable, any of its beneficial owners, to governmental authorities if the Company, in its reasonable discretion, determines that releasing such information is in the best interests of the Company in light of the Anti-Money Laundering and Sanctions Laws, and (2) the Board, notwithstanding any other provision of this Agreement, may amend any provision of this Agreement in order to effectuate the intent of this 3.3.4.
(m) In addition to any other remedies provided hereunder, in the event that the non-compliance, or delay in compliance, by any Member with respect to any information pursuant to this 3.3.4 results in the imposition of any additional tax or other cost affecting directly or indirectly the Company or the other Members, to the extent the Board determines it is appropriate to do so (after taking into account the requirements of maintaining RIC status and other factors), the Company may take any and all actions necessary to cause such additional tax or expense to be borne by the Units held by such non-compliant or delaying Member.
| 3.4 | Management and Control of Company. |
| 3.4.1 | Board of Directors |
(a) Initially, the Company’s board of directors (the “Board”) will be composed of six directors (each, a “Director”). A majority of the Directors may at any time increase or decrease the number of Directors; provided that the number of Directors may never be less than one or more than 12 unless this Agreement is amended pursuant to 12.1, in which case the Company may have more than 12 Directors but never less than one. Notwithstanding anything to the contrary herein, to the extent required by the 1940 Act, at any time when there are outstanding Preferred Units, the Preferred Unitholders shall have the right, as a class, to elect (i) two additional Directors to the Board (the “Preferred-Appointed Directors”), but shall not elect or vote for the other Directors, and (ii) if and for so long as distributions on the Preferred Units are unpaid in an amount equal to two full years of distributions on the Preferred Units, a majority of the Directors.
(b) A quorum of the Board shall consist of a majority of the exact number of Directors fixed from time to time in accordance with 3.4.1(a). At each meeting of the Board at which a quorum is present, all questions and business shall be determined by the vote of such number of Directors as constitute a majority of the Board (regardless of the number of Directors present at the meeting), unless a different vote is required by this Agreement. Directors may participate in a meeting by means of conference telephone or other communication equipment by means of which all Persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in Person at such meeting.
(c) The Directors will be divided into three classes, each serving staggered three-year terms. However, the initial members of the three classes have initial terms of one, two and three years, as indicated on Schedule A. At each annual meeting of the Members, the successors to the class of Directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of the Members held in the third year following
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the year of their election. Each Director may be elected to the Board with the affirmative vote of the holders of a plurality of the outstanding Units entitled to vote in the election of such Director at which a quorum is present (as set forth in 3.7); provided that the Board may amend this Agreement to alter the vote required to elect Directors. Except to the extent provided in Sections 3.4.1(f) and (g), each Director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualified.
(d) The name of each Director, such Director’s class, and the year of expiration of such Director’s term, shall be listed on Schedule A, which shall be updated as necessary.
(e) The majority of the Directors will at all times consist of Directors who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company, the Adviser or any of their respective Affiliates (the “Independent Directors”).
(f) A Director may resign from the Board at any time. If a Director (other than a Preferred-Appointed Director) is determined by the Board to have committed an act that constitutes Cause, such Director may be removed from his position by a vote of a Supermajority in Interest of the Common Unitholders. In addition, any Director may be removed from his position by a vote at a duly called meeting of the Board of least 80% of the Directors then seated.
(g) Any and all vacancies on the Board as a result of resignation or removal may be filled only by the affirmative vote of a majority of the remaining Directors in office, even if the remaining Directors do not constitute a quorum, and any Director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is duly elected and qualifies, subject to any applicable requirements of the 1940 Act.
(h) A majority of the Directors have the authority to form committees of the Board from time to time to the extent that it determines that it is appropriate to do so. The Board shall have an audit committee, which will be responsible for selecting, engaging and discharging the Company’s independent accountants, reviewing the plans, scope and results of the audit engagement with the Company’s independent accountants, approving professional services provided by the Company’s independent accountants (including compensation therefor), reviewing the independence of the Company’s independent accountants, reviewing the adequacy of the Company’s internal control over financial reporting, establishing guidelines and making recommendations to the Board regarding the valuation of the Company’s assets for which market quotations are not readily available, and taking any other actions consistent with the audit committee charter or as may be authorized by the Board. The chairperson of the audit committee has been designated by the Board as an “audit committee financial expert” under the rules of the SEC. The names of each of the members of the audit committee and the member who serves as chairperson of the audit committee shall be listed on Schedule B, which shall be updated as necessary.
| 3.4.2 | Management by the Board. |
(a) The management, policies and control of the Company shall be vested exclusively in the Board; provided, however, that the Board may delegate its rights and powers to third parties, including the Adviser, as it may determine. Unless otherwise specified in this Agreement, consent or approval by the Company shall be determined by the Board.
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(b) The Board may appoint and elect (as well as remove or replace with or without cause), as it deems necessary, a President, Vice Presidents, a Treasurer, a Chief Financial Officer, a Secretary, a Chief Compliance Officer and any other officer of the Company (collectively, the “Officers”). The compensation, if any, of the Officers shall be determined by the Board. The name of each Officer and such Officer’s position shall be listed on Schedule C, which shall be updated by an Officer, as necessary.
(c) The Officers shall perform such duties and may exercise such powers as may be assigned to them by the Board.
(d) Unless the Board decides otherwise, if the title of any Person authorized to act on behalf of the Company under this 3.4.2 is one commonly used for officers of a business corporation formed under the Delaware General Corporation Law, the assignment of such title shall constitute the delegation to such Person of the authority and duties that are normally associated with that office, subject to any specific delegation of, or restriction on, authority and duties made pursuant to this 3.4.2. Any number of titles may be held by the same Person. Any delegation pursuant to this 3.4.2 may be revoked at any time by the Board.
(e) The Board may authorize any Person, including any Officer, to sign on behalf of the Company. Unless authorized to do so by the Board, no Officer shall have any power or authority to bind the Company in any way, to pledge its credit, or to render it liable for any purpose.
| 3.4.3 | Powers of Board. |
Except as otherwise explicitly provided herein, the Board shall have the power on behalf and in the name of the Company to implement the objectives of the Company and to exercise any rights and powers the Company may possess, including, without limitation, the power to cause the Company to (a) make any elections available to the Company under applicable tax or other laws, (b) make any investments permitted under this Agreement, (c) satisfy any Company obligations (such as payment of the Management Fee, Incentive Fee and other Company Expenses), (d) effect a reorganization, (e) make any disposition of Company assets including through an in-kind redemption of Units in connection with a reorganization, or (f) cause the redemption of Units permitted under this Agreement.
Notwithstanding any other provision of this Agreement, without the consent of any Member or other Person being required, the Company is hereby authorized to execute, deliver and perform, and the Board on behalf of the Company is hereby empowered to authorize an Officer of the Company or other representative to execute and deliver, (v) the Administration Agreement (w) a Subscription Agreement with each Member, (x) the Advisory Agreement, (y) a licensing agreement with the Adviser or a TCW Affiliate, and (z) any amendment of any such document (to the extent such amendment is approved in accordance with the terms of the relevant agreement and is consistent with the terms of this Agreement) and any other agreement, document or other instrument contemplated thereby or related thereto (to the extent that such other agreement, document or other instrument is consistent with the terms of the relevant agreement or this Agreement). Such authorization shall not be deemed a restriction on the power of the Board to cause the Company to enter into other documents.
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| 3.4.4 | Certain Related Transactions. |
Subject to applicable law, the Company or any Portfolio Company may, as necessary or appropriate, employ or retain the Adviser or any TCW Affiliate (and any other Person to which any of the foregoing are related or in which any of the foregoing are interested) who is in the business of providing such services to provide services (including, without limitation, consulting, valuation, appraisal and brokerage services), and any such Person may receive from the Company and Portfolio Companies compensation in addition to that expressly provided for in this Agreement. As provided in 3.4.2, 5.2.1 and 13.1.3, the Company has been authorized to enter into the Advisory Agreement with the Adviser and the Administration Agreement with the Administrator. Any other agreement that the Company enters into with the Adviser or any TCW Affiliate shall meet the following requirements: (i) the compensation and other terms and conditions under which services are to be rendered or the transaction is to be entered into are embodied in a written contract that precisely describes such services or transaction and the compensation therefor, (ii) such contract is terminable at will by the Company, without penalty, upon not more than 60 days’ prior written notice, (iii) the terms and conditions of such contract are at least as favorable to the Company as those generally available from unaffiliated third parties in arm’s-length transactions, and (iv) the transaction is entered into principally for the benefit of the Company. The Company shall notify Members of any such agreement with the Adviser or any TCW Affiliate in the Company reports issued for the quarter in which such agreement is entered into.
| 3.5 | Activities of Members. |
Notwithstanding any duty otherwise existing at law or in equity, but subject to the provisions of this Agreement, any Member and its respective direct and indirect partners, members, stockholders, officers, directors, managers, trustees, employees, agents and Affiliates may invest, participate, or engage in (for their own accounts or for the accounts of others), or may possess an interest in, other financial ventures and investment and professional activities of every kind, nature and description, independently or with others, whether now existing or hereafter acquired or initiated, including but not limited to: management of other investment vehicles; investment in, financing, acquisition or disposition of securities; investment and management counseling; providing brokerage and investment banking services; or serving as officers, directors, managers, consultants, advisers or agents of other companies, partners of any partnership, members of any limited liability company or trustees of any trust (and may receive fees, commissions, remuneration or reimbursement of expenses in connection with these activities), whether or not such activities may conflict with any interest of the Company or any of the Members. The fact that a Member may encounter opportunities to purchase, otherwise acquire, lease, sell or otherwise dispose of investment assets, other assets or other business ventures and may take advantage of such opportunities itself or introduce such opportunities to entities in which it has or does not have any interest shall not subject such Member to liability to the Company or to any of the other Members on account of the lost opportunity. Nothing in this Agreement shall be deemed to prohibit any Member or any Affiliate of any Member from dealing with, or otherwise
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engaging in business with, any other Member or any Person transacting business with the Company or any Portfolio Company. Neither the Company nor any Member shall have any rights, solely by virtue of this Agreement, in or to any activities permitted by this 3.5 or to any fees, income, profits or goodwill derived from such activities.
| 3.6 | Parallel Funds. |
In order to facilitate investments by certain investors and/or to accommodate investors with differing tax, regulatory, or legal needs and/or objectives, the Company in its sole discretion may form one or more parallel investment vehicles (each, a “Parallel Fund”) to invest alongside the Company in some or all Portfolio Investments as part of the Company’s investment program to the extent permitted by applicable law and/or in accordance with any relief granted by the SEC; provided, however, that the Company receives tax advice that the formation of a Parallel Fund will not have any adverse tax consequences to the Company. To the extent permitted by applicable law and/or in accordance with any relief granted by the SEC, (i) any co-investment by a Parallel Fund with the Company in a Portfolio Investment shall be made at the same time and on substantially the same investment terms as the Company and (ii) the Company and each Parallel Fund will dispose of its investments in a Portfolio Investment at the same time and on substantially the same terms, in each case subject to any specific legal, regulatory, tax, or other similar factors applicable to the Company or any such Parallel Fund. A Parallel Fund shall not include an Intermediate Entity, or any SMA.
| 3.7 | Meetings of Members. |
Commencing with the calendar year that begins after the Initial Closing Date, the Company will hold an annual meeting for the purposes of electing Directors and offering the Members the opportunity to review and discuss the Company’s investment activity and portfolio, and for such other business as may lawfully come before the Members. Annual meetings shall be held on such date and at such time as may be designated from time to time by the Board and stated in the notice of the meeting. Special meetings of the Members for any proper purpose or purposes may be called at any time by the Board. With respect to an annual or special meeting of Members, nominations of Persons for election to the Board and the proposal of business to be considered by Members may be made only pursuant to the notice of the meeting, as determined by the Board.
A quorum of the Members at an annual meeting or a special meeting shall consist of Members holding one-third of the outstanding Units entitled to vote on the matter in question.
| 3.8 | Member Voting and Consents. |
Whenever action is required by this Agreement to be taken by a specified percentage in interest of the Members (or any class or group of Members), such action shall be deemed to be valid if taken upon the written vote or written consent of those Members (or those Members included in such class or group) whose Units represent the specified percentage of the aggregate outstanding Units of all Members (or all Members included in such class or group) at the time.
Each Member shall be entitled to one vote for each Unit held on all matters submitted to a vote of the Members. Any Units held by the Adviser shall be voted by or on behalf of the Adviser in the same proportion as the Units not held by the Adviser are voted. Except as expressly provided
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herein, no class of, or enumerated category of, Members shall be entitled to vote or consent separately as a class with respect to any matter. For these purposes, a “majority in interest” shall mean a percentage in interest in excess of 50%, and a “Supermajority in Interest” shall mean a percentage in interest in excess of 66 2/3%.
With respect to any feeder fund, the feeder fund will be permitted to vote its Units in proportion to the voting instructions received from the feeder fund investors. Each feeder fund investor has the right to vote an amount equal to the number of Units to which its interest in the feeder fund corresponds. To the extent a feeder does not receive specific voting instructions from any feeder fund investor on the vote in question, then the feeder fund will vote the corresponding pro rata share of Units of those feeder fund investors in the same manner and proportion as the Units of those feeder fund investors for which it has received specific instructions for the vote in question.
ARTICLE 4
INVESTMENTS AND ACTIVITIES
| 4.1 | Investment Objectives. |
The primary objective of the Company is to generate attractive risk-adjusted returns for its Members. The Company will be primarily focused on investing in senior secured debt obligations. The Company expects to focus on portfolio companies in a variety of industries. The Company will consider financings for many different purposes, including corporate acquisitions, growth opportunities, liquidity needs, rescue situations, recapitalizations, debtor-in-possession loans, bridge loans and Chapter 11 exits. The issuers in which the Company intends to invest will typically be highly leveraged, and, in most cases, these investments will not be rated by any rating agency. Any investment (other than a Temporary Investment) intended to satisfy the Company’s investment objective is referred to herein as a “Portfolio Investment.”
| 4.2 | Investment Limitations. |
4.2.1 Investments in Portfolio Companies.
From and after the Initial Closing Date, the Company will not invest more than 10% of the aggregate Commitments of all Members in any single Portfolio Company (including in such limitation (a) investments in any direct or indirect subsidiary of such Portfolio Company and (b) the amount of any outstanding obligations of such Portfolio Company (or direct or indirect subsidiary of such Portfolio Company) that have been guaranteed by the Company) measured at the time of the investment. A wholly owned subsidiary of the Company will not be treated as a Portfolio Company and therefore will not be subject to this limitation.
| 4.2.2 | Additional Investment Limitations. |
The Company shall at all times comply with the following investment limitations:
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(a) The Company shall use reasonable best efforts to make or structure each investment in a jurisdiction outside the United States in a manner such that no Member (i) would have any personal liability with respect to such investment beyond such Member’s obligations to make contributions or payments to the Company as provided in this Agreement, or (ii) would be required with respect to such investment to file income tax returns in that jurisdiction reporting income (other than any Member who must file such returns without regard to the activities of the Company or who is required to file such returns for the purpose of reducing, eliminating or recovering any taxes withheld on behalf of such Member).
(b) The Company will not invest in the aggregate more than 30% of its aggregate Commitments in (a) any blind pool investment fund or similar vehicle established and managed by a party unrelated to the Adviser and (b) investments outside of the United States and Canada. Notwithstanding the foregoing, the Company will not invest in any blind pool investment fund or similar vehicle if the Company would be required to pay a management fee or incentive fee or allocation on such investment.
(c) The Company will not at any time invest more than 25% of its Total Assets in U.S. Real Estate Assets. For purposes of this section, “U.S. Real Estate Assets” means (i) any direct investment in real property (including land, any unsevered natural products or resources thereon, any improvements, and any personal property associated with the use of the real property) located in the United States or the U.S. Virgin Islands and (ii) any equity ownership interests in a corporation that is or has been a U.S. real property holding company (“USRPHC”) as defined in section 897(c)(2) of the Code at any time during the preceding 5 years or whose total investments in real property located in the United States exceeds 25% of its Total Assets, but does not include any interest solely as a creditor including any mortgage or other loan secured by real property or the stock of a USRPHC. For purposes of this section, the Company will take into account its proportionate share of the assets of any entity classified as a partnership for U.S. tax purposes or of any corporation in which it holds more than 50% of the fair market value of all classes of stock.
(d) The Company will not invest in (i) residual interests in entities treated as real estate mortgage investment conduits (“REMICs”) or (ii) real estate investment trusts that (A) are treated as taxable mortgage pools or (B) hold residual interests in REMICs or subsidiaries that are taxable mortgage pools, in each case as determined for U.S. federal income tax purposes.
| 4.2.3 | Conflicts of Interest. |
Subject to applicable law and/or in accordance with any relief granted by the SEC, the Company may invest in Portfolio Companies where an Existing Fund or other Affiliates of the Adviser simultaneously hold or are acquiring equity or debt securities or where an Affiliate of the foregoing may be an investor in the Company. Each such ownership and other relationships may create conflicts of interest for the Company. In such instances, each of the Company and such Affiliates will be free, in their discretion, to make recommendations and decisions with respect to the origination or disposition of such investments, independent of the recommendations and decisions made by the others unless required otherwise by any relief granted by the SEC. All such transactions will be made for the Company in a manner that the Board deems to be appropriate given the investment objective, liquidity, diversification and other limitations of the Company and in accordance with applicable law and/or any relief granted by the SEC. Any Portfolio Investment in an issuer that is an Affiliate of a Member shall be made, managed and disposed of in a manner consistent with similarly situated investments made by the Company in entities that are not Affiliates of a Member and in accordance with applicable law and/or any relief granted by the SEC.
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| 4.3 | Borrowing. |
| 4.3.1 | General. |
The Company shall have the power to enter into, make and perform all such contracts and other undertakings, and engage in all such activities and transactions as the Board may deem necessary or advisable for or incidental to the carrying out of the Company’s purpose and objectives (and all determinations, decisions and actions made or taken by the Board shall be conclusive and absolutely binding upon the Company, the Members and their respective successors, assigns and personal representatives), including: to incur indebtedness for borrowed money (including through the issuance of notes and other evidence of indebtedness), to incur other obligations (including in connection with derivative financial instruments), to arrange and make guarantees to support any such indebtedness or other obligations and incur reimbursement obligations in respect of any such guarantees, to pledge or assign or otherwise make available credit support for any such indebtedness, guarantees or other obligations and to take all other actions as the Company deems necessary or appropriate in connection with incurring indebtedness, other obligations or guarantees. The Company is hereby authorized, at its option and without consent of any Member, to hypothecate, mortgage, assign, transfer, make a collateral assignment or pledge or grant a comparable security interest to a lender or other holders of indebtedness, other obligations, or guarantees of the Company (a) any or all assets of the Company, including Portfolio Investments and deposit or similar accounts into which capital contributions are deposited (the assets described in this clause (a) referred to herein as “Assets”) and/or (b) some or all of the Undrawn Commitment of some or all of the Members, including the Company’s right to call for and receive contributions of Undrawn Commitments under 6.1 and all rights and remedies related thereto (including those under 6.2) and the obligations of some or all of the Members under their respective Subscription Agreements and this Agreement (the rights described in this clause (b) referred to herein as “Assigned Rights”, and together with Assets, referred to herein as “Credit Support”).
In furtherance thereof, the Company may, in each case subject to such other conditions as the Company may reasonably determine, (a) authorize any lender or holders of such indebtedness, guarantees or other obligations, including any agent or trustee acting on their behalf, as agent and on behalf of the Company, or in such other capacity as the Company may specify to act as agent of and on behalf of the Company (i) to exercise Assigned Rights, (ii) to issue draw downs and to require all or any portion of such Undrawn Commitment to be contributed to the Company for purposes of paying related proceeds to a holder of such indebtedness, guarantees or other obligations to the Company; provided that no Member shall at any time be required to fund capital contributions directly to any party other than the Company, (iii) to exercise any remedy of the Company under this Agreement in respect of any Asset or Assigned Rights or in respect of any draw down, called contributions or Undrawn Commitment, and (iv) to enforce the Members’ obligations under their respective Subscription Agreements and this Agreement, and (b) take any other action the Company reasonably determines to be necessary for the purpose of providing such Credit Support (collectively, clauses (a) and (b), the “Lender Powers”); provided that any exercise of such Lender Powers shall be made in accordance with this Agreement. In addition, the Company is hereby authorized to provide to or receive from any lender or holders of such indebtedness, guarantees or other obligations, including any agent or trustee acting on their behalf, financial information related to such Member.
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Notwithstanding anything to the contrary in this Agreement, for so long as the Company operates as a BDC, the Company shall not incur indebtedness (including, for this purpose, issuance of the Preferred Units) in violation of the leverage requirements applicable to a BDC, including but not limited to Sections 18 and 61 of the 1940 Act and any interpretation thereof that is currently or may become applicable to the Company.
| 4.3.2 | Member Acknowledgements. |
To facilitate the Company’s ability to incur indebtedness, guarantees and other obligations and to incur pledges or assigns or otherwise make available as Credit Support for such indebtedness, guarantees and other obligations, each Member hereby agrees to and acknowledges the representations and acknowledgements set forth in Appendix II.
| 4.3.3 | Beneficiary Rights. |
Notwithstanding anything herein to the contrary, any agent or lender granted a lien with respect to the Assigned Rights and the right to exercise any Lender Power shall be an intended beneficiary of this Agreement and shall be entitled to enforce the provisions of this 4.3 and Appendix II.
| 4.4 | Preferred Units. |
Without the consent of any Member, the Board may cause the Company to issue one class of Preferred Units, which Preferred Units may have rights senior to those of the Common Units, and such other characteristics as the Board may determine, but, for so long as the Company operates as a BDC, in a manner that complies with the requirements for the Company to comply with legal requirements applicable to a BDC, subject to any changes in applicable law that may alter the Company’s ability to incur indebtedness after the date of this Agreement. Prior to the issuance of a series of Preferred Units, the Board shall set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption for such series.
| 4.5 | Retention and Reinvestment of Proceeds. |
| 4.5.1 | Limited Retention and Reinvestment. |
Subject to the requirements of Section 852(a) of Subchapter M of the Code (for so long as such provisions are relevant) and the terms of any indebtedness or Preferred Units, during the Commitment Period, the Company may retain, in whole or in part, any Proceeds received by the Company attributable to Portfolio Investments and may use the amounts so retained to make new Portfolio Investments (up to the cost of Portfolio Investments attributable to such Proceeds), pay Company Expenses, repay Company borrowings, guarantees or other obligations, or fund reasonable reserves for future Portfolio Investments or future Company Expenses or other obligations (including, without limitation, obligations to make the indemnification advances and
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payments which may be required by 11.2); provided, however, that, after the expiration of the Commitment Period, no part of such retained amounts shall be used to make any Portfolio Investment except to the extent that the Company would be permitted pursuant to 6.1.4 to draw down amounts to fund such Portfolio Investment. The Company may not retain Proceeds for the purpose of making a Portfolio Investment to the extent such retention would cause the Undrawn Commitment of the Common Units to be reduced below zero. Notwithstanding the foregoing, once the Undrawn Commitment of the Common Units is reduced to zero, the Company may continue to retain Proceeds that represent net investment income for the purpose of paying its operating costs (including expenses, the Management Fee, the Incentive Fee, payments to the Administrator and any indemnification obligations), debt service or other obligations of any borrowings, guarantees or other obligations the Company has made. Any retained Proceeds that represent net investment income will be treated as a deemed distribution by the Company to the Common Unitholders and a deemed re-contribution by the Common Unitholders to the Company, and the aggregate Undrawn Commitment of all Unitholders will be reduced by such amount.
| 4.5.2 | Required Distributions of Amounts Not Retained. |
Subject to 4.5.1, the Company will distribute to the Common Unitholders net proceeds attributable to the repayment or disposition of Portfolio Investments, together with any interest, dividends, other net cash flow in respect of Portfolio Investments (or potential Portfolio Investments) or Temporary Investments (collectively, “Proceeds”) in the manner and at the times set forth below.
Subject to the requirements of Section 852(a) of Subchapter M of the Code, and the terms of any indebtedness or Preferred Units, distributions of Proceeds will be made to the Common Unitholders pro rata based on the number of Common Units held by each Common Unitholder.
The Company shall distribute, promptly after receipt thereof, all Proceeds except to the extent such Proceeds are permitted to be retained as described in 4.5.1. Notwithstanding anything herein to the contrary, the Adviser will endeavor to cause the Company to effect distributions of Proceeds as necessary to comply with the requirements of Section 852(a) of Subchapter M of the Code.
Payment of distributions will be subject to applicable withholding taxes, if any. The Company (or its withholding agent) shall be entitled to deduct and withhold from any amount otherwise distributable to a Common Unitholder pursuant to this Agreement such amounts as may be required to be so deducted and withheld under any applicable law. Any amounts so withheld shall be treated for all purposes of this Agreement as having been distributed to the Common Unitholder.
| 4.5.3 | Recallable Amounts. |
Subject to the limitations set forth in 6.1.4, a Common Unitholder may be required to re-contribute amounts previously distributed to it with respect to its Common Units. The amount that a Common Unitholder may be required to re-contribute pursuant to this 4.5.3 (the “Recallable Amount” of such Common Unitholder) shall be equal to (a) such Common Unitholder’s share of all Portfolio Investments that are repaid to the Company or otherwise recouped by the Company and distributed to such Common Unitholder, in whole or in part, during or after the Commitment Period, reduced by (b) all re-contributions made by such Common Unitholder pursuant to this 4.5.3.
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ARTICLE 5
FEES AND EXPENSES; ADVISORY AGREEMENT
| 5.1 | Company Expenses |
(a) Subject to 5.1(b), the Company shall bear and be responsible for all costs, expenses and liabilities in connection with the organization, operations, administration and transactions of the Company (“Company Expenses”). Company Expenses shall include, without limitation: (a) Organizational Expenses and any other expenses associated with the issuance of the Units and issuance of interests in a Related Entity organized and managed by TCW as a feeder fund for the Company; (b) expenses of calculating the Company’s net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring the financial and legal affairs for the Company, providing administrative services, monitoring or administering the Company’s investments and performing due diligence reviews of prospective investments and the corresponding Portfolio Companies; (e) costs associated with the Company’s reporting and compliance obligations under the 1940 Act, the 1934 Act and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance the Company’s investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other securities; (h) Management Fees and Incentive Fees; (i) administrator fees and expenses payable under the Administration Agreement, provided that any such fees payable to the Administrator shall be limited to what a qualified third party would charge to perform substantially similar services; (j) transfer agent, sub-administrator and custodial fees; (k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes and other governmental charges assessed against the Company; (n) Independent Directors’ fees and expenses and the costs associated with convening a meeting of the Board or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of the Unitholders or holders of any Preferred Units; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of the Company’s financial statements and tax returns; (r) the Company’s allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to the Company; (u) compensation of other third party professionals to the extent they are devoted to preparing the Company’s financial statements or tax returns or providing similar “back office” financial services to the Company; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for the Company, monitoring the investments of the Company and disposing of any
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such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to the Company, including in each case services with respect to the proposed purchase or sale of securities by the Company that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying this Agreement or Advisory Agreement or related documents of the Company or Related Entities; (aa) fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of the Company or Related Entities; and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering the Company’s business.
(b) Notwithstanding anything to the contrary in this Agreement, the Company will not bear more than an amount equal to 10 basis points of the aggregate Commitments to the Company for Organizational Expenses and offering expenses in connection with the offering of Units.
In addition to the foregoing, the Adviser shall bear Adviser Operating Expenses.
| 5.2 | Advisory Agreement; Management Fee and Incentive Fee. |
| 5.2.1 | Advisory Agreement. |
The Company shall enter into an advisory agreement (the “Advisory Agreement”) with the Adviser for assistance in providing management services to the Company, in the form attached hereto as Exhibit 1. The Advisory Agreement will automatically terminate in the event of an “assignment” (within the meaning of the 1940 Act) by the Adviser. The Advisory Agreement may be terminated by the Board or by the approval of a majority in interest of the Common Unitholders or, if less, such lower percentage as required by the 1940 Act, without penalty, upon not less than 60 days’ prior written notice to the Adviser. The Members acknowledge and agree that, so long as the Advisory Agreement (or a successor agreement) is in effect, the Company shall delegate the authority to make investment, disposition and similar decisions, including the authority to approve all Portfolio Investments and/or all dispositions thereof, to the Adviser. The Company shall promptly notify the Members of any material amendment to the Advisory Agreement. In addition, the Adviser has delivered on the Initial Closing Date to the Company (for the benefit of the Company and the Members) the adviser representation letter in the form attached hereto as Exhibit 2.
| 5.2.2 | Management Fee. |
In consideration of the services to be provided by the Adviser to the Company pursuant to the Advisory Agreement, the Company shall pay to the Adviser an amount equal to the management fee (the “Management Fee”), calculated in accordance with Section 5 of the Advisory Agreement. Such amount shall be paid to the Adviser in accordance with Section 5 of the Advisory Agreement.
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| 5.2.3 | Incentive Fee. |
Subject to the terms of the Advisory Agreement, the Company shall pay the Adviser the Incentive Fee. The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined in accordance with the formula in accordance with Section 6 of the Advisory Agreement each time amounts are to be distributed to the Common Unitholders, it being understood, for the avoidance of doubt, that such amount will be calculated based on the gross distributions to which a Member is entitled notwithstanding (i) any amounts of U.S. federal income tax required to be withheld from such distributions and (ii) any obligation of such Member to return certain distributions in respect of the Company’s liability, if any, for underwithholding of U.S. federal income tax, pursuant to 11.4.
| 5.2.4 | Transaction; Advisory Fees |
Any (i) transaction, advisory, consulting, management, monitoring, directors’ or similar fees, (ii) closing, investment banking, finders’, transaction or similar fees, (iii) commitment, breakup or topping fees or litigation proceeds and (iv) other fee or payment of services performed or to be performed with respect to an investment or proposed investment received from or with respect to Portfolio Companies or prospective Portfolio Companies in connection with the Company’s activities will be the property of the Company. Notwithstanding the foregoing, for administrative or other reasons, certain fees described in clauses (i) through (iv) above (including any fees for administrative agent services provided by the Adviser or a TCW Affiliate with respect to a particular loan or portfolio of loans made by the Company) may be paid to the Adviser or the TCW Affiliate (rather than directly to the Company), in which case the amount of such fees (net of any related expenses associated with the generation of such fees borne by the Adviser or such TCW Affiliate that have not been and will not be reimbursed by the Company) shall be paid to the Company or shall offset amounts (including the Management Fee) otherwise payable by the Company to the Adviser; provided that any such amount not paid to the Company or used to offset amounts otherwise payable by the Company to the Adviser shall be distributed to the Unitholders upon the final liquidation of the assets of the Company.
ARTICLE 6
CAPITAL OF THE COMPANY
| 6.1 | Obligation to Contribute. |
| 6.1.1 | General. |
The Company will offer Common Units with each Unit representing a Commitment of $100. Each Common Unit will be issued for a purchase price of $0.01 per Common Unit (the “Original Issuance Price”) and will obligate the Common Unitholder to make additional future capital contributions of $99.99 per Common Unit. The undrawn commitment per Unit will equal $100 reduced by the Aggregate Contributions made (or deemed made) with respect to such Unit (the “Undrawn Commitment”); provided that, as provided in 3.3.2, (a) the Undrawn Commitment of a Common Unit will not be reduced for any NAV Balancing Contributions or Late-Closer Contributions made by a Common Unitholder, (b) the Undrawn Commitment will be increased for certain distributions attributable to True-Up Contributions, and (c) the Undrawn Commitment will be increased for any Recallable Amount as provided in 4.5.3.
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| 6.1.2 | Original Issuance Price. |
Upon the Company accepting a Common Unitholder’s Commitment, such Common Unitholder will automatically be obligated to pay an amount equal to the Original Issuance Price of the Common Units corresponding to that Commitment. The Company will require payment of the Original Issuance Price as part of the initial drawdown pursuant to 6.1.3 with respect to those Units.
| 6.1.3 | Drawdowns of Undrawn Commitment; Deficiency Drawdowns. |
(a) The Company may draw down capital contributions from time to time from each Member up to such Member’s Undrawn Commitment with respect to its Common Units and may require each Member to make any other payment required under this Agreement. Each Member agrees to contribute or pay to the Company the called amount by the date specified in the capital call notice, provided that the due date shall not be less than ten Business Days following the date the drawdown notice is dispatched (except that the due date for the initial drawdown with respect to newly issued Units shall not be less than five Business Days following the date the drawdown notice is dispatched).
(b) Calls for capital contributions, or a rescission or postponement of such a call with respect to Common Units, will be sent to each Common Unitholder by mail, electronic facsimile, electronic mail or other method of communication deemed reasonable by the Company. A call for capital contributions may be rescinded or postponed by the Company by prompt written notice but no later than the due date specified therein. In the case of a postponement to a specified future date, such notice shall restate the information contained in the original notice, indicating any material changes.
(c) All capital contributions or other payments shall be made to the Company by wire transfer or other transfer of federal or other immediately available U.S. funds on or before the relevant due date to the account designated for such purpose. Each Common Unitholder shall be obligated to make payment in full of each required capital contribution per Common Unit, together with any interest or other amounts due thereon, on the date due, and no Common Unitholder shall make (nor shall the Company be obligated to accept) less than the full amount of any such required capital contribution.
(d) Each capital call will be issued in the amount per Common Unit specified by the Company, and such amount will be applicable to all Common Units outstanding as of the date such capital call is due to be contributed to the Company; provided that in connection with the issuance of any new Common Units following the Initial Closing Date, the amount to be contributed as payment for such newly issued Common Units will be determined in accordance with 3.3.1. Notwithstanding the foregoing, if any Common Unitholder has failed to make a capital contribution with respect to its applicable Common Units when due, the Company in its discretion may call for a deficiency drawdown of contributions from the other Common Unitholders to replace the unpaid contribution upon seven Business Days’ prior written notice, and any amounts
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paid by such other Common Unitholders pursuant to a deficiency drawdown will reduce the remaining Undrawn Commitments of such Common Unitholders. For purposes of 6.2, the amount of a Common Unitholder’s contribution that is not paid when due shall be deemed to include such Common Unitholder’s ratable share, determined on a grossed-up basis, of any deficiency drawdown with respect to such Common Unitholder’s unpaid contribution.
| 6.1.4 | Commitment Period. |
Prior to the termination of the Commitment Period, additional capital contributions may be drawn down pursuant to 6.1.3 for any purpose contemplated under this Agreement, including for the purpose of funding new Portfolio Investments. After the expiration of the Commitment Period, the Company will not call for or accept, and the Members shall not be obligated to make, any capital contributions to fund new Portfolio Investments other than:
(a) Portfolio Investments that are significantly in process prior to the expiration of the Commitment Period and as to which the Company and the prospective Portfolio Company have commenced, in good faith, negotiating the terms of the investment and which the Company reasonably expects to be consummated prior to the date that is 90 days after the date of the expiration of the Commitment Period; or
(b) Follow-on investments in existing Portfolio Companies up to an aggregate amount not to exceed an amount equal to 10% of the aggregate cumulative invested amounts.
For the avoidance of doubt, the following shall not be treated as new Portfolio Investments: (i) funding amounts to Portfolio Companies pursuant to credit facilities in place prior to the termination of the Commitment Period, and (ii) funding amounts to be used to exercise or convert options, warrants or other convertible securities held by the Company.
The Company at any time (i.e., regardless of whether the Commitment Period has expired) may call for capital contributions (and the Members shall be obligated to fund such contributions) pursuant to (and subject to the limitations of) 6.1.3 for purposes of paying Company Expenses, repaying indebtedness, making payments with respect to guarantees and other liabilities and obligations of the Company, and establishing reserves therefor, and any other purpose permissible under this Agreement. Nothing in this 6.1.4 shall require any Common Unitholder to make capital contributions or payments to the Company other than as provided in this Agreement.
| 6.1.5 | No Interest. |
No interest shall accrue on any Member’s contribution.
| 6.2 | Failure to Make Required Payment. |
| 6.2.1 | Interest. |
Except as otherwise provided in this Agreement, upon any failure by a Member to pay a capital contribution in full when due, interest will accrue at the Default Rate on the outstanding unpaid balance of such capital contribution, from and including the date such capital contribution was due until the earlier of the date of payment of such capital contribution by such Member (or a
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transferee) or the date on which such Unit is transferred. The “Default Rate” with respect to any period shall be the lesser of (a) a variable rate equal to the Prime Rate in effect, from time to time, during such period plus 6% or (b) the highest interest rate for such period permitted by applicable law. The Company, in its discretion, may waive the requirement to pay interest, in whole or in part.
| 6.2.2 | Default. |
Except as otherwise provided in this Agreement, if any Common Unitholder fails to make a capital contribution when due, and has also failed to make such payment on or before the date that is seven Business Days after the Company has given written notice to such Common Unitholder of such Common Unitholder’s failure to make such payment, then such Common Unitholder (a “Defaulting Member”) shall be in default. If a Common Unitholder becomes a Defaulting Member, the Company may, in its discretion, and subject to applicable law, pursue one or more of the following alternatives:
(a) Cause the Defaulting Member to forfeit, at each drawdown date, such number of its Common Units as is necessary to prevent any increase in such Defaulting Member’s Common Units’ aggregate net asset value as a result of the contribution of capital by other Members with respect to their Common Units, which forfeited Common Units may be cancelled on the Company’s books and records or may be transferred to the non-defaulting Common Unitholders, in each case without any action by the Defaulting Member;
(b) Impose a Default Charge upon the Defaulting Member pursuant to 6.2.3;
(c) Offer all of the Defaulting Member’s Common Units to the other Common Unitholders or third parties for purchase at a price equal to the lesser of the then net asset value of such Common Units or the highest price reasonably obtainable by the Company, subject to such other terms as the Company in its discretion shall determine, which offer(s) and sale(s) shall be binding upon the Defaulting Member if the purchasing Common Unitholders or third parties agree to assume the related Commitment with respect to such Common Units of the Defaulting Member, including any portion then due and unpaid, and the Company pursuant to its authority under 13.8.1 may execute on behalf of the Defaulting Member any documents necessary to effect the Transfer of the Defaulting Member’s Common Units pursuant to this 6.2.2(c);
(d) Assist the Defaulting Member in selling its Common Units (subject to applicable law), with the full assumption by the buyer of the Defaulting Member’s Commitments thereto, including any portion then due and unpaid;
(e) Accept a late contribution from the Defaulting Member, with interest (if any), in satisfaction of its then- outstanding obligation to contribute hereunder;
(f) Pursue and enforce all of the Company’s other rights and remedies against the Defaulting Member under this Agreement or the relevant Subscription Agreement and applicable law and/or at equity, including but not limited to the commencement of a lawsuit to collect the unpaid capital contribution, interest, costs, and reimbursement (with interest at the Default Rate) for any other damages suffered by the Company;
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(g) Issue an additional capital call to non-defaulting Common Unitholders for the defaulted contribution, provided that no Common Unitholder shall be obligated to fund an amount in excess of the Undrawn Commitment of the Common Units held by such Common Unitholder; and/or
(h) Pursue any other remedy at law or in equity available to the Company with respect to the Defaulting Member.
If a Defaulting Member’s Units are sold pursuant to (c) or (d) above, or if the Company exercises its discretion to accept a late contribution pursuant to (e) above, the Company shall not impose a Default Charge pursuant to 6.2.3 below. Otherwise, to the maximum extent permitted by law, the remedies set forth above shall be cumulative, and the use by the Company of one or more of them against a Defaulting Member shall not preclude the use of any other such remedy. The Company may pursue and enforce all rights and remedies it may have against a Defaulting Member. Notwithstanding anything to the contrary in this Agreement, the Company will hold the Defaulting Member responsible for all fees and expenses, including without limitation, attorneys’ fees or sales commissions, incurred as a result of the default.
| 6.2.3 | Default Charge. |
The Members agree that the damages suffered by the Company as the result of a default by a Defaulting Member will be substantial and that such damages cannot be estimated with reasonable accuracy. To the maximum extent permitted by law, as a specified penalty or consequence of such default, as permitted by Section 18-502(c) of the Delaware Act and subject to 6.2.2, the Company may cause a Defaulting Member to forfeit up to an additional amount of Common Units equal to 50% of the Common Units such Defaulting Member subscribed for, respectively (the “Default Charge”) after application of 6.2.2(a), which forfeited Common Units may be cancelled on the Company’s books and records or may be transferred to the non-defaulting Members, in each case without any action by the Defaulting Member.
| 6.2.4 | Distributions to Defaulting Members. |
Subject to any Default Charge imposed pursuant to 6.2.3, the Company may withhold any distributions that otherwise would be made to a Defaulting Member until such time as the Company makes its final liquidating distribution or until such earlier time as the Company may determine. Any distributions so withheld, or the proceeds thereof, shall be placed in a separate escrow account and may only be used by the Company to offset obligations of such Defaulting Member. Upon the final liquidating distribution or such earlier time as the Company determines, if there are funds remaining in the escrow account after paying or reserving for all possible current and future obligations of such Defaulting Member, such funds shall be distributed to such Defaulting Member. If the Company has withheld in-kind distributions from a Member pursuant to this 6.2.4 and subsequently determines to pay the withheld distributions to such Member, it may elect to (1) pay cash to such Member in lieu of any distributions which were made to non-defaulting Members in kind and withheld from such Member, but the Company shall not, in such event, be liable to such Member for any subsequent increase in the value of any securities that would have been distributed to such Member had such Member not defaulted, or (2) deliver to such Member the securities or other assets (or substantially identical securities or assets) such
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Member would have received had the distribution to such Member not been withheld, but the Company shall not, in such event, be liable for any diminution in the value of such securities or other assets subsequent to the date such securities would have been distributed. Any losses incurred by the Company upon the disposition of the securities or other assets that would otherwise have been distributed to the Defaulting Member in kind shall be for the account of the Defaulting Member.
| 6.2.5 | Effect of Default on Remaining Interest in Company. |
(a) The Company, in its sole discretion, may determine that no additional capital contribution shall be accepted from a Defaulting Member, in which case the Company shall so notify the Defaulting Member and, following the date that such notice is given to the Defaulting Member, the Company shall not call for additional capital contributions from such Defaulting Member.
(b) If the Company has given the notice described in the preceding clause (a) and such Defaulting Member’s Aggregate Contribution with respect to its Units has been reduced to zero (by application of the Default Charge or otherwise), then the Defaulting Member’s Units shall be forfeited without compensation and the Defaulting Member shall no longer be a Member of the Company, and the Company shall have no further obligation to the Defaulting Member provided that the Defaulting Member shall remain liable for its obligation to return distributions pursuant to 11.4.
(c) If a portion or all of the Common Units of a Defaulting Member are forfeited, then for purposes of 5.2.2 and the Advisory Agreement, the Defaulting Member’s Commitment shall be correspondingly reduced; provided, however, that for purposes of determining the Management Fee payable by the Company, such adjustment to the Defaulting Member’s original Commitment shall take effect only as of the end of the fiscal year in which such unpaid Commitment is reduced to zero or its Common Units are extinguished. For purposes of 4.3, the Defaulting Member shall be deemed to have an aggregate Commitment equal to its Commitment prior to the default. For purposes of any other provision of this Agreement for which the Defaulting Member’s Commitment with respect to each of its Units is relevant, the Company shall determine the amount of such Commitment, in its reasonable discretion, so as to carry out the purposes of such provision.
| 6.3 | Key Person Event. |
If, during the Commitment Period, (i) Mr. Miller and one or more of Ms. Grosso, Mr. Gertzof and Mr. Wang (each of such four Persons, a “Key Person” and collectively, the “Key Persons”) fail to devote substantially all of his or her business time to the investment activities of the Company and the Related Entities; or (ii) Ms. Grosso, Mr. Gertzof and Mr. Wang all fail to devote substantially all of his or her business time to the investment activities of the Company and the Related Entities, in each case other than as a result of a Temporary Disability (the occurrence of such event, a “Key Person Event”), and the Adviser does not replace such individual(s) in the manner contemplated herein, then the Commitment Period shall be automatically terminated upon such Key Person Event, whereupon (A) Members will be released from their obligation to fund additional capital contributions with respect to the Common Units, except for purposes permitted
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after the Commitment Period as described in 6.1.4(a) and the last paragraph of 6.1.4 and (B) the Company shall not acquire new Portfolio Investments except as described in 6.1.4(a). The Commitment Period shall be re-instated, and the restrictions set forth in clauses (A) and (B) above shall be rescinded, upon the vote or written consent of a Supermajority in Interest of the Common Unitholders. If, during the Commitment Period, any Key Person shall fail to devote substantially all of his or her business time to the investment activities of the Company and the Related Entities other than as a result of a Temporary Disability (the occurrence of such event, a “Key Person Departure”), the Company shall provide written notice to Members of such Key Person Departure within 30 days of the date of such Key Person Departure. If the Company fails to obtain approval of a replacement of a Key Person following a Key Person Departure as provided herein, then notwithstanding anything herein, the Key Person Departure shall be permanent and the Adviser shall not be permitted to replace such Key Person. Notwithstanding the foregoing, the Adviser is permitted at any time to replace any Person designated above with a senior professional (including a Key Person) selected by the Adviser, with the approval of the majority of the Unitholders (in which case, the approved substitute shall be a Key Person in lieu of the Person replaced) no later than 90 days after the date that the Adviser informs the Company of its proposed replacement of the Key Person. If such replacement(s) end the occurrence of a Key Person Event, the Commitment Period will automatically be re-instated.
ARTICLE 7
DISTRIBUTIONS
| 7.1 | Amount, Timing and Form. |
| 7.1.1 | General. |
Except as otherwise provided in this Agreement (including, but not limited to, 4.5.2), the Company shall determine the amount, timing and form (whether in cash or in kind) of all distributions made by it. Prior to the Company making distributions with respect to Common Units, the Company may pay or, subject to the RIC rules while the Company elects RIC status, set aside assets for (i) the Company’s current liabilities and other current obligations including payments due under credit facilities, guarantees or similar liabilities of the Company or any Intermediate Entities, (ii) reserves for expenses, indemnities and other liabilities and obligations of the Company or any Intermediate Entities, (iii) the maintenance of adequate working capital for the continued conduct of the Company’s business, (iv) required current or anticipated distributions with respect to any Preferred Units, and (v) to the extent otherwise permitted hereunder, amounts to fund or otherwise with respect to new or existing Portfolio Investments.
Except as otherwise provided in this Agreement (including, but not limited to, 3.3.2(c), 3.3.4(c) and 6.2.4), distributions to Members will be made to the Common Unitholders pro rata based on the number of Common Units held by each.
| 7.1.2 | Form of Distributions; Apportionment of In-Kind Distributions. |
All distributions made before the commencement of the liquidation of the Company’s assets pursuant to Article 9 shall consist of cash. Distributions on or after the commencement of the liquidation of the Company’s assets pursuant to Article 9 shall consist of cash or in-kind
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distributions; provided that an in-kind distribution can only be made with respect to a class of Units with the approval of a majority in interest of the Members of such class of Units; provided further, that if the Company is dissolved following a request by the Company to extend the term of the Company pursuant to 8.1 that is not approved by the Members, then an in-kind distribution may be made without the approval of the Common Unitholders in the discretion of the Company in any manner that is permissible under the 1940 Act. Each lot of securities to be distributed in kind shall be distributed to the Members in proportion to their respective shares of the proposed distribution as provided in this Article 7 or Article 9, as the case may be, except to the extent that a disproportionate distribution of securities is necessary in order to avoid distributing fractional shares. For purposes of the preceding sentence, each lot of stock or other securities having a separately identifiable tax basis or holding period shall be treated as a separate lot of securities.
| 7.2 | Certain Distributions Prohibited. |
Anything in this Agreement to the contrary notwithstanding, no distribution shall be made to any Member if, and to the extent that, such distribution would not be permitted under the Delaware Act.
ARTICLE 8
DURATION OF THE COMPANY
| 8.1 | Term of Company. |
The term of the Company shall continue until the eighth anniversary of the date of this Agreement, unless (a) such term is extended as provided in this Section 8.1, (b) the Commitment Period is extended as provided herein (in which case the term of the Agreement shall be extended by an equal amount, or (c) unless the Company is sooner dissolved as provided in 8.2 or by operation of law. Thereafter, the term of the Company may be extended by the Company for successive one-year periods, in each case upon written notice to the Members at least 90 days prior to the expiration of the term or the end of the first one-year period, as the case may be.
| 8.2 | Events of Dissolution. |
The Company shall be dissolved (i) upon the expiration of its term (as such term may be extended pursuant to this Agreement), (ii) upon the determination by the Board in its sole discretion to dissolve the Company because the Board has determined that there is a substantial likelihood that due to a change in the text, application or interpretation of the provisions of the U.S. federal securities laws (including the Securities Act, the 1940 Act and the Investment Advisers Act of 1940, as amended) or the provisions of ERISA (including the Plan Assets Regulation), the Code, or any other applicable statute, regulation, case law, administrative ruling or other similar authority (including changes that result in the Company being taxable as a corporation or association under U.S. federal income tax law), the Company cannot operate effectively in the manner contemplated herein, (iii) at any time there are no members of the Company, unless the business of the Company is continued in accordance with this Agreement or the Delaware Act, (iv) upon the entry of a decree of judicial dissolution of the Company under Section 18-802 of the Delaware Act, or (v) if a court of competent jurisdiction has found that the Adviser has acted with willful misfeasance, gross negligence, or reckless disregard of the duties involved in its conduct and a majority in interest of the Unitholders has approved such dissolution.
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ARTICLE 9
LIQUIDATION OF ASSETS ON DISSOLUTION
| 9.1 | General. |
Following dissolution, the Company’s assets shall be liquidated in an orderly manner. The Board shall be the liquidator to wind up the affairs of the Company pursuant to this Agreement. The Board as liquidator shall cause the Company to pay or provide for the satisfaction of the Company’s liabilities and obligations to creditors in accordance with the Delaware Act. In performing their duties, the Board as liquidator is authorized to sell, exchange or otherwise dispose of the assets of the Company in such reasonable manner as the Board shall determine to be in the best interests of the Members.
| 9.2 | Liquidating Distributions; Priority. |
Subject to Section 18-804 of the Delaware Act, the proceeds of liquidation shall be applied in the following order of priority:
(a) First, to pay the costs and expenses of dissolution and liquidation; to pay or provide for the satisfaction of the Company’s debts and other liabilities, including obligations to creditors in accordance with the Delaware Act; and to establish any reserves which the liquidator may deem necessary or advisable for any contingent or unmatured liability of the Company, including the payment of the Management Fee and the Incentive Fee;
(b) Second, to the satisfaction of the prior rights of any outstanding Preferred Units, if issued; and
(c) Thereafter, among the Common Unitholders equally on a per Unit basis.
| 9.3 | Duration of Liquidation. |
A reasonable time shall be allowed for the winding up of the affairs of the Company in order to minimize any losses otherwise attendant upon such a winding up.
| 9.4 | Liability for Returns. |
| 9.4.1 | General. |
None of the liquidator, the Directors, the Officers, the Adviser and their respective partners, members, stockholders, officers, directors, managers, employees, agents and Affiliates shall be personally liable to any Member for the return of the capital contributions of any Member.
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| 9.4.2 | Distribution of Returned Amounts. |
To the fullest extent permitted by law, amounts paid by the Adviser pursuant to the Adviser Return Obligation (as defined in the Advisory Agreement) shall be distributed to the Members in accordance with 9.2.
| 9.5 | Post-Dissolution Investments and Drawdowns. |
Notwithstanding anything to the contrary set forth in this Article 9, but subject to the other limitations on investments set forth in this Agreement and the Delaware Act, the liquidator may, at any time or times after dissolution, cause the Company to make additional investments in entities which were Portfolio Companies on the date of dissolution (including any successor to, or subsidiary of, a Portfolio Company), if the liquidator believes that such additional investments are in the best interests of the Members and in furtherance of the winding up of the affairs of the Company.
ARTICLE 10
LIMITATIONS ON TRANSFERS AND REDEMPTIONS OF COMPANY UNITS
| 10.1 | Transfers of Units. |
| 10.1.1 | General. |
No assignment, pledge, mortgage, hypothecate, gift, sale or other disposition or encumbrance (collectively, “Transfer”) of a Member’s Units, in whole or in part, shall be made other than pursuant to this 10.1. Any attempted Transfer of all or any part of a Member’s Units without compliance with this Agreement shall be void to the maximum extent permitted by law. Each Transfer shall be subject to all of the terms, conditions, restrictions and obligations set forth in this Agreement and shall be evidenced by an assignment agreement executed by the transferor, the transferee(s) and the Company, in form and substance satisfactory to the Company. No Transfer will be effectuated except by registration of the Transfer on the Company’s books.
10.1.2 Consent of Company.
The prior written consent of the Company, which will not be unreasonably withheld, shall be required for any Transfer of all or part of any Member’s Units, including a Transfer of solely an economic interest in the Company.
10.1.3 Required Representations by Parties.
The transferor and transferee(s) shall provide such additional written representations as the Company reasonably may request.
10.1.4 Other Prohibited Legal Consequences.
No Transfer shall be permitted, and the Company shall withhold its consent with respect thereto, if such Transfer or the admission of the transferee to the Company as a substituted Member, would:
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(a) Result in the Company’s assets becoming “plan assets” of any ERISA Member within the meaning of the Plan Assets Regulation;
(b) Result in the violation of applicable securities law; or
(c) Result in the Company no longer being eligible to be treated as a BDC or a RIC.
In addition, in the case of a purported Transfer of an interest in the Company to or from any resident in Japan (which term as used herein means any Person resident in Japan, including any corporation or other entity organized under the laws of Japan), (A) if the transferor is a “Qualified Institutional Investor” (a “QII”) as such term is defined in the Financial Instruments and Exchange Law of Japan (the “FIEL”), such interest shall not be transferred to a Person that is not a QII; (B) if the transferor is not a QII, such interest shall not be transferred to a Person unless such transferor Transfers its entire interest in the Company to a single investor who is an eligible non-QII investor as defined in the FIEL; and (C) such interest shall not be transferred to a Person that is set forth in sub-items (a)-(c) of article 63, paragraph 1, item 1 of the FIEL.
10.1.5 Opinion of Counsel.
The Company may, but is not required to, condition its consent to any Transfer hereunder upon receipt by the Company of a written opinion of counsel for the Company, or of other counsel reasonably satisfactory to the Company, in form and substance satisfactory to the Company, as to such legal matters as the Company reasonably may request. No opinion will be required for any Transfer that is merely an assignment of Units to any successor trustee of an ERISA Member. For all purposes of this Agreement, opinions of counsel referred to herein to be delivered by a Member may be delivered by an in-house counsel of the Member (or an affiliate of the Member) whom the Member reasonably believes to have expertise in the area of law which is the subject matter of the opinion.
10.1.6 Reimbursement of Transfer Expenses.
Any Member who requests or otherwise seeks to effect a Transfer of all or a portion of its Units hereby agrees to reimburse the Company, at its request, for any expenses reasonably incurred by the Company in connection with such Transfer, including the costs of seeking and obtaining the legal opinion required by 10.1.5 and any other legal, accounting and miscellaneous expenses (“Transfer Expenses”), whether or not such Transfer is consummated. At its election, and in any event if the transferor has not reimbursed the Company for any Transfer Expenses incurred by the Company in preparing for or consummating a proposed or completed Transfer within 30 days after the Company has delivered to such Member written demand for payment, the Company may seek reimbursement from the transferee of such Units (or portion thereof). If the transferee does not reimburse the Company for such Transfer Expenses within a reasonable time (or, in the case of a Transfer not consummated, the prospective transferor does not reimburse the Company within a reasonable time), the Company may withhold such amount from distributions that would otherwise be made with respect to such Units (with such withheld amount treated as having been distributed to the holder of such Units for all other purposes of this Agreement).
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| 10.2 | Admission of Substituted Members. |
| 10.2.1 | General. |
Any transferee of a Member’s Units transferred in accordance with the provisions of this Article 10 shall be admitted as a substituted Member upon its execution (whether on its own behalf or via an attorney-in-fact) of an assignment agreement and a counterpart to this Agreement and upon obtaining the Company’s written consent. Without the written consent of the Company to such substitution, no transferee of a Member’s Units shall be admitted as a substituted Member.
| 10.2.2 | Effect of Admission. |
The transferee of Units transferred pursuant to this Article 10 that is admitted to the Company as a substituted Member shall succeed to the rights and liabilities of the transferor Member with respect to such interest and, after the effective date of such admission, the Commitment and Aggregate Contribution of the transferor with respect to the applicable class of Unit being transferred shall become the applicable Commitment and Aggregate Contribution, respectively, of the transferee, to the extent of the Unit transferred. If a transferee is not admitted to the Company as a substituted Member, (a) such transferee shall have no right to participate with the Members in any votes taken or consents granted or withheld by the Members hereunder, and (b) the transferor shall remain liable to the Company for all contributions and other amounts payable with respect to the transferred interest to the same extent as if no Transfer had occurred.
| 10.2.3 | Non-Compliant Transfer. |
If a Transfer has been proposed or attempted but the requirements of this Article 10 have not been satisfied, the Company shall not admit the purported transferee as a substituted Member but, to the contrary, shall ensure that the Company (a) continues to treat the transferor as the sole owner of the Units purportedly transferred, (b) makes no distributions to the purported transferee and (c) does not furnish to the purported transferee any tax or financial information regarding the Company. The Company shall also not otherwise treat the purported transferee as an owner of any Units (either legal or equitable), unless required by law to do so. To the maximum extent permitted by law, the Company shall be entitled to seek injunctive relief, at the expense of the purported transferor, to prevent any such purported Transfer.
| 10.3 | Multiple Ownership. |
If any Transfer results in multiple ownership of any Member’s Units, the Company may require one or more trustees or nominees to be designated as representing a portion of or the entire interest transferred for purposes of (a) receiving all notices which may be given, and all payments which may be made, under this Agreement and (b) exercising all rights which the transferor as a Member has pursuant to the provisions of this Agreement.
| 10.4 | Adviser’s Interest Upon Removal. |
The Adviser’s removal as Adviser shall not affect any Units held by the Adviser (or any of its Affiliates) in its capacity as a Member. The former Adviser shall continue to be treated as a Member for all purposes of this Agreement, shall have all of the rights and obligations of a Member hereunder, including the right to receive allocations and distributions on the same basis as all other Members, and shall not be entitled to receive any further allocations or distributions to which the Adviser is entitled hereunder in connection with serving as an investment adviser to the Company.
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ARTICLE 11
EXCULPATION AND INDEMNIFICATION
| 11.1 | Exculpation. |
| 11.1.1 | General. |
To the maximum extent permitted by law, no Covered Person shall be liable to the Company or any Member for (a) any mistake in judgment, (b) any act performed or omission made by such Covered Person, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company (x) if such Covered Person did not act in bad faith, and (y) if such conduct did not constitute willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person’s respective position. For purposes of this Article 11, “Covered Person” shall mean the Directors, the Adviser, the Administrator and each of their members, managers, officers, employees, agents, controlling Persons and any other Affiliate and any Person who otherwise serves at the request of the Board on behalf of the Company, each to the extent such Person was serving in such capacity at the time the loss or cause of action arose. The provisions of this Agreement, to the extent that they restrict or eliminate the duties (including fiduciary duties) and liabilities of a Covered Person to the Company or any Member otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.
| 11.1.2 | Activities of Others. |
To the maximum extent permitted by law (including, without limitation, ERISA), no Covered Person shall, in the absence of its own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person’s respective position, be liable to the Company or any Member for the negligence, whether by action or omission, dishonesty or bad faith of any broker or other agent of the Company.
| 11.1.3 | Liquidator. |
To the maximum extent permitted by law (including, without limitation, ERISA), no Person serving as liquidator shall be liable to the Company or any Member for any loss suffered by the Company or any Member which arises out of any action or omission of such Person, provided that such Person did not act in bad faith.
| 11.1.4 | Advice of Experts. |
To the maximum extent permitted by law (including, without limitation, ERISA), no Covered Person and no Person serving as liquidator shall be liable to the Company or any Member with respect to any action or omission taken or suffered by any of them in good faith if such action or omission is taken or suffered in reliance upon and in accordance with the opinion or advice of legal counsel (as to matters of law), or of accountants (as to matters of accounting), or of investment bankers, accounting firms, or other appraisers (as to matters of valuation), provided that any such professional or firm is selected with reasonable care.
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| 11.2 | Indemnification. |
| 11.2.1 | General. |
To the maximum extent permitted by law, the Covered Persons, each liquidator, and each partner, member, stockholder, director, officer, manager, trustee, employee, agent and Affiliate of any of the foregoing (each, an “Indemnitee”) shall be indemnified, subject to the other provisions of this Agreement, by the Company (only out of Company assets, including the proceeds of liability insurance and the right to require contributions or other payments by the Members under this Agreement) against any claim, demand, controversy, dispute, cost, loss, damage, expense (including attorneys’ fees), judgment and/or liability incurred by or imposed upon the Indemnitee in connection with any action, claim, suit, investigation or proceeding (including any proceeding before any court, arbitrator, administrative or legislative body or other agency) or any settlement thereof (subject to 11.2.3), to which the Indemnitee may be made a party or otherwise involved or with which the Indemnitee shall be threatened, arising out of (a) any mistake in judgment, (b) any action or omission done on behalf of the Company or in furtherance of the interests of the Company or the Members or otherwise arising out of or in connection with the Company, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company, except for such losses (x) arising from such Indemnitee’s own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position or losses due to a violation of an applicable law or regulation by the Indemnitee or (y) arising from the Indemnitee defending an actual or threatened claim, action, suit or proceeding against the Indemnitee brought or initiated by the Company, the Board and/or the Adviser (or brought or initiated by the Indemnitee against the Company, the Board and/or the Adviser).
| 11.2.2 | Effect of Judgment. |
Notwithstanding 11.2.1, an Indemnitee shall not be indemnified with respect to matters as to which the Indemnitee shall have been finally adjudicated in any such action, suit or proceeding to have acted in bad faith or to have acted in a manner that constituted willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position.
| 11.2.3 | Effect of Settlement. |
In the event of settlement of any action, suit or proceeding brought or threatened, such indemnification shall apply to all matters covered by the settlement except for matters as to which the Company is advised by counsel (who may be counsel regularly retained to represent the Company) that the Person seeking indemnification, in the opinion of counsel: (a) acted in bad faith or (b) acted with willful misfeasance, gross negligence or reckless disregard of the duties involved in the conduct of such Indemnitee’s position.
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| 11.2.4 | Process; Advance Payment of Expenses. |
(a) Promptly after receipt by an Indemnitee of notice of the commencement of any action, such Indemnitee shall, if a claim in respect thereof is to be made against the Company pursuant to this 11.2, notify the Company in writing of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability which it may have to any Indemnitee under this 11.2 (other than under this 11.2.4). Once the Company is so notified, the Company will be entitled to participate in such action and, if desired, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee. If the Company so assumes the defense, the Company shall not be liable to such Indemnitee under this 11.2 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee in connection with the defense thereof, provided, however, that if (i) the Company and the Indemnitee mutually agree otherwise, (ii) the Company has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnitee, (iii) the Indemnitee shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Company or (iv) the named parties in any such proceedings (including any impleaded parties) include both the Company and the Indemnitee and the Indemnitee shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Company shall be liable to such Indemnitee under this 11.2.4 for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnitee.
(b) The Company and the Indemnitee shall inform any other Indemnitee of any such settlement, compromise or judgment, prior to the completion of such settlement, compromise or judgment. The Company shall not, without the written consent of the Indemnitee, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnitee is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnitee from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnitee.
(c) Except to the extent described above in this 11.2.4, the Company may pay the expenses incurred by an Indemnitee in connection with any such action, suit or proceeding, or in connection with claims arising in connection with any potential or threatened action, suit or proceeding, in advance of the final disposition of such action, suit or proceeding, upon receipt of an enforceable undertaking by such Indemnitee to repay such payment if the Indemnitee shall be determined to be not entitled to indemnification for such expenses pursuant to this Article 11; provided, however, that in such instance the Indemnitee is not defending an actual or threatened claim, action, suit or proceeding brought or initiated by Members constituting at least a majority in interest of the Members.
| 11.2.5 | Insurance. |
The Company may maintain, at the expense of the Company, (i) insurance policies for the protection of any Indemnitee or potential Indemnitee against any liability incurred in any capacity which results in such Person being an Indemnitee (provided that such Person is serving in such
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capacity at the request of the Company or the Board), to the extent such policies are consistent with the Adviser’s customary practice in maintaining insurance for its other registered investment vehicles advised by the Adviser and its Affiliates and (ii) one or more fidelity bonds that meet the requirements of the 1940 Act. For the avoidance of doubt, the Company will not bear the cost of insurance and/or fidelity bonds that are extraordinary for similarly situated BDCs.
| 11.2.6 | Successors and Survival. |
The foregoing right of indemnification shall inure to the benefit of the executors, administrators, personal representatives, successors or assigns of each such Indemnitee and shall survive the termination of this Agreement.
| 11.2.7 | Rights to Indemnification from Other Sources. |
The rights to indemnification and advancement of expenses conferred in this 11.2 shall not be exclusive and shall be in addition to any rights to which any Indemnitee may otherwise be entitled or hereafter acquire under any law, statute, rule, regulation, charter document, by-law, contract or agreement.
| 11.2.8 | Insurance and Other Sources for Indemnity. |
Each Indemnitee shall, as a condition to obtaining payments under 11.2, use commercially reasonable efforts to seek payment from any applicable Portfolio Company, its insurance carriers and/or the insurance carriers of the Adviser and/or the Company. The Company shall, in good faith, determine whether any such Indemnitee has used commercially reasonable efforts to seek such payments. In no event, however, shall the Company be precluded from making payments under 11.2 to any such Indemnitee if reasonable uncertainty exists as to the likelihood of payment by any such Portfolio Company or insurance carrier in a timely manner or on reasonably acceptable terms.
| 11.3 | Limitation by Law. |
If any Covered Person or Indemnitee or the Company itself is subject to any federal or state law, rule or regulation which restricts the extent to which any Person may be exonerated or indemnified by the Company, the exoneration provisions set forth in 11.1 and the indemnification provisions set forth in 11.2 shall be deemed to be amended, automatically and without further action by the Members, to the minimum extent necessary to conform to such restrictions.
| 11.4 | Return of Certain Distributions. |
(a) If (1) the Company incurs (or becomes obligated to reimburse a third party for) a liability or obligation under this Article 11, (2) the Company does not have sufficient available funds to satisfy such liability or obligation (the amount of such liability or obligation in excess of the Company’s available assets being the “Shortfall Amount”), and (3) each Member (other than a Defaulting Member) has already made aggregate contributions pursuant to drawdowns equal to such Member’s Commitment and any Recallable Amount, then the Company may require that each Member return distributions to the Company, upon not less than 10 days’ prior written notice from the Company, of its proportionate share of the Shortfall Amount
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(determined based upon the aggregate lesser amount of distributions that each Member would have received if such indemnification obligation had been incurred and paid by the Company prior to any distributions having been made by the Company, and after taking into account any payments pursuant to the Adviser Return Obligation); provided, however, that no Member shall be required to return an aggregate amount pursuant to this 11.4 in excess of the lesser of (a) the aggregate amount of distributions received by such Member from the Company and (b) 25% of such Member’s aggregate Commitment. Notwithstanding the foregoing, (a) in no event shall any Member be required to return distributions pursuant to this 11.4 in an amount which exceeds the aggregate amount of distributions received by such Member from the Company on or after the date that is 36 months prior to the date on which the Company notified the Members in writing of such potential obligations or liabilities, net of any amounts returned by such Member to the Company during such period pursuant to this 11.4, and (b) in no event shall any Member be required to return distributions pursuant to this 11.4 more than two years after the Company’s final liquidating distribution except to fund payment of obligations or liabilities for which the Company has delivered to the Members on or prior to the second anniversary of such final liquidating distribution written notice of such potential obligations or liabilities (and, to the extent permitted by law (including, without limitation, ERISA), the Company may require payments made after its final liquidating distribution to be made to the Adviser or directly to an Indemnitee).
(b) A Member’s obligation to return distributions to the Company under this 11.4 shall survive the termination, dissolution and winding up of the Company (and, to the extent permitted by law (including, without limitation, ERISA), the Company may require any payments made after its final liquidating distribution to be made to the Adviser or directly to an Indemnitee), and the Company may pursue and enforce all rights and remedies it may have against each Member under this 11.4, including instituting a lawsuit to collect such contribution with interest from the due date at the Default Rate. If any return of a distribution pursuant to this 11.4 is required to be made pursuant to this 11.4 after the date of the final liquidating distribution of the Company, then, as set out in the Advisory Agreement, the Adviser Return Obligation shall be recomputed to take into account the post-liquidation payments required by this 11.4 if and to the extent the obligation to make such payments had not previously been taken into account when initially determining the Adviser Return Obligation. The return obligations of the Members pursuant to 11.4 shall be in addition to their capital contribution obligations with respect to their Commitments. Amounts returned by a Member pursuant to this 11.4 shall be treated as a reduction in the amount of distributions received by such Member, and amounts returned by such Member pursuant to this 11.4 shall not increase such Member’s Commitment; provided that failure to make a required payment pursuant to this 11.4 by any Member may, in the Company’s discretion, be treated for purposes of 6.2 and the provisions and remedies therein as a failure by such Member to make a required capital contribution pursuant to a capital call. Amounts to be returned pursuant to this 11.4 shall be payable in cash. The provisions of this 11.4 shall not be construed or interpreted as inuring to the benefit of any creditor of (i) the Company (other than Indemnitees), (ii) a Member, (iii) the Adviser or (iv) any Indemnitee.
(c) Amounts returned by the Members to the Company pursuant to this 11.4 shall, subject to the Delaware Act, be used to satisfy expenses incurred pursuant to this Article 11. If, for any reason other than satisfaction of such liability or obligation by the Company, any such liability or obligation is cancelled or terminated, in whole or in part, the Company shall return to the Members the unused portion of the amount contributed.
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ARTICLE 12
AMENDMENTS
| 12.1 | Amendments. |
| 12.1.1 | By Consent. |
Except as otherwise provided in this Agreement, the terms and provisions of this Agreement (including, without limitation, 13.8.8) may be amended (which term includes any waiver, modification, or deletion of this Agreement) during or after the term of the Company, with the prior written consent of (i) in the case of an amendment not affecting the rights of the Preferred Unitholders, a majority in interest of the Common Unitholders, (ii) in the case of an amendment not affecting the rights of a Common Unitholder (including rights or protections with respect to tax consequences of Common Unitholders), a majority in interest of the Preferred Unitholders, and (iii) in case of an amendment affecting the rights (including rights or protections with respect to tax consequences of Common Unitholders) of both the Common Unitholders and the Preferred Unitholders, a majority in interest of the Common Unitholders and a majority in interest of the Preferred Unitholders. Notwithstanding the immediately preceding sentence, the following amendments may be made with the consent of the Board and without the need to seek the consent of any Member:
(a) to add to the duties or obligations of the Board or surrender any right granted to the Board herein,
(b) to cure any ambiguity or correct or supplement any provision herein which may be inconsistent with any other provision herein or to correct any printing, stenographic or clerical errors or omissions in order that this Agreement shall accurately reflect the agreement among the Members,
(c) to make such changes as the Board in good faith deems necessary to comply with any requirements applicable to the Company or its Affiliates under the 1940 Act or any similar state or federal law,
(d) to make any revision to Schedule A, Schedule B or Schedule C made in accordance with this Agreement,
(e) to make changes that this Agreement specifically provides may be made by the Board without the consent of any Member, or
(f) to make any amendment agreed with any Member admitted to the Company after the Initial Closing Date;
provided, however, that no amendment shall may be made pursuant to clauses (a) through (e) above if such amendment would (1) subject any Member to any adverse economic consequences without such Member’s consent, (2) diminish the rights or protections of one or more Members (including, for the avoidance of doubt, provisions intended to protect one or more Members from suffering certain adverse tax consequences), or (3) diminish or waive in any material respect the duties and obligations of the Board to the Company or the Members.
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| 12.1.2 | Amendments Affecting Members’ Economic Rights. |
Notwithstanding 12.1.1, no amendment to this Agreement shall increase any Commitment of any Common Unitholder or dilute the relative interest of any Member with respect to the other Members holding Units of the same class in the profits or capital of the Company or in allocations or distributions attributable to the ownership of such interest without the prior written consent of such Member, except such dilution as may result from additional Commitments from the Common Unitholders, the admission of Later-Closing Investors, or the issuance of Preferred Units pursuant to this Agreement. This 12.1.2 shall not be amended without the unanimous consent of all Members.
| 12.1.3 | Consent to Amend Special Provisions. |
Without the prior written consent of the Members as indicated below, the following provisions shall not be amended:
(a) 14.1, 14.2 or this 12.1.3(a) without the prior written consent of a Supermajority in Interest of all Members that are ERISA Members;
(b) 14.2 (as that provision applies to Public Plan Members), 14.3 or this 12.1.3(b) without the prior written consent of a Supermajority in Interest of all Members that are Public Plan Members;
(c) 14.2 (as that provision applies to Foundation Members), 14.4 or this 12.1.3(c) without the prior written consent of a Supermajority in Interest of all Members that are Foundation Members;
(d) 14.2 (as that provision applies to BHC Members), 14.5 or this 12.1.3(d) without the prior written consent of a Supermajority in Interest of all Members that are BHC Members;
(e) those provisions intended to protect Members that are subject to tax on UBTI or this 12.1.3(e) without the prior written consent of a Supermajority in Interest of all Members that are subject to tax on UBTI; or
(f) any provision in this Agreement that requires the consent, action or approval of a specified percentage in interest of the Members or this 12.1.3(f) without the consent of such specified percentage in interest of the Members.
| 12.1.4 | Notice of Amendments. |
The Company shall promptly furnish copies of any amendments to this Agreement to all Members. Changes made to the books and records of the Company made pursuant to 3.1 or otherwise shall not be deemed to be amendments to this Agreement and shall not be required to be furnished to all Members.
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| 12.1.5 | Other Agreements. |
Notwithstanding the provisions of this Agreement or any Subscription Agreement, but subject to the 1940 Act, applicable federal securities law, and any other BDC requirements, it is hereby acknowledged and agreed that the Board on behalf of the Company, without the approval of any Member or any other Person, may enter into a side letter or similar agreement with a Member, executed in connection with the admission of such Member to the Company, which agreement has the effect of establishing rights under, or altering or supplementing the terms of this Agreement or such Member’s Subscription Agreement in order to meet certain requirements of such Member (an “Other Agreement”). The parties hereto agree that any terms contained in an Other Agreement with a Member shall govern with respect to such Member notwithstanding the provisions of this Agreement.
ARTICLE 13
ADMINISTRATIVE PROVISIONS
| 13.1 | Keeping of Accounts and Records; Certificate of Formation; Administrator. |
| 13.1.1 | Accounts and Records. |
At all times the Company shall keep proper and complete books of account, in which shall be entered fully and accurately the transactions of the Company. Such books of account shall be kept on the accrual method of accounting. The Company shall also maintain: (a) an executed copy of this Agreement (and any amendments hereto); (b) the Certificate (and any amendments thereto); (c) executed copies of any powers of attorney pursuant to which any document described in clause (a) or (b) has been executed by the Company; (d) a current list of the name, address, Commitments and taxpayer identification number, if any, of each Member; (e) copies of all tax returns filed by the Company; and (f) all financial statements of the Company for each of the prior seven years. These books and records shall at all times be maintained at the principal office of the Company and in accordance with the Company’s record retention policy.
| 13.1.2 | Certificate of Formation. |
The Company shall file for record with the appropriate public authorities and, if required, publish the Certificate and any amendments thereto.
| 13.1.3 | Administrator. |
The Company will enter into a contract (the “Administration Agreement”) with an administrator (the “Administrator”) to perform certain administrative, accounting and investor services for the Company. The Administrator will be experienced in providing such services to investment funds similar to the Company.
| 13.2 | Inspection Rights. |
At any time before the Company’s complete liquidation, each Member, or a designee thereof, at its own expense may for any purposes reasonably related to its interests as a Member (a) fully examine and audit the Company’s books, records, accounts and assets, including bank
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account balances and (b) examine, or request that the Company furnish, such additional information as is reasonably necessary to enable the requesting Member to review the state of the investment activities of the Company; provided that such information is necessary and essential to the Member’s purpose and the Company can obtain such additional information without unreasonable effort or expense; provided, further, that the Company may redact confidential information relating to another Member. Any such examination or audit shall be made (1) only upon ten (10) Business Days’ prior written notice to the Company, (2) during normal business hours and (3) without undue disruption. Notwithstanding the foregoing, the Company shall have the benefit of the confidential information provisions of Section 18-305(c) of the Delaware Act, and the obligation to make Company Information available or to furnish Company Information shall be subject to 13.8.8.
13.3 Financial Reports.
13.3.1 Annual Financial Statements.
Subject to 13.8.8, the Company shall use its best efforts to provide to each Member, within 90 days after the close of each fiscal year, the audited financial statements of the Company for such fiscal year, which audited financial statements shall be prepared in accordance with generally accepted accounting principles as in effect at such time.
13.3.2 Additional Reporting.
Subject to 13.8.8, the Company shall generally furnish to each Member, within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, unaudited financial statements of the Company for the quarter then ended.
13.3.3 Web Site.
Notwithstanding 13.5, the Company shall, to the maximum extent permitted by law, be deemed to have satisfied its obligations to provide financial statements, reports or other notices pursuant to this Agreement if the Company posts such financial statements, reports or other notices on a web site and gives notice to the Members, pursuant to 13.5, of the availability of such financial statements, reports or other notices, the URL address of the web site and a password for access to such web site, if necessary, and such access will include the ability to download and print such financial statements, reports or other notices.
13.4 Valuation.
13.4.1 Valuation by Board.
At the end of each fiscal quarter and whenever valuation of Company assets or net assets is otherwise required by this Agreement, the Board (with the input of the Adviser, the audit committee of the Board, and an external, independent valuation firm retained by the Company described in 13.4.5) shall determine the value of the Company’s assets for which market quotations are not readily available in good faith in accordance with this 13.4. Valuations of Company assets for which market quotations are not readily available will be determined by the Board at the end of each fiscal quarter.
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| 13.4.2 | Freely Tradable Securities. |
The fair market value of any security owned by the Company which is a Freely Tradable Security shall be determined on the basis of the last reported trade price of such security on the date the value is being determined on the exchange where it is primarily traded or, if such security is not traded on an exchange, such security shall be valued at the last reported sale price on such dates on Nasdaq or, if such security is not reported on Nasdaq, such security shall be valued at the reported closing bid prices (or average of bid prices) last quoted on such dates as reported by an established quotation service for over-the-counter securities. For purposes of determining the fair market value of any Freely Tradable Security as of any date, the “last reported” trade price or sale price on any trading day shall be deemed to be: (a) for securities traded primarily on the New York Stock Exchange, NYSE MKT or Nasdaq, the last reported trade price or sale price, as the case may be, as of 4:00 p.m., New York time, on that day and (b) for securities listed or traded on other exchanges, markets and systems, the market price as of the end of the “regular hours” trading period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times generally accepted in the securities industry for determining the market price of a security as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.
| 13.4.3 | Other Assets. |
The determination of the fair market value of all other assets of the Company shall be based upon all relevant factors, including, without limitation, such of the following factors as may be deemed relevant by the Board: current financial position and current and historical operating results of the issuer; sales prices of recent public or private transactions in the same or similar securities, including transactions on any securities exchange on which such securities are listed or in the over-the-counter market; general level of interest rates; recent trading volume of the security; restrictions on transfer, including the Company’s right, if any, to require registration of its securities by the issuer under the securities laws; any liquidation preference or other special feature or term of the security; significant recent events affecting the Portfolio Company, including any pending private placement, public offering, merger or acquisition; the price paid by the Company to acquire the asset; the percentage of the issuer’s outstanding securities that is owned by the Company; and all other factors affecting value.
| 13.4.4 | Goodwill and Intangible Assets. |
In determining the fair market value of the assets of the Company, no allowance of any kind shall be made for goodwill or the name of the Company or of the Adviser, the Company’s records, files and statistical data or any intangible assets of the Company in the nature of or similar to goodwill. The Company’s name and goodwill shall, as among the Members, be deemed to have no value, and no Member shall have any right or claim individually to the use thereof. The Members agree that the names, trademarks and service marks “TCW”, “TCW & Design”, and all modifications, derivations or versions thereof, and any goodwill associated therewith, are owned by one or more TCW Affiliates, and use of any such name as part of the Company’s name or in connection with the Company’s activities shall not affect the ownership of such names, trademarks and service marks.
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| 13.4.5 | Independent Valuation Firm. |
The Board will engage an independent valuation firm on behalf of the Company to assist the Board in determining the fair market value of the Company’s assets for which market quotations are not readily available. The Company’s valuation firm will at all times be unaffiliated with the Adviser and will be experienced in the valuation of assets similar to the types of investments to be made by the Company.
| 13.5 | Notices. |
Except where otherwise specifically provided in this Agreement (including 13.3.3), all notices, requests, consents, approvals and statements shall be in writing and, if properly addressed to the recipient, shall be deemed given (a) on the date of actual receipt if delivered personally to the recipient; (b) three (3) Business Days after mailing if mailed by first class mail (or if sent to or from outside the United States, by airmail), postage prepaid; (c) if a Business Day and sent prior to 1:00 p.m. Los Angeles time, the date of transmission (or, if not a Business Day or sent after 1:00 p.m. Los Angeles time, the Business Day following transmission) if sent by electronic facsimile transmission or e-mail or (d) one (1) Business Day after being sent by a reputable overnight courier service, overnight delivery requested. Notices shall be deemed to be properly addressed, if to the Company at: c/o TCW STAR DIRECT LENDING LLC, Attention: Meredith Jackson, General Counsel, 865 S. Figueroa Street, Los Angeles, CA 90017, or if to any Member (or trustee or nominee pursuant to 10.3), if addressed to its address as set forth in such Member’s Subscription Agreement, or to such other address or addresses as the addressee previously may have specified by written notice given in the manner specified in this 13.5 to the Company, in the case of the Members, or to the Members, in the case of the Company.
| 13.6 | Accounting Provisions. |
| 13.6.1 | Fiscal Year. |
The fiscal year of the Company shall be the calendar year or, if the Company is required to use a different year as its taxable year for federal income tax purposes, such other year.
| 13.6.2 | Independent Auditors. |
The Company’s independent public auditors shall at all times be a nationally recognized independent public auditing firm selected by the Company. The Company may change its auditors from time to time, and the Company will notify the Members of any such change.
| 13.7 | Tax Provisions. |
| 13.7.1 | Classification of the Company as Corporation for Tax Purposes. |
(a) The Company intends to make an election to cause it to be classified as an association that is taxable as a corporation and, subject to clause (d) below, shall maintain such classification.
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(b) The Company will use reasonable best efforts to qualify as a RIC no later than the first fiscal year in which the Company anticipates it will have significant amounts of net income.
(c) Once the Company has elected RIC status, the Board will use reasonable best efforts to maintain the Company’s status as a RIC.
(d) Once the Company has elected RIC status, if the Company is unable to continue to qualify as a RIC for any reason, the Board shall use reasonable best efforts to cause the Company to be classified as a partnership for U.S. federal tax purposes (a “Partnership Election”). If the Board determines to cause the Company to make a Partnership Election, to the extent that the Company has Members that are subject to tax on UBTI, the Company shall use reasonable best efforts, based on advice of the Company’s tax advisers, to effect the Partnership Election and conduct the operations of the Company so as to not create a material amount of UBTI for those affected Members. Such steps may include (A) causing the Company to repay its outstanding indebtedness prior to the effective date of the Partnership Election, modifying the terms of any arrangements whereby services income is received by the Company (without reducing the net economic benefit to the Company with respect to such arrangements), and causing the effective date of the Partnership Election to precede the Company failing to qualify as a RIC, or (B) another method for minimizing tax consequences to the Member that conforms with advice from the Company’s tax counsel.
| 13.7.2 | RIC Requirements. |
During the period starting when the Company intends to qualify as a RIC for U.S. federal income tax purposes and ending when a Partnership Election is made, the Board shall seek to cause the Company to meet any requirements necessary to obtain and maintain RIC qualification, including source-of-income and asset diversification requirements and distributing annually an amount equal to at least 90% of its “investment company taxable income.”
| 13.7.3 | Tax Information. |
If the Company is notified or has actual knowledge that a Member is subject to non-U.S. tax or tax reporting obligations solely as a result of such Member’s investment in the Company, the Company shall notify such Member of such obligations. The Company will use commercially reasonable efforts to cause to be delivered, within 90 days after the end of each calendar year to each Member who was a Member at any time during such calendar year:
(a) for Members subject to U.S. federal, state, and local tax reporting obligations, such information as may be necessary for the preparation of such Member’s U.S. federal, state, and local tax returns;
(b) for a Member subject to non-U.S. tax or tax reporting obligations solely as a result of an investment in the Company, such information as may be necessary for the Member to pay such non-U.S. tax or satisfy such non-U.S. tax or tax reporting obligations; and
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(c) to the extent the Company is notified by a Member of such Member’s tax obligations in connection with its investment in the Company (including non-U.S. tax reporting obligations), such other information as is reasonable to request (and which the Company may reasonably supply) as the Member may need to fulfill any applicable tax reporting obligations that may be required from such Member with respect to its Units.
| 13.7.4 | Listed Transactions. |
The Company shall not knowingly engage in a transaction that, as of the date the Company enters into a binding contract to engage in such transaction, is a “listed transaction” as defined in Internal Revenue Code Section 6707A(c)(2) and Treas. Reg. § 1.6011-4(b)(2). The Company shall inform the Members if it becomes aware that it has engaged in a transaction that would be a “reportable transaction” as defined in Treas. Reg. § 1.6011-4(b). If a Member is required to make filings in connection with such reportable transaction, the Company will use its reasonable best efforts to forward information necessary to complete such filings and to otherwise assist in such filings.
| 13.8 | General Provisions. |
| 13.8.1 | Power of Attorney. |
Each of the undersigned, by execution of this Agreement (including by execution of a counterpart signature page hereto directly or via an attorney-in-fact), hereby designates any duly authorized representative of the Company as its true and lawful representative and attorney-in-fact, in its name, place and stead, to make, execute, sign, acknowledge and deliver or file (a) the Certificate and any other instruments, documents and certificates which may from time to time be required by any law to effectuate, implement and continue the valid and subsisting existence of the Company, (b) all instruments, documents and certificates that may be required to effectuate the dissolution and termination of the Company in accordance with the provisions hereof and the Delaware Act, (c) all other amendments of this Agreement or the Certificate contemplated by this Agreement including, without limitation, amendments reflecting the addition or substitution of any Member, or any action of the Members duly taken pursuant to this Agreement whether or not such Member voted in favor of or otherwise approved such action that has been approved by the applicable vote or written consent of the Members (if required) pursuant to the terms of this Agreement, (d) any other instrument, certificate or document required from time to time to admit a Member, to effect its substitution as a Member, to effect the substitution of the Member’s assignee as a Member, or to reflect any action of the Members or the Members provided for in this Agreement that has been approved by the applicable vote or written consent of the Members (if required) pursuant to the terms of this Agreement and (e) if such Member becomes a Defaulting Member, documents necessary or appropriate to effect the sale of such Member’s Common Units pursuant to 6.2.2. The foregoing grant of authority (1) is a special power of attorney coupled with an interest in favor of the Company and as such shall be irrevocable and shall survive and not be affected by the death, disability or incapacity of a Member that is a natural Person or the merger, dissolution or other termination of the existence of a Member that is a corporation, association, partnership, limited liability company or trust and (2) shall survive the assignment by the Member of the whole or any portion of its interest, except that where the assignee of the whole thereof has furnished a power of attorney, this power of attorney shall survive such assignment for the sole purpose of enabling the Company to execute, acknowledge and file any instrument necessary to effect any permitted substitution of the assignee for the assignor as a Member and shall thereafter
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terminate. This power of attorney may be exercised by such attorney-in-fact for all Members (or any of them) by a single signature of a duly authorized representative of the Company acting as attorney in fact with or without listing all of the Members executing an instrument.
13.8.2 Execution of Additional Documents.
Each Member hereby agrees to execute all certificates, counterparts, amendments, instruments or documents that may be required by laws of the various jurisdictions in which the Company conducts its activities, to conform with the laws of such jurisdictions governing limited liability companies.
13.8.3 Binding on Successors.
This Agreement shall be binding upon and shall inure to the benefit of the respective heirs, successors, permitted assigns and legal representatives of the parties hereto.
13.8.4 Governing Law.
This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without regard to conflicts of law principles.
13.8.5 Submission to Jurisdiction; Venue; Waiver of Jury Trial.
Unless the Company otherwise agrees in writing, any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of Delaware, and, by execution and delivery of this Agreement, each Member hereby irrevocably accepts for him or herself and in respect of his or her property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Such Member hereby further irrevocably waives any claim that any such courts lack personal jurisdiction over such Member, and agrees not to plead or claim, in any legal action proceeding with respect to this Agreement in any of the aforementioned courts, that such courts lack personal jurisdiction over such Member. To the fullest extent permitted by applicable law, any legal action or proceeding with respect to this Agreement by a Member seeking any relief whatsoever against the Company shall be brought only in the Chancery Court of the State of Delaware (or other appropriate state court in the State of Delaware), and not in any other court in the United States of America, or any court in any other country. Such Member hereby irrevocably waives any objection that such Member may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the aforesaid courts and hereby further irrevocably, to the extent permitted by applicable law, waives his or her rights to plead or claim and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. UNLESS THE COMPANY OTHERWISE AGREES IN WRITING, THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT THAT SUCH PARTY MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT.
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| 13.8.6 | Waiver of Partition. |
Each Member hereby irrevocably waives any and all rights that it may have to maintain an action for partition of any of the Company’s property.
| 13.8.7 | Securities Law Matters. |
Each Member understands that in addition to the restrictions on transfer contained in this Agreement, it must bear the economic risks of its investment for an indefinite period because the interests in the Company have not been registered under the Securities Act or under any applicable securities laws of any state or other jurisdiction and, therefore, may not be sold or otherwise transferred unless they are registered under the Securities Act and any such other applicable securities laws or an exemption from such registration is available.
| 13.8.8 | Confidentiality. |
(a) A Member’s rights to access or receive any non-public information about the Company, its Portfolio Companies and their respective affairs, including, without limitation, (1) information to which a Member is provided access pursuant to 13.2, (2) financial statements, reports and other information provided pursuant to 13.3 and (3) the offering documents for the Company, this Agreement, any Subscription Agreement and any other related agreements and any other books and records of the Company (collectively, the “Company Information”), are conditioned on such Member’s willingness and ability to assure that the Company Information will be used solely by such Member for purposes reasonably related to such Member’s interest as a Member, and that such Company Information will not become publicly available as a result of such Member’s rights to access or receive such Company Information, and each Member agrees not to use Company Information other than for purposes of evaluating, monitoring or protecting its investment in the Company.
(b) Each Member acknowledges and agrees that the Company Information constitutes a valuable trade secret of the Company and agrees to maintain any Company Information provided to it in the strictest confidence and not to disclose the Company Information to any Person including, without limitation, a prospective transferee of such Member’s Units, without the written prior consent of the Company. Notwithstanding the foregoing, the Company consents to the disclosure of Company Information (I) by a Member to its accountants, attorneys, fiduciaries and similar advisors bound by a duty of confidentiality and (II) by any Member that the Company determines is a fund-of-funds or similar entity to such Member’s own equity holders of summary information concerning the Company’s financial performance and status to the extent necessary to satisfy such Member’s own reporting obligations; provided, however, that such equity holders are, at the time of such disclosure, pursuant to a written agreement, subject to substantially equivalent restrictions with respect to the use and disclosure of the Company Information as are set forth in this Agreement; provided, that such consent shall not be construed to permit disclosure of any information about the Company’s Portfolio Companies (including, without limitation, the fair market value of the Company’s interest in such Portfolio Companies). With respect to any Member, the obligation to maintain the Company Information in confidence shall not apply to any Company Information (1) that becomes publicly available (other than by reason of a disclosure by a Member), (2) the disclosure of which by such Member has been consented to by the Company
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in writing or (3) the disclosure of which by such Member is required by a court of competent jurisdiction or other governmental authority or otherwise as required by law. Before any Member discloses Company Information pursuant to clause (3), other than in connection with disclosure required by regulatory or tax audits or disclosure required in connection with any tax filing or return, such Member, to the maximum extent permitted by law, shall promptly, and in any event prior to making any such disclosure, notify the Company of the court order, subpoena, interrogatories, government order or other reason that requires disclosure of the Company Information so that the Company may seek a protective order or other remedy to protect the confidentiality of the Company Information. Such Member, to the maximum extent permitted by law, shall also consult with the Company on the advisability of taking steps to eliminate or narrow the requirement to disclose the Company Information and shall otherwise cooperate with the efforts of the Company to obtain a protective order or other remedy to protect the Company Information. If a protective order or other remedy cannot be obtained, to the maximum extent permitted by law, such Member shall disclose only that Company Information that its counsel advises in writing (which writing shall also be addressed and delivered to the Company, to the maximum extent permitted by law and to the extent such writing is not a privileged attorney-client communication) that the Member is legally required to disclose.
(c) Each Member, to the maximum extent permitted by law, shall promptly inform the Company if it becomes aware of any reason, whether under law, regulation, policy or otherwise, that it (or any of its equity holders) will, or might become compelled to, use the Company Information other than as contemplated by 13.8.8(a) or disclose Company Information in violation of the confidentiality restrictions in 13.8.8(b) (disregarding clause (3) thereof).
(d) Notwithstanding any other provision of this Agreement, with the exception of the annual financial reports, or equivalent report and the other additional reporting to be provided to each Member pursuant to 13.3.1, 13.3.2 and 13.3.3, respectively, the Company shall have the right not to provide any Member, for such period of time as the Company in good faith determines to be advisable, with any Company Information that such Member would otherwise be entitled to receive or to have access to pursuant to this Agreement or the Delaware Act if: (1) the Company is required by law or by agreement with a third party to keep such Company Information confidential; (2) the Company in good faith believes that the disclosure of such Company Information to such Member is not in the best interests of the Company or could damage the Company or the conduct of the affairs of the Company or its Portfolio Companies (which may include a determination by the Company that such Member (or any of its equity holders) is disclosing or may disclose such Company Information (or may be compelled to disclose such Company Information) or has not indicated a willingness to protect Company Information from being disclosed (or compelled to be disclosed) and that the potential of such disclosure by such Member (or any of its equity holders) is not in the best interests of the Company or could damage the Company, its Portfolio Companies or the conduct of the affairs of the Company or its Portfolio Companies) or (3) such Member has notified the Company of its election not to have access to or to receive such Company Information.
(e) The Members acknowledge and agree that: (1) the Company, the Directors, the Adviser and its partners and their Affiliates may acquire confidential information related to third parties (e.g., Portfolio Companies) that pursuant to fiduciary, contractual, legal or similar obligations may not be disclosed to the Members without violating such obligations and (2) neither
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the Company, the Directors, the Adviser nor its partners or any such Affiliates shall be in breach of any duty under this Agreement or the Delaware Act if, pursuant to such obligations, the Company, the Directors, the Adviser or its partners or any such Affiliates acquire, hold or fail to disclose Company Information to a Member, so long as such obligations were undertaken in good faith.
(f) In addition to any other remedies available at law, the Members agree that the Company shall, to the maximum extent permitted by law, be entitled to seek equitable relief, including, without limitation, the right to seek an injunction or restraining order, as a remedy for any failure by a Member to comply with its obligations with respect to the use and disclosure of Company Information, as set forth in 13.8.8(a) and 13.8.8(b). Furthermore, each Member agrees to indemnify the Company and each Covered Person against any claim, demand, controversy, dispute, cost, loss, damage, expense (including attorneys’ fees), judgment and/or liability incurred by or imposed upon the Company or any such Covered Person in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), to which the Company or any such Covered Person may be made a party or otherwise involved or with which the Company or any such Covered Person shall be threatened, by reason of the Member’s breach of its obligations set forth in 13.8.8(a) and/or 13.8.8(b).
(g) Each Member agrees to cooperate with such procedures and restrictions as may be developed by the Company from time to time in connection with the disclosure of non-public information concerning the Company, including without limitation information concerning the Company’s Portfolio Companies, as reasonably determined by the Company to be necessary and advisable to maintain and promote compliance with legal and other regulatory matters applicable to the Company, the Members and the Company’s Portfolio Companies, including securities laws and regulations.
(h) Each Member acknowledges and agrees that the Company may consider the different circumstances of Members with respect to the restrictions and obligations imposed on Members in this 13.8.8 and the provision of information under this Agreement, and the Company in its sole and absolute discretion may agree to waive or modify any of such restrictions and/or obligations with respect to a Member with the consent of such Member but without the consent of any other Person. Each Member further acknowledges and agrees that any such agreement by the Company with a Member to waive or modify any of the restrictions and/or obligations imposed by this 13.8.8 (or to withhold Company Information) shall (to the maximum extent permitted by law) not constitute a breach of any duty stated or implied in law or in equity to any Member, regardless of whether different agreements are reached with different Members.
(i) The Company shall not use the name of any Member without such Member’s consent in any marketing materials or group marketing presentations with respect to the offering of Units. For the avoidance of doubt, the Company may disclose the identity of a Member to a potential lender to, or investor in, the Company in connection with the due diligence of such potential lender or investor.
(j) To the maximum extent permitted by law, the provisions of this 13.8.8 shall survive the withdrawal of any Member or the Transfer of any Member’s Units in the Company and shall be enforceable against such Member after such withdrawal or Transfer. Notwithstanding the
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foregoing, each Member agrees that following the third anniversary of the final liquidation of the Company that, to the extent such Member receives notice that Company Information remains confidential (but not otherwise), such Member shall continue to treat such Company Information as confidential in accordance with such Member’s regular practices with regard to maintaining confidential information until the third anniversary of the receipt of such notice, at which time such Member’s obligation to maintain the confidentiality of such Company Information shall expire.
| 13.8.9 | Compliance with Laws |
The Company will use reasonable best efforts to comply with all laws, rules and regulations applicable to the Company, including, for the avoidance of doubt, all applicable anti-money laundering, anti-terrorism laws and anti- bribery laws, as well as applicable rules and regulations imposed by applicable securities laws; provided, that the Company will have no liability under this 13.8.9 in the event that noncompliance with an applicable law does not, or would not reasonably be expected to, have an adverse effect on the Company, other than a de minimis adverse effect. The Company has established and will maintain internal controls, policies and procedures reasonably designed to ensure compliance with all applicable anti-money laundering, anti-terrorism laws and anti-bribery laws, as well as applicable rules and regulations imposed by applicable securities laws.
| 13.8.10 | Notices to Members |
The Company will notify the Members (i) as soon as reasonably practicable following any amendment to any offering documents, if applicable, and (ii) within 45 business days of a change in the independent auditors of the Company (including in the notification a general description of the reasons therefore and the name of the new independent auditors).
| 13.8.11 | Contract Construction; Headings; Counterparts. |
Whenever the context of this Agreement permits, the masculine gender shall include the feminine and neuter genders (and vice versa), and reference to singular or plural shall be interchangeable with the other. The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the other provisions, and the parties intend that this Agreement shall be construed and reformed in all respects as if any such invalid or unenforceable provision(s) were omitted or, at the direction of a court, modified in order to give effect to the intent and purposes of this Agreement. References in this Agreement to particular sections of the Code or the Delaware Act or any other statute shall be deemed to refer to such sections or provisions as they may be amended after the date of this Agreement. Captions in this Agreement are for convenience only and do not define or limit any term of this Agreement. It is the intention of the parties that every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any party (notwithstanding any rule of law requiring an Agreement to be strictly construed against the drafting party), it being understood that the parties to this Agreement are sophisticated and have had adequate opportunity and means to retain counsel to represent their interests and to otherwise negotiate the provisions of this Agreement. This Agreement, together with the related Subscription Agreement and any Other Agreement (if any) between the Company and any Member, shall constitute the entire agreement
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and understanding among the respective parties to such agreements with respect to the subject matter hereof and thereof. There are no representations, warranties or agreements made by the Company except to the extent set forth in this Agreement, the Subscription Agreements and any such Other Agreement (if applicable). This Agreement or any amendment hereto may be signed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one agreement or amendment, as the case may be.
ARTICLE 14
SPECIAL REGULATORY MATTERS
| 14.1 | ERISA Compliance. |
| 14.1.1 | ERISA Plan Assets. |
The Company shall use reasonable best efforts to ensure that “benefit plan investors” hold less than twenty- five percent (25%) of each class of equity interests in the Company (determined in accordance with the Plan Assets Regulation).
| 14.1.2 | Distributions in Kind to ERISA Members. |
If a distribution proposed to be made in kind under any provision of this Agreement, including a liquidating distribution or a distribution to a withdrawing ERISA Member pursuant to 14.2.4, would result in the receipt by an ERISA Member of securities or other property which such ERISA Member could not hold without such holding constituting a non-exempt prohibited transaction under ERISA or Section 4975 of the Code, then such ERISA Member shall so notify the Company and the Company shall use commercially reasonable efforts, consistent with its obligations to the other Members, to cause the property which would otherwise have been distributed to such ERISA Member to be disposed of by the Company and the proceeds of such disposition to be remitted to such ERISA Member or, in the Company’s discretion, to make other arrangements reasonably acceptable to such ERISA Member; provided that such arrangements shall take into account accrued Incentive Fee payments attributable to the Common Units being redeemed and shall only be made in a manner that does not jeopardize the Company’s status as a BDC and a RIC.
| 14.1.3 | Plan Assets Notice. |
(a) The Company shall provide to each ERISA Member, on or prior to the date of the Company’s initial capital call, a written certification confirming, based on the representations and warranties of the Members to the Company, that “benefit plan investors” hold less than twenty-five percent (25%) of each class of equity interests in the Company (determined in accordance with the Plan Assets Regulation).
(b) If at any time the Company determines there is a material likelihood that all or any portion of the assets of the Company would constitute “plan assets” of any ERISA Member for purposes of ERISA or Section 4975 of the Code, the Company shall promptly notify in writing the ERISA Members investing in the applicable entity of such determination. For the avoidance of doubt, the Company shall deliver the notice described in this 14.1.3(b) if any ERISA Member delivers an opinion as described in 14.2.1(b).
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In addition, at the request of an ERISA Member, the Company will use commercially reasonable efforts to provide any information regarding the assets held by the Company as is reasonably necessary to enable the ERISA Member to complete its Form 5500 or any other regulatory reporting requirements applicable to the ERISA Member.
| 14.2 | ERISA Withdrawal. |
| 14.2.1 | General. |
Notwithstanding any provision in this Agreement to the contrary, any Member that is an ERISA Member may elect, upon written notice of such election to the Company, to withdraw from the Company, or upon written demand by the Company shall withdraw from the Company, at the time and in the manner hereinafter provided, if (i) the Company delivers the notice described in 14.1.3(b) stating that the assets of the Company constitute “plan assets” or (ii) either such ERISA Member or the Company shall obtain and deliver to the other an opinion of counsel reasonably acceptable (as to form, substance and choice of counsel) to both such ERISA Member and the Company to the effect that there is a material likelihood that:
(a) Such ERISA Member, any employee benefit plan subject to ERISA any of the assets of which are held by such ERISA Member, the trustee or other fiduciary of such ERISA Member or of such plan, or the Company would be in material violation of ERISA if such ERISA Member were to continue as a Member of the Company; or
(b) All or any portion of the assets of the Company would constitute “plan assets” of such ERISA Member or such plan for the purposes of ERISA or Section 4975 of the Code.
Notwithstanding the foregoing, no withdrawal shall be granted at the request of an ERISA Member solely on the grounds that the ERISA Member’s investment in the Company is not prudent, that such investment does not satisfy the diversification requirements applicable to the relevant plan, that it is inconsistent with the plan’s terms, investment policy or need for liquidity, or that it violates other similar requirements set forth in Section 404 of ERISA (or other law similar in purpose and intent). The costs of seeking and obtaining an opinion of counsel for purposes of this 14.2.1 shall be borne by the ERISA Member; provided, however, that (i) the Company shall bear the reasonable costs actually incurred by such ERISA Member in connection with seeking and obtaining the aforementioned opinion if the factual basis of such opinion (by its terms) is predicated solely on conduct by the Company or its Affiliates constituting gross negligence, fraud or willful misconduct or an intentional breach of the LLC Agreement, it being understood that such conduct shall not be deemed to result from any misrepresentations of any Member in any Subscription Agreement or any other act committed by a Member, and (ii) the Company shall bear the reasonable costs actually incurred by the Company in connection with seeking and obtaining the aforementioned opinion if the withdrawal procedure was initiated by the Company. If the Company so determines in its discretion, a withdrawal made pursuant to this 14.2.1 may be a partial withdrawal with respect to a Member’s interest, if such partial withdrawal will provide an adequate remedy; provided, however, that any partial withdrawal to remedy a withdrawal necessitated by 14.2.1(b) shall apply on a pro rata basis to the Company interests of all ERISA Members who are “benefit plan investors” (within the meaning of the Plan Assets Regulation)
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unless the Company and a particular benefit plan investor agree that such benefit plan investor will withdraw a larger amount. If the Company decides to require or permit a partial withdrawal, the other provisions of 14.2 shall be interpreted and applied to carry out the partial withdrawal.
| 14.2.2 | Cure Period. |
The Company shall have a period of 90 days following receipt of such counsel’s opinion (or delivery of notice by the Company to such ERISA Member demanding its withdrawal, if applicable) to attempt to eliminate the necessity for such withdrawal to the reasonable satisfaction of such ERISA Member and the Company, whether by correction of the condition giving rise to the necessity of such ERISA Member’s withdrawal, by amendment of this Agreement, or by effectuation of a Transfer of such ERISA Member’s Units to another Person; provided such Transfer meets the requirements of 10.1. During the aforementioned cure period, such ERISA Member shall be temporarily excused from making any capital contributions otherwise required by the terms of the LLC Agreement to the maximum extent permitted by law. To the extent that the Company eliminates the necessity for the withdrawal of the ERISA Member, then the ERISA Member and/or the Person to whom it transferred its Units shall be required to promptly pay such temporarily deferred capital contributions; provided, however, that if the ERISA Member withdraws pursuant to 14.2.3, then such withdrawing ERISA Member shall not be required to make any temporarily deferred capital contributions (with respect to the portion withdrawn in the case of a partial withdrawal).
| 14.2.3 | Withdrawal. |
If such cause for withdrawal is not cured within the 90 day period described in 14.2.2, then such ERISA Member shall withdraw from the Company (in whole or in part, as applicable) as of the last day of the fiscal quarter of the Company during which such 90 day period expires or as of such earlier date as may be determined by the Company, in its sole discretion (such date being herein referred to as the “ERISA Withdrawal Date”). Effective upon the ERISA Withdrawal Date with respect a complete withdrawal from the Company, such ERISA Member shall cease to be a Member of the Company for all purposes and, except for its right to receive payment for its Company interest as hereinafter provided, shall no longer be entitled to the rights of a Member under this Agreement.
| 14.2.4 | Distributions to Withdrawing ERISA Member. |
(a) As promptly as practicable following the ERISA Withdrawal Date but subject to the Delaware Act, there shall be distributed to such ERISA Member, in full payment and satisfaction of its Units, an amount equal to the amount which such ERISA Member would have been entitled to receive pursuant to Article 9 if the Company had been liquidated on and as of the ERISA Withdrawal Date and each of the Company’s assets had been sold on such date for its fair market value determined pursuant to 14.2.4(b). No approval of the Members shall be required prior to the making of such distribution.
(b) For purposes of determining the amount of the distribution to be made to such ERISA Member, and the value of each of the Company’s assets, the Company’s annual or quarterly financial statements, as the case may be, prepared in accordance with 13.3.1 or 13.3.3,
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respectively, for the period ending on or immediately prior to the ERISA Withdrawal Date shall be deemed to be conclusive unless either the withdrawing ERISA Member or the Company notifies the other in writing, not more than 20 Business Days after the Company provides the relevant financial statements, of such Person’s objection to such valuation, indicating briefly the reason(s) therefor. If, within 20 Business Days after such an objection has been made, a substitute value has not been agreed upon by the Company and such withdrawing ERISA Member, the Company shall submit the dispute to an independent appraiser selected by the Company and approved by the withdrawing ERISA Member (which approval shall not be unreasonably withheld). If there shall be more than one Member that is a withdrawing ERISA Member, the independent appraiser referred to in the preceding sentence shall be approved by a majority in interest of such withdrawing ERISA Members.
(c) Any distribution to the withdrawing ERISA Member(s) shall be made in cash, cash equivalents, securities of Portfolio Companies, or a recourse note of the Company bearing interest at a fixed rate equal to the applicable federal “short-term rate” of interest then in effect, compounded annually, and requiring principal repayment to be made at such times, and in such amounts, as such ERISA Member would have received in distributions if such withdrawing ERISA Member were still a Member (such amounts as reasonably determined by the Company taking into account a reduction for any accrued Incentive Fee), with any principal (if any) and interest outstanding as of the date of the final liquidation of the Company due and payable on such date in priority to any amounts payable to the Members on such date; provided, however, that a withdrawing ERISA Member shall not be required to accept a distribution in the form of a note if it shall obtain and deliver to the Company an opinion of counsel to the effect that distribution of the note would constitute a non-exempt prohibited transaction or other material violation of ERISA or Section 4975 of the Code (excluding on the grounds that the ERISA Member’s holding of such note is not prudent, or does not satisfy the diversification requirements applicable to the relevant plan, or is inconsistent with the plan’s terms, investment policy or need for liquidity, or that it violates other similar requirements set forth in Section 404 of ERISA (or other law similar in purpose and intent)); provided, further, that the Company shall make distributions to a withdrawing ERISA Member in cash to the extent that the Company has cash available for distribution and such cash distributions would not have a material adverse effect on the Company. If the withdrawing ERISA Member is unable to obtain and deliver such opinion of counsel, but nonetheless believes in good faith that distribution of the note to such ERISA Member would constitute such a non-exempt prohibited transaction or other material violation of ERISA or Section 4975 of the Code as described above, then the Company agrees to negotiate with such ERISA Member in good faith regarding the terms of the note in an effort to attempt to ensure that the distribution of such note to such ERISA Member would not constitute a non-exempt prohibited transaction or other material violation of ERISA or Section 4975 of the Code as described above. If securities of Portfolio Companies are being distributed, such securities shall be distributed in a manner consistent with 7.1.2 to the extent practicable, unless otherwise required by law or contract.
| 14.3 | Public Plan Members. |
For purposes of 14.2, each Member (a) that is either a “governmental plan” within the meaning of Section 3(32) of ERISA or an entity that is deemed under applicable law to hold the plan assets of such a plan and (b) that has notified the Company of such status in writing (a “Public Plan Member”) shall be treated as an ERISA Member, provided that (a) Public Plan Members
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shall not be considered ERISA Members for purposes of determining whether “benefit plan investors” hold less than twenty-five percent (25%) of each class of equity interests in the Company (determined in accordance with the Plan Assets Regulation) and (b) in determining whether there is a violation of ERISA with respect to such Public Plan Member or whether the Company is holding “plan assets” of such Public Plan Member, there shall be substituted for ERISA any state, local or non-U.S. laws that are similar in purpose and intent to ERISA and that are applicable to such Public Plan Member (or equity holder thereof).
| 14.4 | Foundation Members. |
If any Member that (a) is a private foundation within the meaning of Section 509(a) of the Code and (b) has notified the Company of such status in writing (a “Foundation Member”), delivers an opinion of counsel, reasonably acceptable (as to form, substance and choice of counsel) to the Company, to the effect that, as a result of a change in law or an unexpected increase in such Foundation Member’s relative interest in the Company (other than as a result of the purchase of an interest by such Foundation Member), there is a material likelihood that the continued ownership of the Foundation Member’s Units (1) would subject such Foundation Member to excise taxes imposed by Subchapter A of Chapter 42 of the Code (other than Sections 4940 and 4942 thereof) or (2) would, as a result of a change in law after the date hereof or the insolvency of the Company, result in a material violation of, or a material breach of the fiduciary duties of its trustees or governing board under, any federal or state law applicable to private foundations or any rule or regulation adopted thereunder by any agency, commission or authority having jurisdiction over private foundations, the Company will use commercially reasonable efforts to assist (subject to applicable law) such Foundation Member in locating a transferee for all or a portion of such Foundation Member’s Units and, subject to Article 10, will not unreasonably withhold its consent to the transfer by such Foundation Member of all or a portion of its interest; provided, however, that if the Company or such Foundation Member is unable to locate a transferee, or otherwise eliminate the necessity for withdrawal by such Foundation Member, within 90 days after the receipt of such opinion of counsel, then such Foundation Member may completely or partially withdraw from the Company (but such withdrawal shall only be to the minimum extent necessary to eliminate the necessity for withdrawal) in accordance with the principles of 14.2 as if such Foundation Member were an ERISA Member.
| 14.5 | Bank Holding Company Member. |
| 14.5.1 | Withdrawal. |
If at any time, as a result of proposed reductions in any Member’s interest, withdrawals by Members or distributions to other Members, in each case pursuant to the terms of this Agreement, or for any other reason, the Company expects the Units held by any BHC Member with respect to a class of Units to exceed 24.99% of the total Units of all Members holding such class of Units (as determined in accordance with 3.8) (or such greater or lesser percentage as may be permissible hereafter under the Bank Holding Company Act and Regulation Y promulgated thereunder), the Company shall immediately notify such BHC Member and permit such BHC Member to immediately partially withdraw from the Company in accordance with the provisions of 14.2 as if such BHC Member were an ERISA Member to the minimum extent necessary to maintain such BHC Member’s total investment in the Company at a level below 25% (or such permissible percentage) of such class of Units.
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| 14.5.2 | Right to Decline Distributions. |
Notwithstanding any provision in this Agreement to the contrary, any BHC Member may elect, by notice in writing to the Company to decline the receipt of distributions in kind if the receipt thereof would cause such BHC Member to be in violation of any applicable law or regulation, in which event the Company shall use commercially reasonable efforts, consistent with its obligations to the other Members, to cause the property which would otherwise have been distributed to such BHC Member to be disposed of on behalf of and for the account of such BHC Member and the proceeds of such disposition to be remitted to such BHC Member.
| 14.6 | Conforming Amendment. |
Upon the complete or partial withdrawal of any ERISA Member, Public Plan Member, Foundation Member or BHC Member from the Company, the Members (including the withdrawing ERISA Member, Public Plan Member, Foundation Member or BHC Member) may enter into an amendment to this Agreement reflecting such withdrawal and amending such provisions of this Agreement as may be appropriate, including the allocation and distribution provisions, in order to preserve, to the maximum extent feasible, the intent, operation and effect of such provisions.
* * * * * * *
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IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Limited Liability Company Agreement of TCW Star Direct Lending LLC as of the day, month and year first above written.
| MEMBER:
TCW ASSET MANAGEMENT COMPANY LLC | ||
| By: |
| |
| Name: | Meredith Jackson | |
| Title: | Executive Vice President and General Counsel | |
| By: |
| |
| Name: | Zachary Edelman | |
| Title: | Vice President | |
[Signature page to Limited Liability Company Agreement]
TCW Star Direct Lending LLC
Member Signature Page
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Limited Liability Company Agreement of TCW Star Direct Lending LLC and hereby authorize this signature page to be attached to a counterpart of such Agreement executed by the Company and the other parties thereto.
| Each of the Persons who have executed a Subscription Agreement, agreeing to purchase Units in the Company, to be admitted to the Company as a member and to be bound by the terms of the LLC Agreement | ||
| By: |
| |
| an authorized representative of the Company as attorney-in-fact for such Persons | ||
| Name: David Wang | ||
| Title: Chief Operating Officer | ||
| By: |
| |
| an authorized representative of the Company as attorney-in-fact for such Persons | ||
| Name: Andrew Kim | ||
| Title: Chief Financial Officer and Treasurer | ||
| Dated: [ ], 2022 | ||
APPENDIX I
TCW Star Direct Lending LLC
Definitions
For purposes of this Agreement, the following terms shall have the meanings set forth below (such meanings to be equally applicable to both singular and plural forms of the terms so defined). Additional defined terms are set forth in the provisions of this Agreement to which they relate.
| 1934 Act | The Securities Exchange Act of 1934, as amended. | |
| 1940 Act | The Investment Company Act of 1940, as amended. | |
| Administration Agreement | As set forth in 13.1.3. | |
| Administrator | As set forth in 13.1.3. | |
| Adviser | TCW or any Affiliate or successor thereto serving as investment adviser for the Company pursuant to an Advisory Agreement. | |
| Adviser Operating Expenses | Overhead and operating and administrative expenses incurred by or on behalf of the Adviser or any of its Affiliates, including the Company, in connection with maintaining and operating the Adviser’s office, including salaries and other compensation (including compensation due to the Officers), rent, routine office equipment expense and liability and insurance premiums (other than those incurred pursuant to 11.2.5 and 5.1.(a)(i)), in furtherance of providing supervisory investment management services for the Company. For the avoidance of doubt, Adviser Operating Expenses include any expenses incurred by the Adviser or its Affiliates in connection with the Adviser’s registration as an investment adviser under the Investment Advisers Act of 1940, as amended, or with its compliance as a registered investment adviser thereunder. | |
| Advisory Agreement | As set forth in 5.2.1. | |
Appendix I-1
| Affiliate | With respect to the Person to which it refers, a Person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such subject Person. For this purpose, each Officer shall be deemed to be an Affiliate of the Adviser, but Portfolio Companies or portfolio companies of an Existing Fund shall not be considered Affiliates of the Board, the Adviser, any Officer, any member of the Board or any member or manager of the Adviser. “Affiliated” shall have the corresponding meaning. | |
| Aggregate Contribution | With respect to any Common Unitholder at any time in respect of such Common Unitholder’s Common Units, the aggregate amount of capital contributions made to the Company by such Common Unitholder in respect of such Common Units (including any such amounts attributable to the payment of Management Fees, Organizational Expenses and other Company Expenses, as applicable, but excluding the contribution of NAV Balancing Contributions, Late-Closer Contributions and any payments pursuant to 11.4), adjusted in accordance with the other provisions of this Agreement including, without limitation, 4.5.3 (relating to the return of distributions that constitute Recallable Amounts), and 6.2.3 (relating to the imposition of a Default Charge). | |
| Agreement | As set forth in 2.1.3. | |
| Amended LLC Agreement | As set forth in 2.1.2. | |
| Anti-Money Laundering Laws | As set forth in 3.3.4(a)(2). | |
| Assets | As set forth in 4.3.1. | |
| Assigned Rights | As set forth in 4.3.1. | |
| BDC | A business development company as defined in Section 2(a)(48) of the 1940 Act. | |
| BHC Member | Any Member that is a bank holding company (or is an Affiliate of a bank holding company) that is subject to the Bank Holding Company Act of 1956 and that has provided notice in writing that it should be considered a BHC Member for purposes of this Agreement. BHC Members that are Affiliates of the same bank holding company shall be considered a single BHC Member for purposes of 14.5. | |
| Board | As set forth in 3.4.1. | |
| Business Day | Each day on which the New York Stock Exchange is open for business. | |
Appendix I-2
| Cause | Either (i) a final judicial determination by a court of competent jurisdiction that the Director has committed any action relating to the performance of its or his duties under this Agreement that constitutes gross negligence, fraud or willful misconduct, or (ii) that the Director has been indicted or convicted in a court of competent jurisdiction of (A) a crime involving fraud or moral turpitude; (B) an intentional or material violation of applicable securities or regulatory laws; or (C) a felony relating to the performance of its or his duties under this Agreement. | |
| Certificate | As set forth in 2.1.1. | |
| Close associate | A Person who is widely and publicly known (or is actually known) to be a close associate of a senior foreign political figure or politically exposed Person. | |
| Code | The United States Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. | |
| Commitment | With respect to any Common Unitholder, the total amount that such Common Unitholder has agreed to contribute, including in connection with any Subsequent Closing, to the Company in connection with its Common Units (without regard to distributions required to be returned pursuant to 11.4 or contributions required by 3.3.1(b) or 3.3.1(c)). | |
| Commitment Period | The period beginning on the Initial Closing Date and end four years from the later of (a) the Initial Closing Date and (b) the date on which the Company first completes a Portfolio Investment. Unless otherwise terminated pursuant to the terms of this Agreement, the Commitment Period shall be automatically extended for successive one-year periods beginning one year prior to each scheduled expiration of the Commitment Period (so that, immediately following any such extension, the Commitment Period will expire two years from that date). Supermajority in Interest of all Members may terminate the Commitment Period at any time upon 90 days written notice to the Company. | |
| Common Unitholders | As set forth in the introductory paragraph of this Agreement, in each such Person’s capacity as a member of the Company holding Common Units. | |
| Common Units | As set forth in the introductory paragraph of this Agreement. | |
| Company | As set forth in the introductory paragraph of this Agreement. | |
| Company Expenses | As set forth in 5.1. | |
Appendix I-3
| Company Expenses Limitation | As set forth in 5.1.(b). | |
| Company Information | As set forth in 13.8.8. | |
| Covered Person | As set forth in 11.1.1. | |
| Credit Support | As set forth in 4.3.1. | |
| Default Charge | As set forth in 6.2.3. | |
| Default Rate | As set forth in 6.2.1. | |
| Defaulting Member | As set forth in 6.2.2. | |
| Delaware Act | As set forth in 2.1.1. | |
| Director | As set forth in 3.4.1. | |
| ERISA | The United States Employee Retirement Income Security Act of 1974 and (unless the context otherwise requires) the rules and regulations promulgated thereunder, as amended from time to time, or any successor statute thereto. | |
| ERISA Member | Any Member that is (a) an “employee benefit plan” within the meaning of Section 3(3) of ERISA and subject to Part 4 of Title I of ERISA, (b) a “plan,” as defined in Section 4975(e)(1) of the Code, to which the provisions of Section 4975 of the Code are applicable, or (c) any other entity or account, any of the assets of which constitute “plan assets,” within the meaning of ERISA, of a plan described in (a) or (b) above. | |
| ERISA Withdrawal Date | As set forth in 14.2.3. | |
| Existing Fund | Regiment Capital Special Situations Fund III, L.P., Regiment Capital Special Situations Fund V, L.P., TCW Direct Lending LLC and TCW Direct Lending VII LLC. | |
| FIEL | As set forth in 10.1.4. | |
| Foundation Member | As set forth in 14.4. | |
Appendix I-5
| Freely Tradable Security | Any security that satisfies the following conditions:
(a) The Company’s entire holding of such securities can be immediately sold by the Company to the general public without the necessity of any federal, state or local government consent, approval or filing that has not been obtained or made at or prior to the time such determination is being made (other than any notice filings of the type required pursuant to Rule 144(h) under the Securities Act or Sections 13 and 16 of the United States Securities and Exchange Act of 1934, as amended), including, without limitation, securities that can be immediately sold pursuant to an effective registration statement filed under the Securities Act, and
(b) Such securities are traded on a Public Securities Market and market quotations are readily available for such security.
If only a portion of the Company’s holdings of securities satisfies the requirements of the preceding sentence, that portion of the Company’s holdings of such securities shall constitute Freely Tradable Securities. In addition to the foregoing, in the case of a distribution of securities in kind, such securities shall also constitute Freely Tradable Securities if the entire portion of the distribution made to the Members can be immediately sold by them under the terms provided for in clause (a) of this definition and the condition provided for in clause (b) of this definition is satisfied, assuming for purposes of this sentence that no Member is or has been an Affiliate of the issuer of such securities and without regard to any restrictions on sale applicable to particular Members because of such Members. For avoidance of doubt, no security which is subject to a lock-up or other contractual agreement to which the Company is a party or is otherwise bound and that restricts the immediate sale of such security shall be considered a Freely Tradable Security. | |
| Immediate family member | Spouses, parents, siblings, children and a spouse’s parents and siblings. | |
| Incentive Fee | The fee payable to the Adviser in accordance with 5.2.3 and the Advisory Agreement. | |
| Indemnitee | As set forth in 11.2.1. | |
| Independent Director | As set forth in 3.4.1. | |
| Initial Closing Date | The first date on which Units are issued to Persons not Affiliated with the Adviser. | |
Appendix I-5
| Intermediate Entity | An entity formed for the purpose of facilitating investments by the Company (alone or with other Persons) in Portfolio Investments. | |
| Key Person | As set forth in 6.3. | |
| Key Person Event | As set forth in 6.3. | |
| Late-Closer Contribution | As set forth in 3.3.1. | |
| Later-Closing Investor | As set forth in 3.3.1. | |
| Lender | The holder of any indebtedness, guarantees or other obligations of the Company. | |
| Lender Powers | As set forth in 4.3.1. | |
| LLC Agreement | As set forth in 2.1.3. | |
| Management Fee | As set forth in 5.2.2. | |
| Members | Collectively, the Common Unitholders and the Preferred Unitholders. | |
| Nasdaq | The Nasdaq Stock Market. | |
| NAV Balancing | ||
| Contribution | As set forth in 3.3.1. | |
| Officers | ||
| As set forth in 3.4.2. | ||
| Organizational Expenses | Expenses incurred in connection with the organization of the Company and offering of Common Units, and expenses incurred in connection with the organization of a Related Entity organized and managed by TCW as a feeder fund for the Company and issuance of interests therein. | |
| Original Issuance Price | As set forth in 6.1.1. | |
| Original LLC Agreement | As set forth in 2.1.1. | |
| Other Agreement | As set forth in 12.1.5. | |
| Parallel Fund | As set forth in 3.6. | |
Appendix I-6
| Partnership Election | As set forth in 13.7.1. | |
| Person | Any individual, general partnership, limited partnership, limited liability partnership, limited liability company, corporation, joint venture, trust, statutory or business trust, cooperative or association or any governmental body or agency, and the heirs, executors, administrators, legal representative, successors and assigns of such Person where the context so permits. | |
| Plan Assets Regulation | The regulation concerning the definition of “plan assets” under ERISA adopted by the United States Department of Labor and codified in 29 C.F.R. §2510.3-101, as modified by Section 3(42) of ERISA. | |
| Politically exposed Person | An individual who is or has been entrusted with prominent public functions by a non-U.S. country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. This does not cover middle ranking or more junior individuals. | |
| Portfolio Company | Any entity in which the Company holds a Portfolio Investment. | |
| Portfolio Investment | As set forth in 4.1. | |
| Pre-Closing Distribution | As set forth in 3.3.1 | |
| Preferred-Appointed Directors | As set forth in 3.4.1. | |
| Preferred Unitholders | Each holder of any Preferred Units, in such Person’s capacity as a Member of the Company holding Preferred Units, collectively. | |
| Preferred Units | Preferred limited liability company units in the Company. | |
| Prime Rate | As of any date, the prime rate of interest in effect on such date as reported in The Wall Street Journal. | |
| Private Credit Group | The business unit of the Adviser working as the TCW Private Credit Group. | |
| Proceeds | As set forth in 4.5.2. | |
Appendix I-7
| Public Plan Member | As set forth in 14.3. | |
| Public Securities Market | Any United States national or regional securities exchange, including but not limited to the New York Stock Exchange, NYSE MKT, and regional United States exchanges, any internationally recognized non-United States securities exchange and any recognized United States or non-United States automated quotation system, listing service or other form of securities exchange or trading forum, and the phrase “traded on a Public Securities Market” means publicly traded on or through any such exchange, system, listing service or forum. | |
| QII | As set forth in 10.1.4. | |
| Recallable Amount | As set forth in 4.5.3. | |
| Related Entity(ies) | One or more of the following: (1) any Portfolio Company, (2) the Adviser and any other entity engaged in performing services for the Company, or any Existing Fund, at the Company’s or any such Existing Fund’s request, for any Portfolio Company or portfolio company of an Existing Fund; (3) any Intermediate Entity, any Parallel Fund or feeder fund or subsidiary of the Company, any such Intermediate Entity, or any such Parallel Fund; (4) any Existing Funds and their portfolio companies; and (5) any other fund(s) managed by the Adviser or an affiliate of the Adviser that co-invest or potentially co-invest with the Company, on a combined basis. | |
| REMIC | As set forth in 4.2.2. | |
| RIC | A regulated investment company. | |
| SEC | U.S. Securities and Exchange Commission. | |
| Securities Act | The United States Securities Act of 1933, as amended from time to time, or any successor statute thereto. | |
Appendix I-8
| Senior foreign political figure | A current or former senior official in the executive, legislative, administrative, military or judicial branches of a non-U.S. government (whether elected or not), a current or former senior official of a major non-U.S. political party, or a current or former senior executive of a non-U.S. government-owned commercial enterprise. In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure. For purposes of this definition, a “senior official” or “senior executive” is defined as an individual with substantial authority over policy, operations, or the use of government-owned resources. | |
| Shortfall Amount | As set forth in 11.4. | |
| SMA | A separately managed account (including such an arrangement formed as a fund-of-one) for which the Adviser or a TCW Affiliate serves as the investment adviser. | |
| Subscription Agreement | The subscription agreement by which any Member agreed to purchase such Member’s Units. | |
| Subsequent Closings | The Company may hold closings subsequent to the Initial Closing Date (each date on which a subsequent closing is held, a “Subsequent Closing Date”). | |
| Supermajority in Interest | As set forth in 3.8. | |
| TCW | As set forth in the introductory paragraph of this Agreement. | |
| TCW Affiliate | TCW Group, Inc. (the parent company of TCW) along with all entities controlled directly or indirectly by TCW Group, Inc. | |
| Temporary Disability | The inability of a Person to substantially perform his duties to the Company or the Adviser due to a medically determinable physical or mental illness or injury, provided that such illness or injury lasts for no more than 90 consecutive calendar days or 120 calendar days in any 18-month period. | |
| Temporary Investments | Short-term investments of cash pending distribution or use by the Company to pay expenses or make Portfolio Investments. | |
| Total Assets | The amounts shown on the Company’s quarterly and audited financial statements. | |
| Transfer | As set forth in 10.1.1. | |
| Transfer Expenses | As set forth in 10.1.6. | |
| True-Up Contribution | As set forth in 3.3.1. | |
Appendix I-9
| UBTI | “Unrelated business taxable income,” as defined in Section 512 of Code and the Treasury Regulations promulgated thereunder. | |
| Undrawn Commitment | As set forth in 6.1.1. | |
| Units | The Common Units and Preferred Units. | |
| USRPHC | As set forth in 4.2.2. | |
Appendix I-10
APPENDIX II
Member Acknowledgements
In connection with the borrowings, guarantees and other obligations by the Company in accordance with 4.3.1, each Member hereby makes available as Credit Support the following representations and acknowledgements for the benefit of the Company and any lender or other holder of indebtedness, guarantees or other obligations:
(a) such Member hereby consents to the pledge or assignment of its Undrawn Commitment and other related Assets and Assigned Rights and other forms of Credit Support;
(b) such Member shall confirm, as of the date of this Agreement and following any default under a loan, credit or other facility or instrument evidencing such indebtedness, guarantees or other obligations, in favor of any lenders or other holders of indebtedness, guarantees or other obligations, the amount of such Member’s Commitment and Undrawn Commitment;
(c) such Member is and will remain absolutely, irrevocably and unconditionally obligated to fund capital contributions pursuant to written capital call notices duly made under this Agreement and its Subscription Agreement, for the purposes of repaying any indebtedness for borrowed money, in each case, without set-off, defense (other than defense of payment), counterclaim or reduction based on any claim against any Person (including any defense of fraud or mistake, or any defense under Section 365 of the U.S. Bankruptcy Code), and such Member hereby waives any right to assert any claim to the contrary in connection with any bankruptcy, insolvency, dissolution or winding up of the Company or otherwise;
(d) such Member shall honor capital calls issued by or on behalf of any lender or other holder of indebtedness, guarantees or other obligations and such lender shall have the right to enforce the obligations of the Member to make contributions hereunder and under the terms of the Subscription Agreement and to seek all available remedies against the Member if the Member fails to make such contributions;
(e) such Member acknowledges that the proceeds of capital contributions called in accordance with this Agreement may be (i) used to repay the obligations to any lenders or other holders of indebtedness, guarantees or other obligations and (ii) directly deposited in an account of the Borrower identified by the Borrower in the applicable call notice for the benefit of any lenders or other holders of indebtedness, guarantees or other obligations, in which case funds delivered by such Member pursuant to a capital call shall not be considered a funded contribution if such funds are not delivered into such account;
(f) such Member hereby also acknowledges and agrees that lenders and other holders of indebtedness, guarantees or other obligations will rely upon the statements made in this Agreement in connection with providing financing to the Company; and the terms of any indebtedness, guarantees or other obligations of the Company may, without the consent of such Member, be established and maintained and may be amended, restated, supplemented, replaced, restructured, refinanced or otherwise modified from time to time, including to extend the maturity thereof, and whether by the same lender, or different lenders; provided that no amendment, restatement, or any other modification of the terms of any borrowing, loan, or other extension of credit shall alter the rights of any Member under this Agreement or its related Subscription Agreement;
Appendix II-1
(g) such Member acknowledges that the Subscription Agreement of such Member contractually obligates it to fund its Commitments in order to pay amounts that may become due under any borrowings or other financings or similar obligations of the Company or any subsidiary of the Company, and the payment by such Member of any such amounts that become due and payable by the Company out of such Member’s Undrawn Commitment may be a condition to the effectiveness of (i) any transfer, withdrawal, termination or reduction of Commitments of such Member, or (ii) such Member’s ability to cease funding its Commitment; and
(h) as of the date of this Agreement, the representations and warranties of such Member in its Subscription Agreement are true and correct in all material respects.
Appendix II-2
SCHEDULE A
Schedule of Directors
| Name |
Class |
Expiration of Term | ||
| Sheila A. Finnerty | Class I | 2023 | ||
| Saverio M. Flemma | Class II | 2024 | ||
| R. David Kelly | Class III | 2025 | ||
| Andrew W. Tarica | Class I | 2023 | ||
| Richard T. Miller | Class II | 2024 | ||
| Laird Landmann | Class III | 2025 | ||
Sch. A-1
SCHEDULE B
Schedule of Audit Committee Members
| Name |
Position | |
| Sheila A. Finnerty | Member | |
| Saverio M. Flemma | Chairperson | |
| R. David Kelly | Member | |
| Andrew W. Tarica | Member | |
Sch. B-1
SCHEDULE C
Schedule of Officers
| Name |
Position | |
| Richard T. Miller | President | |
| David Wang | Chief Operating Officer | |
| Andrew Kim | Chief Financial Officer and Treasurer | |
| Gladys Xiques | Chief Compliance Officer | |
| Gayle Espinosa | Secretary | |
| Joseph Magpayo | Assistant Secretary | |
Sch. C-1
Exhibit 1
TCW STAR DIRECT LENDING LLC
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT (this “Agreement”) is made as of [ ], 2022 by and between TCW STAR DIRECT LENDING LLC, a Delaware limited liability company (the “Company”), and TCW ASSET MANAGEMENT COMPANY LLC, a Delaware limited liability company (the “Adviser”).
WHEREAS, the Company is a newly organized closed-end management investment fund that intends to elect to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”);
WHEREAS, the Adviser is engaged in the business of providing investment advice and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Company desires to retain the Adviser to render investment advisory and management services to the Company in the manner and on the terms hereinafter set forth; and
WHEREAS, the Adviser is willing to perform such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Adviser hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the terms “assignment,” “interested person,” and “majority of the outstanding voting securities” shall have their respective meanings as defined in the 1940 Act and the rules and regulations adopted by the U.S. Securities and Exchange Commission (“SEC”) thereunder, and the term “brokerage and research services” shall have the meaning given in the Securities Exchange Act of 1934 and the rules and regulations adopted by the SEC thereunder, subject, however, in all cases to such exemptions as may be granted by the SEC, such interpretive positions as may be taken by the SEC, and such interpretive or no action positions as may be taken by the SEC staff, The capitalized terms used without definition in this Agreement, unless otherwise indicated, have the respective meanings specified in the Amended and Restated Limited Liability Company Agreement of the Company (as the same may be amended from time to time, the “LLC Agreement”).
2. Appointment.
a. The Company engages the Adviser to provide investment advisory and management services to the Company. This engagement is for the period and on the terms set forth in this Agreement. The Adviser hereby accepts such engagement and agrees to render the services and to assume the obligations set forth in this Agreement, for the compensation provided below.
Exh. 1-1
b. The Adviser, subject to the prior approval of the Company’s board of directors (the “Board”) and, to the extent required, the Members, may from time to time enter into one or more sub-advisory agreements with other investment advisers (each a “Sub-Adviser”) as the Adviser may believe to be particularly fitted to assist it in the performance of this Agreement; provided, however, that the compensation of any Sub-Adviser shall be paid by the Adviser and that the Adviser shall be as fully responsible to the Company for the acts and omissions of any Sub-Adviser as it is for its own acts and omissions. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the 1940 Act and other applicable federal and state law.
3. Advisory and Management Services. The Company hereby engages the Adviser to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject to the supervision of the Board, for the period and upon the terms herein set forth, (a) in accordance with the investment objective, policies and restrictions that are set forth in the Company’s registration statement on Form 10 (File No. 000-56404) (and as the same shall be amended from time to time, the “Registration Statement”) and in accordance with the investment objective, policies and restrictions that are set forth in the Company’s offering documents, as it may be amended from time to time; (b) in accordance with all other applicable federal and state laws, rules and regulations, and the LLC Agreement; and (c) in accordance with the 1940 Act. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement: (i) formulate and implement the Company’s investment program; (ii) determine the composition of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such changes; (iii) identify/source, research, evaluate and negotiate the structure of the investments made by the Company (including due diligence on prospective Portfolio Companies); (iv) close, monitor and administer the Company’s investments, including the exercise of any rights in its capacity as a lender; (v) determine the securities and other assets that the Company will originate, purchase, retain, or sell; (vi) place orders for the purchase or sale of portfolio securities for the Company’s account with broker-dealers selected by the Adviser; (vii) pay such expenses as are incurred by it in connection with providing the foregoing services as provided in Section 4 below; (viii) coordinate with the Administrator; and (ix) provide the Company with such other investment advisory, research, and related services as the Company may, from time to time, reasonably require for the investment of its funds, including providing operating and managerial assistance to the Company and its portfolio companies as required. Subject to the supervision of the Board, the Adviser shall have the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing of orders for other purchase or sale transactions on behalf of the Company. In the event that the Company determines to acquire debt financing, the Adviser will arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Board. If it is necessary or appropriate for the Adviser to make investments on behalf of the Company through a subsidiary of the Company or other special purpose vehicle, the Adviser shall have authority to create or arrange for the creation of such subsidiary of the Company or other special purpose vehicle and to make such investments through such subsidiary of the Company or other special purpose vehicle (in accordance with the 1940 Act).
4. Reimbursement of Certain Expenses. In addition to the Management Fee and Incentive Fee described below, the Adviser is entitled to the reimbursement of certain expenses incurred on behalf of the Company to the extent described in the Administration Agreement by and between the Company and TCW Asset Management Company LLC (as Administrator).
Exh. 1-2
5. Management Fee.
a. The Company will pay to the Adviser, quarterly in arrears, a management fee (the “Management Fee”) calculated as follows: 0.3125% (i.e., 1.25% per annum) of the average gross assets of the Company on a consolidated basis, with the average determined based on the gross assets of the Company as of the end of the three most recently completed calendar months. “Gross assets” means the amortized cost of Portfolio Investments of the Company (including Portfolio Investments purchased with borrowed funds and other forms of leverage, such as Preferred Units, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) that have not been sold, distributed to the Members or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any Portfolio Investment), and excluding cash and cash equivalents.
b. Installments of the Management Fee payable for any partial month or quarter shall be pro rated for the actual number of days in such period.
c. While the Management Fee will accrue from the Initial Closing Date, the Adviser intends to defer payment of such fee to the extent that such fee is greater than the aggregate amount of interest and fee income earned by the Company.
6. Incentive Fee.
a. Calculation of Incentive Fee. Subject to the Adviser Return Obligation (described in Section 6(d)), the Company shall pay the Adviser an incentive fee (the “Incentive Fee”) as follows. The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined in accordance with the following formula each time amounts are to be distributed to the Common Unitholders:
(i) First, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions pursuant to this clause (a) equal to their Aggregate Contributions to the Company in respect of all the Common Units;
(ii) Second, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions equal to a 6.5% internal rate of return on their Aggregate Contributions to the Company in respect of all Common Units (the “Hurdle”);
(iii) Third, the Adviser will be entitled to an Incentive Fee out of 100% of additional amounts otherwise distributable to Common Unitholders until such time as the Incentive Fee paid to the Adviser is equal to 15% of the sum of (A) the amount by which the Hurdle exceeds the Aggregate Contributions of the Common Unitholders in respect of all Common Units and (B) the amount of Incentive Fee being paid to the Adviser pursuant to this clause (iii); and
Exh. 1-3
(iv) Thereafter, the Adviser will be entitled to an Incentive Fee equal to 15% of additional amounts otherwise distributable to Common Unitholders in respect of all Common Units, with the remaining 85% distributed to the Common Unitholders.
For purposes of calculating the Incentive Fee, as provided in 3.3.2 of the LLC Agreement, Aggregate Contributions shall not include NAV Balancing Contributions or Late-Closer Contributions, and the distributions to Common Unitholders shall not include distributions attributable to Late-Closer Contributions. NAV Balancing Contributions received by the Company will not be treated as amounts distributed to Common Unitholders for purposes of calculating the Incentive Fee. In addition if distributions to which a Defaulting Member otherwise would have been entitled have been withheld pursuant to 6.2.4 of the LLC Agreement, the amounts so withheld shall be treated for such purposes as having been distributed to such Defaulting Member. The amount of any distribution of securities made in kind shall be equal to the fair market value of those securities at the time of distribution determined pursuant to 13.4 of the LLC Agreement.
b. Incentive Fee upon Early Termination. If this Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating this Agreement or (ii) the Company terminating this Agreement for cause, the Company will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date this Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all of the Company’s investments were liquidated for their current value (but without taking into account any unrealized appreciation of any Portfolio Investment), and any unamortized deferred Portfolio Investment-related fees were deemed accelerated, (B) the proceeds from such liquidation were used to pay all of the Company’s outstanding liabilities, and (C) the remainder were distributed to Common Unitholders and paid as Incentive Fee in accordance with Section 6(a). The Company will make the Final Incentive Fee Payment in cash on or immediately following the date this Agreement is so terminated. In the case of an early termination, the Adviser Return Obligation under Section 6(c) will not apply in connection with a Final Incentive Fee Payment.
c. Interim Distributions. Notwithstanding the foregoing, on each fiscal year-end from and after December 31, 2024 (each, a “Interim Incentive Fee Date”) the Adviser shall be entitled to an interim incentive fee payment (each, and “Interim Incentive Fee Payment”), which shall be treated as an advance against future Incentive Fee Payments, in an amount equal to the Incentive Fee payment that would be made to the Adviser if all of the assets of the Company were fully realized for cash as of such Interim Incentive Fee Date in an amount equal to the fair market value of such assets as determined in accordance with Section 13.4 of the LLC Agreement, and the resulting proceeds, after payment or provision for expenses, liabilities and contingencies, were distributed to the Common Unitholders and the Adviser pursuant to paragraph (a) above. The Adviser may, in its discretion, defer any such Interim Incentive Fee, and allocate it for future distribution pending expiration of the lookback period described in paragraph (d) below.
Exh. 1-4
d. Adviser Return Obligation. On each Interim Incentive Fee Date, and after the Company has made its final distribution of assets pursuant to 9.2 of the LLC Agreement (the “Final Incentive Fee Date”), if the Adviser has received aggregate payments of Final Incentive Fee, or with respect to the Interim Incentive Fee only, an amount equal to or greater than $1,000,000, in excess of the Adviser Target Amount (defined below) as of such time (an “Adviser Return Event”), then the Adviser shall return to the Company in cash on or before the 90th day after such Interim Incentive Fee Date or Final Incentive Fee Date, as the case may be, an amount equal to such excess (the “Adviser Return Obligation”). Notwithstanding the preceding sentence, in no event shall the Adviser Return Obligation exceed an amount greater than the aggregate amount of Incentive Fee payments previously received by (or allocated to) the Adviser from the Company with respect to the two Interim Incentive Fee Dates immediately preceding such Adviser Return Event, reduced by the excess (if any) of (a) the aggregate federal, state and local income tax liability the Adviser incurred in connection with the payment of such Incentive Fees (assuming the highest marginal applicable federal and New York City and State income tax rates applied to such payments), over (b) an amount equal to the U.S. federal and state tax benefits available to the Adviser by virtue of the payment made by the Adviser pursuant to its Adviser Return Obligation (assuming that, to the extent such payments are deductible by the Adviser, the benefit of such deductions will be computed using the then highest marginal applicable federal and New York City and State income tax rates), as reasonably determined by the Adviser.
The Adviser Return Obligation shall be recomputed to take into account any post- liquidation returns of distributions made by Members pursuant to 11.4 of the LLC Agreement, and any additional Adviser Return Obligation triggered by such post- liquidation returns shall be made by the Adviser contemporaneously with such post- liquidation returns by the Members.
e. Relevant Definitions. The “Adviser Target Amount” is, as of any time, the aggregate amount that would be paid to the Adviser as Incentive Fee as of such time, determined as if all amounts previously distributed to the Members pursuant to Article 7 and Article 9 of the LLC Agreement (net of amounts returned by the Members to the Company pursuant to 11.4 of the LLC Agreement and amounts then owed by the Company to creditors) had been retained by the Company and distributed to the Members pursuant to 9.2 of the LLC Agreement as of such time; provided, however, that in determining the amounts distributable to each Member pursuant to 9.2 of the LLC Agreement, each Member’s Hurdle shall be determined based on the timing of amounts previously distributed to such Member with respect to its Common Units, and the fair market value of any property distributed in kind by the Company shall be determined as of the time of distribution.
7. Payment of Expenses and Fees to the Adviser upon Removal. Upon the termination of this Agreement, the former Adviser or its estate or legal representatives shall be entitled to receive from the Company (a) any reimbursements of expenses due and owing to it by the Company; provided, however, that the Adviser shall be responsible for any expenses it incurs in connection with such removal, and (b) accrued and unpaid Management Fees and Incentive Fees, in each case computed through the effective date of the removal on a pro-rated basis. The right of the Adviser, its estate or legal representatives to the payment of said amounts shall be subject to any claim for damages which the Company or any Member may have against the Adviser, its estate or legal representatives in connection with such removal.
8. Services Not Exclusive. Nothing contained in this Agreement shall prevent the Adviser or any affiliated Person of the Adviser from acting as investment adviser or manager for any other Person, firm or corporation (including any other investment company), whether or not the investment objectives or policies of any such other Person, firm or corporation are similar to
Exh. 1-5
those of the Company, and shall not in any way bind or restrict the Adviser or any such affiliated Person from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Adviser or any such affiliated Person may be acting. While information and recommendations supplied to the Company shall, in the Adviser’s judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Company, they may be different from the information and recommendations supplied by the Adviser or its affiliates to other investment companies, funds and advisory accounts. The Company shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Company recognizes that it is not entitled to receive preferential treatment as compared with the treatment given by the Adviser to any other investment company, fund or advisory account.
9. Portfolio Transactions and Brokerage. To the extent brokers or dealers are utilized in portfolio transactions for the Company, the Adviser shall endeavor to obtain on behalf of the Company the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available and in selecting the broker or dealer to execute a particular transaction, the Adviser may also consider the “brokerage and research services” provided to the Company and/or other accounts over which the Adviser or an affiliate of the Adviser exercises investment discretion. The Adviser is authorized to pay a broker or dealer which provides such brokerage and research services a commission for executing a portfolio transaction for the Company which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Adviser determines in good faith that such commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of that particular transaction or in terms of the overall responsibilities of the Adviser to the Company.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser agrees that all records that it maintains for the Company are the property of the Company and further agrees to surrender promptly to the Company any of such records upon the Company’s request. The Adviser further agrees to preserve for the periods prescribed by Rule 31a- 2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.
11. Limitation of Liability. Neither the Adviser, nor any director, officer, agent or employee of the Adviser, shall be liable or responsible to the Company or any of its Members for (a) any mistake in judgment, (b) any act performed or omission made by such Person, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company (x) if such Person did not act in bad faith, and (y) if such conduct did not constitute willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of such Person’s respective position.
The Adviser shall be indemnified by the Company as an Indemnitee in accordance with the terms of 11.2 of the LLC Agreement.
Exh. 1-6
12. Nature of Relationship. The Company and the Adviser are not partners or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them. The Adviser is an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Company.
13. Duration and Termination.
a. This Agreement shall become effective upon its execution and shall continue in effect until two years from the date hereof, provided it is approved by the vote of a “majority of the outstanding voting securities” of the Company. Thereafter, this Agreement shall continue in effect from year to year, provided its continuance is specifically approved at least annually (a) by vote of a “majority of the outstanding voting securities” of the Company or by vote of the Board, and (b) by vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval. The Company (either by vote of its Board or by vote of a “majority of the outstanding voting securities” of the Company) may, at any time and without payment of any penalty, terminate this Agreement upon 60 days’ written notice to the Adviser. This Agreement shall automatically and immediately terminate in the event of its “assignment.” The Adviser may terminate this Agreement without payment of any penalty on 60 days’ written notice to the Company.
b. Notwithstanding the termination or expiration of this Agreement, the Adviser shall be entitled to any amounts owed under this Agreement through the date of termination or expiration and Section 11 shall continue in force and effect and apply to the Administrator and all Indemnified Parties as and to the extent applicable.
14. Notices. Any notice under this Agreement shall be given in writing, addressed and delivered to the party to this Agreement entitled to receive such notice at such address as such party may designate in writing and shall be deemed to have been given when personally delivered, mailed by certified mail, return receipt requested, sent by reliable overnight courier, or transmitted by electronic facsimile or electronic mail to the principal office of the Adviser or the Company, as the case may be.
15. Non-waiver of Rights. Nothing contained in this Agreement shall constitute a waiver by the Company of any of its legal rights under applicable U.S. federal securities laws or any other laws whose applicability is not permitted to be contractually waived.
16. Amendment. This Agreement may be modified or amended only by a writing signed by the parties hereto, provided, however, that the parties shall not amend this Agreement in a manner that is inconsistent with, or would result in a breach of, the LLC Agreement.
17. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York (without giving effect to principles of conflict of laws of the State of New York) and the applicable provisions of the 1940 Act. To the extent applicable law of the State of New York, or any of the provisions herein conflict with applicable provisions of the 1940 Act, the latter shall control.
Exh. 1-7
18. Sole Agreement. This Agreement reflects the sole understanding of the parties hereto with respect to the subject matter hereof and supersedes and replaces all agreements between the Company and the Adviser with respect to the subject matter hereof.
19. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
20. Severability. In the event that any provision or portion of this Agreement is determined to be invalid, illegal or unenforceable for any reason, in whole or in part, the remaining provisions or portion of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by applicable law.
[SIGNATURE PAGE TO FOLLOW]
Exh. 1-8
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first above written.
| TCW ASSET MANAGEMENT COMPANY LLC | ||
| By: |
| |
| Name: Meredith Jackson | ||
| Title: Executive Vice President and General Counsel | ||
| By: |
| |
| Name: Zachary Edelman | ||
| Title: Vice President | ||
| TCW STAR DIRECT LENDING LLC | ||
| By: |
| |
| Name: Name: Andrew Kim | ||
| Title: Chief Financial Officer and Treasure | ||
| By: |
| |
| Name: Name: Gladys Xiques | ||
| Title: Chief Compliance Officer | ||
Exh. 1-9
Exhibit 2
Adviser Representations Letter
TCW Asset Management Company
865 South Figueroa Street, 21st Floor
Los Angeles, CA 90017
[ ], 2022
TCW Star Direct Lending LLC and its Members
200 Clarendon Street, 51st Floor,
Boston, Massachusetts 02116
The capitalized terms used without definition in this letter, unless otherwise indicated, have the respective meanings specified in the Amended and Restated Limited Liability Company Agreement of TCW Star Direct Lending LLC (as the same may be amended from time to time, the “LLC Agreement”). TCW Asset Management Company (the “Adviser”) hereby makes the following representations, warranties and covenants for the benefit of the Company and each of its Members. The Adviser intends and agrees that the provisions of this letter may be enforced by the Company or by one or more Members of the Company acting in their individual capacity.
1. Without the prior consent of a Supermajority in Interest of the Common Unitholders, the Adviser shall cause at least 50% of the economics related to the right to receive the Incentive Fee to be for the benefit of the current or former employees of the Adviser (or its affiliates) that are or were part of the Adviser’s Private Credit Group.
2. If the Adviser manages a Parallel Fund, the Adviser shall use reasonable best efforts to cause (i) any investment by the Parallel Fund in a particular investment alongside the Company, subject to applicable legal, tax, and regulatory considerations, including SEC exemptive orders, to be made at substantially the same time and on the same terms as the Company, and (ii) the Company and each Parallel Fund to dispose of their investments in a Portfolio Investment at the same time and on substantially the same terms, to the extent practicable.
3. During the Company’s Commitment Period, the Adviser will cause the Company to be allocated the right to invest in each investment suitable for the Company that is sourced by the Adviser’s Private Credit Group and which can be allocated to the Company in accordance with applicable regulatory requirements.
4. In carrying out its duties and obligations under the Advisory Agreement, the Adviser shall use reasonable best efforts to cause the Company to carry out its intended activities and to cause or permit the Company to satisfy its representations, warranties and covenants (including those related to tax) as set out in the LLC Agreement. In particular, the Adviser shall use reasonable best efforts to:
Exh. 2-1
a. Make or structure each investment in a jurisdiction outside the United States in a manner such that no Member (i) would have any personal liability with respect to such investment (including having to pay income taxes) beyond such Member’s obligations to make contributions or payments to the Company as provided in the LLC Agreement, or (ii) would be required with respect to such investment to file income tax returns in that jurisdiction reporting income (other than any Member who must file such returns without regard to the activities of the Company or who is required to file such returns for the purpose of reducing, eliminating or recovering any taxes withheld on behalf of such Member).
b. Cause the Company to maintain its status as a RIC after it has elected RIC status, including complying with related tests such as source-of-income and asset diversification requirements and distributing annually an amount equal to at least 90% of its “investment company taxable income”, and, if the Company is unable to qualify as a RIC, cause the Company to be classified as a partnership for U.S. federal tax purposes and to conduct the operations of the Company in a manner so as not to create a material amount of UBTI.
5. The Adviser shall procure that each Key Person (for so long as such Key Person remains an employee of the Adviser or a TCW Affiliate) devotes such time and attention to the Company as reasonably necessary or appropriate to ensure the Company’s proper operation and performance, within the parameters of the Adviser’s duties under the Advisory Agreement.
6. The Adviser has established and will maintain internal controls, policies and procedures reasonably designed to ensure material compliance with all applicable anti-money laundering, anti-terrorism laws and anti-bribery laws, as well as applicable rules and regulations imposed by applicable securities laws. To the extent permitted under applicable law, the Adviser will promptly notify the Company and the Members of any claims and formal charges brought by a governmental or regulatory authority based on material non-compliance by the Adviser or any Key Person’s material non-compliance with any law related to (or that could reasonably have an impact on) the Company or the Adviser’s performance of its duties under the Advisory Agreement, including anti-money laundering, anti-terrorism or anti-bribery laws, which notification will provide a reasonably detailed written explanation of such action; provided that to the extent that the Adviser determines it to be in the best interests of the Company (taken as a whole) to maintain confidentiality, certain information may be redacted or withheld to the extent that (and only for so long as) such information must be withheld for the benefit of the Company.
7. The Adviser shall not cause the Company to buy Portfolio Investments from or sell Portfolio Investments to the Adviser, a Key Person, or a TCW Affiliate (a “Related Party Transaction”) without the prior consent of the Board, provided that any such Related Party Transaction is to be made in accordance with regulatory requirements, including SEC exemptive orders if required. The Adviser shall notify each Member of any such Related Party Transaction in the Company reports issued for the quarter in which such reportable event occurred.
8. The Adviser shall not, and shall use reasonable best efforts to procure that the Key Persons do not, enter into any transaction which, at the time of such transaction, would violate in any material way its obligations to the Company as described herein or which would make it impossible for the Company to carry on its intended activities.
Exh. 2-2
9. If the Board determines to make a partnership election pursuant to Section 13.7.1. of the LLC Agreement, the Adviser will use commercially reasonable efforts to effect the partnership election and conduct operations of the Company following such election so as to not create a material amount of income effectively connected with the conduct of a trade or business in the United States as described in IRS Code Section 864 (“Effectively Connected Income”) for those affected Members; provided that no assurances are being given by the Adviser that the U.S. tax authorities would hold the view that methods currently being used by market participants, including but not limited to seasoning and selling assets, would effectively reduce or eliminate Effectively Connected Income at the time of such partnership election.
Exh. 2-3
IN WITNESS WHEREOF, the undersigned has executed this letter effective as of the date first above written.
| TCW ASSET MANAGEMENT COMPANY LLC | ||
| By: |
| |
| Name: Meredith Jackson | ||
| Title: Executive Vice President and General Counsel | ||
| By: |
| |
| Name: Zachary Edelman | ||
| Title: Vice President | ||
Exh. 2-4
TCW STAR DIRECT LENDING LLC
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
THIS AGREEMENT (this “Agreement”) is made as of [ ], 2022 by and between TCW STAR DIRECT LENDING LLC, a Delaware limited liability company (the “Company”), and TCW ASSET MANAGEMENT COMPANY LLC, a Delaware limited liability company (the “Adviser”).
WHEREAS, the Company is a newly organized closed-end management investment fund that intends to elect to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”);
WHEREAS, the Adviser is engaged in the business of providing investment advice and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Company desires to retain the Adviser to render investment advisory and management services to the Company in the manner and on the terms hereinafter set forth; and
WHEREAS, the Adviser is willing to perform such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Adviser hereby agree as follows:
1. Definitions. For the purposes of this Agreement, the terms “assignment,” “interested person,” and “majority of the outstanding voting securities” shall have their respective meanings as defined in the 1940 Act and the rules and regulations adopted by the U.S. Securities and Exchange Commission (“SEC”) thereunder, and the term “brokerage and research services” shall have the meaning given in the Securities Exchange Act of 1934 and the rules and regulations adopted by the SEC thereunder, subject, however, in all cases to such exemptions as may be granted by the SEC, such interpretive positions as may be taken by the SEC, and such interpretive or no action positions as may be taken by the SEC staff, The capitalized terms used without definition in this Agreement, unless otherwise indicated, have the respective meanings specified in the Amended and Restated Limited Liability Company Agreement of the Company (as the same may be amended from time to time, the “LLC Agreement”).
2. Appointment.
a. The Company engages the Adviser to provide investment advisory and management services to the Company. This engagement is for the period and on the terms set forth in this Agreement. The Adviser hereby accepts such engagement and agrees to render the services and to assume the obligations set forth in this Agreement, for the compensation provided below.
b. The Adviser, subject to the prior approval of the Company’s board of directors (the “Board”) and, to the extent required, the Members, may from time to time enter into one or more sub-advisory agreements with other investment advisers (each a “Sub-Adviser”) as the Adviser may believe to be particularly fitted to assist it in the performance of this Agreement; provided, however, that the compensation of any Sub-Adviser shall be paid by the Adviser and that the Adviser shall be as fully responsible to the Company for the acts and omissions of any Sub-Adviser as it is for its own acts and omissions. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the 1940 Act and other applicable federal and state law.
3. Advisory and Management Services. The Company hereby engages the Adviser to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject to the supervision of the Board, for the period and upon the terms herein set forth, (a) in accordance with the investment objective, policies and restrictions that are set forth in the Company’s registration statement on Form 10 (File No. 000-56404) (and as the same shall be amended from time to time, the “Registration Statement”) and in accordance with the investment objective, policies and restrictions that are set forth in the Company’s offering documents, as it may be amended from time to time; (b) in accordance with all other applicable federal and state laws, rules and regulations, and the LLC Agreement; and (c) in accordance with the 1940 Act. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement: (i) formulate and implement the Company’s investment program; (ii) determine the composition of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such changes; (iii) identify/source, research, evaluate and negotiate the structure of the investments made by the Company (including due diligence on prospective Portfolio Companies); (iv) close, monitor and administer the Company’s investments, including the exercise of any rights in its capacity as a lender; (v) determine the securities and other assets that the Company will originate, purchase, retain, or sell; (vi) place orders for the purchase or sale of portfolio securities for the Company’s account with broker-dealers selected by the Adviser; (vii) pay such expenses as are incurred by it in connection with providing the foregoing services as provided in Section 4 below; (viii) coordinate with the Administrator; and (ix) provide the Company with such other investment advisory, research, and related services as the Company may, from time to time, reasonably require for the investment of its funds, including providing operating and managerial assistance to the Company and its portfolio companies as required. Subject to the supervision of the Board, the Adviser shall have the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing of orders for other purchase or sale transactions on behalf of the Company. In the event that the Company determines to acquire debt financing, the Adviser will arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Board. If it is necessary or appropriate for the Adviser to make investments on behalf of the Company through a subsidiary of the Company or other special purpose vehicle, the Adviser shall have authority to create or arrange for the creation of such subsidiary of the Company or other special purpose vehicle and to make such investments through such subsidiary of the Company or other special purpose vehicle (in accordance with the 1940 Act).
4. Reimbursement of Certain Expenses. In addition to the Management Fee and Incentive Fee described below, the Adviser is entitled to the reimbursement of certain expenses incurred on behalf of the Company to the extent described in the Administration Agreement by and between the Company and TCW Asset Management Company LLC (as Administrator).
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5. Management Fee.
a. The Company will pay to the Adviser, quarterly in arrears, a management fee (the “Management Fee”) calculated as follows: 0.3125% (i.e., 1.25% per annum) of the average gross assets of the Company on a consolidated basis, with the average determined based on the gross assets of the Company as of the end of the three most recently completed calendar months. “Gross assets” means the amortized cost of Portfolio Investments of the Company (including Portfolio Investments purchased with borrowed funds and other forms of leverage, such as Preferred Units, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) that have not been sold, distributed to the Members or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any Portfolio Investment), and excluding cash and cash equivalents.
b. Installments of the Management Fee payable for any partial month or quarter shall be pro rated for the actual number of days in such period.
c. While the Management Fee will accrue from the Initial Closing Date, the Adviser intends to defer payment of such fee to the extent that such fee is greater than the aggregate amount of interest and fee income earned by the Company.
6. Incentive Fee.
a. Calculation of Incentive Fee. Subject to the Adviser Return Obligation (described in Section 6(c)), the Company shall pay the Adviser an incentive fee (the “Incentive Fee”) as follows. The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined in accordance with the following formula each time amounts are to be distributed to the Common Unitholders:
(i) First, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions pursuant to this clause (a) equal to their Aggregate Contributions to the Company in respect of all the Common Units;
(ii) Second, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions equal to a 6.5% internal rate of return on their Aggregate Contributions to the Company in respect of all Common Units (the “Hurdle”);
(iii) Third, the Adviser will be entitled to an Incentive Fee out of 100% of additional amounts otherwise distributable to Common Unitholders until such time as the Incentive Fee paid to the Adviser is equal to 15% of the sum of (A) the amount by which the Hurdle exceeds the Aggregate Contributions of the Common Unitholders in respect of all Common Units and (B) the amount of Incentive Fee being paid to the Adviser pursuant to this clause (iii); and
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(iv) Thereafter, the Adviser will be entitled to an Incentive Fee equal to 15% of additional amounts otherwise distributable to Common Unitholders in respect of all Common Units, with the remaining 85% distributed to the Common Unitholders.
For purposes of calculating the Incentive Fee, as provided in 3.3.2 of the LLC Agreement, Aggregate Contributions shall not include NAV Balancing Contributions or Late-Closer Contributions, and the distributions to Common Unitholders shall not include distributions attributable to Late-Closer Contributions. NAV Balancing Contributions received by the Company will not be treated as amounts distributed to Common Unitholders for purposes of calculating the Incentive Fee. In addition if distributions to which a Defaulting Member otherwise would have been entitled have been withheld pursuant to 6.2.4 of the LLC Agreement, the amounts so withheld shall be treated for such purposes as having been distributed to such Defaulting Member. The amount of any distribution of securities made in kind shall be equal to the fair market value of those securities at the time of distribution determined pursuant to 13.4 of the LLC Agreement.
b. Incentive Fee upon Early Termination. If this Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating this Agreement or (ii) the Company terminating this Agreement for cause, the Company will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date this Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all of the Company’s investments were liquidated for their current value (but without taking into account any unrealized appreciation of any Portfolio Investment), and any unamortized deferred Portfolio Investment-related fees were deemed accelerated, (B) the proceeds from such liquidation were used to pay all of the Company’s outstanding liabilities, and (C) the remainder were distributed to Common Unitholders and paid as Incentive Fee in accordance with Section 6(a). The Company will make the Final Incentive Fee Payment in cash on or immediately following the date this Agreement is so terminated. In the case of an early termination, the Adviser Return Obligation under Section 6(c) will not apply in connection with a Final Incentive Fee Payment.
c. Interim Distributions. Notwithstanding the foregoing, on each fiscal year-end from and after December 31, 2024 (each, a “Interim Incentive Fee Date”) the Adviser shall be entitled to an interim incentive fee payment (each, and “Interim Incentive Fee Payment”), which shall be treated as an advance against future Incentive Fee Payments, in an amount equal to the Incentive Fee payment that would be made to the Adviser if all of the assets of the Company were fully realized for cash as of such Interim Incentive Fee Date in an amount equal to the fair market value of such assets as determined in accordance with Section 13.4 of the LLC Agreement, and the resulting proceeds, after payment or provision for expenses, liabilities and contingencies, were distributed to the Common Unitholders and the Adviser pursuant to paragraph (a) above. The Adviser may, in its discretion, defer any such Interim Incentive Fee, and allocate it for future distribution pending expiration of the lookback period described in paragraph (d) below.
d. Adviser Return Obligation. On each Interim Incentive Fee Date, and after the Company has made its final distribution of assets pursuant to 9.2 of the LLC Agreement (the “Final Incentive Fee Date”), if the Adviser has received aggregate payments of Final Incentive Fee, or with respect to the Interim Incentive Fee only, an amount equal to or greater than
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$1,000,000, in excess of the Adviser Target Amount (defined below) as of such time (an “Adviser Return Event”), then the Adviser shall return to the Company in cash on or before the 90th day after such Interim Incentive Fee Date or Final Incentive Fee Date, as the case may be, an amount equal to such excess (the “Adviser Return Obligation”). Notwithstanding the preceding sentence, in no event shall the Adviser Return Obligation exceed an amount greater than the aggregate amount of Incentive Fee payments previously received by (or allocated to) the Adviser from the Company with respect to the two Interim Incentive Fee Dates immediately preceding such Adviser Return Event, reduced by the excess (if any) of (a) the aggregate federal, state and local income tax liability the Adviser incurred in connection with the payment of such Incentive Fees (assuming the highest marginal applicable federal and New York City and State income tax rates applied to such payments), over (b) an amount equal to the U.S. federal and state tax benefits available to the Adviser by virtue of the payment made by the Adviser pursuant to its Adviser Return Obligation (assuming that, to the extent such payments are deductible by the Adviser, the benefit of such deductions will be computed using the then highest marginal applicable federal and New York City and State income tax rates), as reasonably determined by the Adviser.
The Adviser Return Obligation shall be recomputed to take into account any post- liquidation returns of distributions made by Members pursuant to 11.4 of the LLC Agreement, and any additional Adviser Return Obligation triggered by such post- liquidation returns shall be made by the Adviser contemporaneously with such post- liquidation returns by the Members.
e. Relevant Definitions. The “Adviser Target Amount” is, as of any time, the aggregate amount that would be paid to the Adviser as Incentive Fee as of such time, determined as if all amounts previously distributed to the Members pursuant to Article 7 and Article 9 of the LLC Agreement (net of amounts returned by the Members to the Company pursuant to 11.4 of the LLC Agreement and amounts then owed by the Company to creditors) had been retained by the Company and distributed to the Members pursuant to 9.2 of the LLC Agreement as of such time; provided, however, that in determining the amounts distributable to each Member pursuant to 9.2 of the LLC Agreement, each Member’s Hurdle shall be determined based on the timing of amounts previously distributed to such Member with respect to its Common Units, and the fair market value of any property distributed in kind by the Company shall be determined as of the time of distribution.
7. Payment of Expenses and Fees to the Adviser upon Removal. Upon the termination of this Agreement, the former Adviser or its estate or legal representatives shall be entitled to receive from the Company (a) any reimbursements of expenses due and owing to it by the Company; provided, however, that the Adviser shall be responsible for any expenses it incurs in connection with such removal, and (b) accrued and unpaid Management Fees and Incentive Fees, in each case computed through the effective date of the removal on a pro-rated basis. The right of the Adviser, its estate or legal representatives to the payment of said amounts shall be subject to any claim for damages which the Company or any Member may have against the Adviser, its estate or legal representatives in connection with such removal.
8. Services Not Exclusive. Nothing contained in this Agreement shall prevent the Adviser or any affiliated Person of the Adviser from acting as investment adviser or manager for any other Person, firm or corporation (including any other investment company), whether or not the investment objectives or policies of any such other Person, firm or corporation are similar to
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those of the Company, and shall not in any way bind or restrict the Adviser or any such affiliated Person from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Adviser or any such affiliated Person may be acting. While information and recommendations supplied to the Company shall, in the Adviser’s judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Company, they may be different from the information and recommendations supplied by the Adviser or its affiliates to other investment companies, funds and advisory accounts. The Company shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Company recognizes that it is not entitled to receive preferential treatment as compared with the treatment given by the Adviser to any other investment company, fund or advisory account.
9. Portfolio Transactions and Brokerage. To the extent brokers or dealers are utilized in portfolio transactions for the Company, the Adviser shall endeavor to obtain on behalf of the Company the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available and in selecting the broker or dealer to execute a particular transaction, the Adviser may also consider the “brokerage and research services” provided to the Company and/or other accounts over which the Adviser or an affiliate of the Adviser exercises investment discretion. The Adviser is authorized to pay a broker or dealer which provides such brokerage and research services a commission for executing a portfolio transaction for the Company which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Adviser determines in good faith that such commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of that particular transaction or in terms of the overall responsibilities of the Adviser to the Company.
10. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser agrees that all records that it maintains for the Company are the property of the Company and further agrees to surrender promptly to the Company any of such records upon the Company’s request. The Adviser further agrees to preserve for the periods prescribed by Rule 31a- 2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act.
11. Limitation of Liability. Neither the Adviser, nor any director, officer, agent or employee of the Adviser, shall be liable or responsible to the Company or any of its Members for (a) any mistake in judgment, (b) any act performed or omission made by such Person, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company (x) if such Person did not act in bad faith, and (y) if such conduct did not constitute willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of such Person’s respective position.
The Adviser shall be indemnified by the Company as an Indemnitee in accordance with the terms of 11.2 of the LLC Agreement.
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12. Nature of Relationship. The Company and the Adviser are not partners or joint venturers with each other and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them. The Adviser is an independent contractor and, except as expressly provided or authorized in this Agreement, shall have no authority to act for or represent the Company.
13. Duration and Termination.
a. This Agreement shall become effective upon its execution and shall continue in effect until two years from the date hereof, provided it is approved by the vote of a “majority of the outstanding voting securities” of the Company. Thereafter, this Agreement shall continue in effect from year to year, provided its continuance is specifically approved at least annually (a) by vote of a “majority of the outstanding voting securities” of the Company or by vote of the Board, and (b) by vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval. The Company (either by vote of its Board or by vote of a “majority of the outstanding voting securities” of the Company) may, at any time and without payment of any penalty, terminate this Agreement upon 60 days’ written notice to the Adviser. This Agreement shall automatically and immediately terminate in the event of its “assignment.” The Adviser may terminate this Agreement without payment of any penalty on 60 days’ written notice to the Company.
b. Notwithstanding the termination or expiration of this Agreement, the Adviser shall be entitled to any amounts owed under this Agreement through the date of termination or expiration and Section 11 shall continue in force and effect and apply to the Administrator and all Indemnified Parties as and to the extent applicable.
14. Notices. Any notice under this Agreement shall be given in writing, addressed and delivered to the party to this Agreement entitled to receive such notice at such address as such party may designate in writing and shall be deemed to have been given when personally delivered, mailed by certified mail, return receipt requested, sent by reliable overnight courier, or transmitted by electronic facsimile or electronic mail to the principal office of the Adviser or the Company, as the case may be.
15. Non-waiver of Rights. Nothing contained in this Agreement shall constitute a waiver by the Company of any of its legal rights under applicable U.S. federal securities laws or any other laws whose applicability is not permitted to be contractually waived.
16. Amendment. This Agreement may be modified or amended only by a writing signed by the parties hereto, provided, however, that the parties shall not amend this Agreement in a manner that is inconsistent with, or would result in a breach of, the LLC Agreement.
17. Governing Law. This Agreement shall be construed in accordance with the laws of the State of New York (without giving effect to principles of conflict of laws of the State of New York) and the applicable provisions of the 1940 Act. To the extent applicable law of the State of New York, or any of the provisions herein conflict with applicable provisions of the 1940 Act, the latter shall control.
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18. Sole Agreement. This Agreement reflects the sole understanding of the parties hereto with respect to the subject matter hereof and supersedes and replaces all agreements between the Company and the Adviser with respect to the subject matter hereof.
19. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
20. Severability. In the event that any provision or portion of this Agreement is determined to be invalid, illegal or unenforceable for any reason, in whole or in part, the remaining provisions or portion of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by applicable law.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first above written.
| TCW ASSET MANAGEMENT COMPANY LLC | ||
| By: |
| |
| Name: Meredith Jackson | ||
| Title: Executive Vice President and General Counsel | ||
| By: |
| |
| Name: Zachary Edelman | ||
| Title: Vice President | ||
| TCW STAR DIRECT LENDING LLC | ||
| By: |
| |
| Name: Name: Andrew Kim | ||
| Title: Chief Financial Officer and Treasure | ||
| By: |
| |
| Name: Name: Gladys Xiques | ||
| Title: Chief Compliance Officer | ||
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ADMINISTRATION AGREEMENT
This Administration Agreement (“Agreement”) is made as of August [___], 2022 by and between TCW STAR DIRECT LENDING LLC, a Delaware limited liability company (the “Company”), and TCW ASSET MANAGEMENT COMPANY LLC, a Delaware limited liability company (the “Administrator”).
W I T N E S S E T H:
WHEREAS, the Company is a closed-end management investment fund that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act” or “Investment Company Act”);
WHEREAS, the Company desires to retain the Administrator to provide administrative services to the Company in the manner and on the terms hereinafter set forth; and
WHEREAS, the Administrator is willing to provide administrative services to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company and the Administrator hereby agree as follows:
1. Definitions
The capitalized terms used without definition in this Agreement have the respective meanings specified in the Company’s Amended and Restated Limited Liability Company Agreement (“LLC Agreement”).
2. Duties of the Administrator
(a) Employment of Administrator. The Company hereby employs the Administrator to act as administrator of the Company, and to furnish, or arrange for others to furnish, the administrative services, personnel and facilities described below, subject to review by and the overall control of the Board of Directors of the Company (the “Board”), for the period and on the terms and conditions set forth in this Agreement. The Administrator hereby accepts such employment and agrees during such period to render, or arrange for the rendering of, such services and to assume the obligations herein set forth subject to the reimbursement of costs and expenses provided for below. The Administrator and such others shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized herein, have no authority to act for or represent the Company in any way or otherwise be deemed agents of the Company.
(b) Services. The Administrator shall perform (or oversee, or arrange for the performance of) the administrative services necessary for the operation of the Company. Without limiting the generality of the foregoing, the Administrator shall:
(i) provide the Company with general overhead, including office facilities and equipment, and clerical, bookkeeping and record keeping services at such facilities,
(ii) oversee the maintenance of the Company’s financial records and otherwise assist with the Company’s compliance with BDC and RIC rules,
(iii) monitor the payment of the Company’s expenses,
(iv) on behalf of the Company, conduct relations with custodians, depositories, transfer agents, disbursing agents, other servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other person in any other capacity deemed to be necessary or desirable, including, but not limited to, negotiating agreements, reviewing performance of duties and directing actions of any such third party service providers,
(v) be responsible for the financial and other records that the Company is required to maintain and shall prepare and disseminate reports to Members and reports and other materials to be filed with the SEC or other regulators,
(vi) assist the Company in determining and publishing (as necessary or appropriate) the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns and generally overseeing the payment of the Company’s expenses, and
(vii) provide such other services as the Administrator, subject to review by the Board, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement.
The Administrator shall have the authority to execute, on behalf of the Company, any orders, certifications or agreements incidental to the duties it performs for the Company hereunder.
The Administrator shall make reports to the Board of its performance of obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Company as it shall determine to be desirable; provided that nothing herein shall be construed to require the Administrator to, and the Administrator shall not, provide any advice or recommendation relating to the securities and other assets that the Company should purchase, retain or sell or any other investment advisory services to the Company.
The Administrator will provide on the Company’s behalf significant managerial assistance to those Portfolio Companies to which the Company is required to provide such assistance.
The Administrator may engage one or more third parties to perform all or a portion of the foregoing services.
3. Records
The Administrator agrees to maintain and keep all books, accounts and other records of the Company that relate to activities performed by the Administrator hereunder and will maintain and keep such books, accounts and records in accordance with the Investment Company Act. In compliance with the requirements of Rule 31a-3 under the Investment Company Act, the Administrator agrees that all records which it maintains for the Company shall at all times remain the property of the Company, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request. The Administrator further agrees that all records that it maintains for the Company pursuant to Rule 31a-1 under the Investment Company Act will be preserved for the periods prescribed by Rule 31a-2 under the Investment Company Act unless any such records are earlier surrendered as provided above. Records shall be surrendered in usable machine-readable form. The Administrator shall have the right to retain copies of such records subject to observance of its confidentiality obligations under this Agreement.
4. Confidentiality
The parties hereto agree that each shall treat confidentially all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto, including nonpublic personal information (regulated pursuant to Regulation S-P), shall be used by any other party hereto solely for the purposes contemplated by this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party, without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided, or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by any regulatory authority, any authority or legal counsel of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation.
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5. Compensation; Allocation of Costs and Expenses
In full consideration of the provision of the services of the Administrator, subject to the expenses limitation described below, the Company will reimburse the Administrator for expenses incurred by it on behalf of the Company in performing its obligations under this Agreement. The Administrator may perform these services directly, may delegate some or all of them through the retention of a sub-administrator and may remove or replace any sub-administrator. The Administrator agrees that it will not charge total fees pursuant to this Agreement that would exceed its reasonable estimate of what a qualified third party would charge to perform substantially similar services.
Subject to the Company expenses limitation as described below, the Company shall bear and be responsible for all costs, expenses and liabilities, in connection with the organization, operations, administration and transactions of the Company (“Company Expenses”). Company Expenses shall include, without limitation: (a) Organizational Expenses and expenses associated with the issuance of the Units and organizational expenses of a related entity organized and managed by TCW as a feeder fund for the Company and issuance of interests; (b) expenses of calculating the Company’s net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring the financial and legal affairs for the Company, providing administrative services, monitoring or administering the Company’s investments and performing due diligence reviews of prospective investments and the corresponding Portfolio Companies; (e) costs associated with the Company’s reporting and compliance obligations under the 1940 Act, 1934 Act and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance the Company’s investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other securities; (h) Management Fees and Incentive Fees; (i) administrator fees and expenses payable under the Administration Agreement, provided that any such fees payable to the Administrator shall be limited to what a qualified third party would charge to perform substantially similar services; (j) transfer agent, sub-administrator and custodial fees; (k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes and other governmental charges assessed against the Company; (n) Independent Directors’ fees and expenses and the costs associated with convening a meeting of the Board or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of Unitholders or holders of any Preferred Units; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of the Company’s financial statements and tax returns; (r) the Company’s allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to the Company; (u) compensation of other third party professionals to the extent they are devoted to preparing the Company’s financial statements or tax returns or providing similar “back office” financial services to the Company; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for the Company, monitoring the investments of the Company and disposing of any such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to the Company, including in each case services with respect to the proposed purchase or sale of securities by the Company that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying the LLC Agreement or the Advisory Agreement or related documents of the Company or Related Entities; (aa) fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of the Company or Related Entities; and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering the Company’s business.
Notwithstanding the foregoing, the Company will not bear more than (a) an amount equal to 10 basis points of the aggregate Commitments of the Company for organizational expenses and offering expenses in connection with the offering of Units.
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6. Limitation of Liability of the Administrator; Indemnification
Neither the Administrator, nor any director, officer, agent or employee of the Administrator, shall be liable or responsible to the Company or any of its Members for (a) any mistake in judgment, (b) any act performed or omission made by such person, or (c) losses due to the mistake, action, inaction or negligence of other agents of the Company (x) if such person did not act in bad faith, and (y) if such conduct did not constitute willful misfeasance, gross negligence, or reckless disregard of the duties involved in the conduct of such person’s respective position. The Administrator shall be indemnified by the Company as an Indemnitee in accordance with the terms of 11.2 of the LLC Agreement.
7. Activities of the Administrator
The services of the Administrator to the Company are not to be deemed to be exclusive, and the Administrator and each affiliate is free to render services to others. It is understood that directors, officers, employees and members of the Company are or may become interested in the Administrator and its affiliates, as directors, officers, members, managers, employees, partners, stockholders or otherwise, and that the Administrator and directors, officers, members, managers, employees, partners and stockholders of the Administrator and its affiliates are or may become similarly interested in the Company as stockholders or otherwise.
8. Duration and Termination of this Agreement
(a) This Agreement shall become effective upon its execution and shall continue in effect until two years from the date of the Original Agreement. Thereafter, this Agreement shall continue in effect from year to year, provided its continuance is specifically approved at least annually (a) by vote of a “majority of the outstanding voting securities” of the Company or by vote of the Board, and (b) by vote of a majority of the Independent Directors, cast in person at a meeting called for the purpose of voting on such approval. The Company (either by vote of its Board of Directors or by vote of a “majority of the outstanding voting securities” of the Company) may, at any time and without payment of any penalty, terminate this Agreement upon 60 days’ written notice to the Administrator. This Agreement shall automatically and immediately terminate in the event of its “assignment.” The Administrator may terminate this Agreement without payment of any penalty on 60 days’ written notice to the Company. This Agreement shall become effective as of the first date above written.
(b) Notwithstanding the termination or expiration of this Agreement, the Administrator shall be entitled to any amounts owed under Section 5 through the date of termination or expiration and Section 6 shall continue in force and effect and apply to the Administrator and all Indemnified Parties as and to the extent applicable.
(c) This Agreement may not be assigned by a party without the consent of the other party; provided, however, that the rights and obligations of the Company under this Agreement shall not be deemed to be assigned to a newly formed entity in the event of the merger of the Company into, or conveyance of all of the assets of the Company to, such newly formed entity, provided that the sole purpose of that merger or conveyance is to effect a mere change in the Company’s legal form into another limited liability entity.
9. Notices
Any notice under this Agreement shall be given in writing, addressed and delivered to the party to this Agreement entitled to receive such notice at such address as such party may designate in writing and shall be deemed to have been given when personally delivered, mailed by certified mail, return receipt requested, sent by reliable overnight courier, or transmitted by electronic facsimile or electronic mail to the principal office of the Administrator or the Company, as the case may be.
10. Non-Waiver of Rights
Nothing contained in this Agreement shall constitute a waiver by the Company of any of its legal rights under applicable U.S. federal securities laws or any other laws whose applicability is not permitted to be contractually waived.
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11. Amendment
This Agreement may be modified or amended only by a writing signed by the parties hereto, provided, however, that the parties shall not amend this Agreement in a manner that is inconsistent with, or would result in a breach of, the LLC Agreement.
12. Governing Law
This Agreement shall be construed in accordance with the laws of the State of New York (without giving effect to principles of conflict of laws of the State of New York) and the applicable provisions of the 1940 Act. To the extent applicable law of the State of New York, or any of the provisions herein conflict with applicable provisions of the 1940 Act, the latter shall control.
13. Sole Agreement
This Agreement reflects the sole understanding of the parties hereto with respect to the subject matter hereof and supersedes and replaces all agreements between the Company and the Administrator with respect to the subject matter hereof.
14. Counterparts
This Agreement may be signed in any number of counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
15. Severability
In the event that any provision or portion of this Agreement is determined to be invalid, illegal or unenforceable for any reason, in whole or in part, the remaining provisions or portion of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by applicable law.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first above written.
| TCW ASSET MANAGEMENT COMPANY LLC | ||
| By: | ||
| Name: Meredith Jackson | ||
| Title: Executive Vice President & General Counsel | ||
| By: | ||
| Name: Zachary Edelman | ||
| Title: Vice President | ||
| TCW STAR DIRECT LENDING LLC | ||
| By: | ||
| Name: Andrew Kim | ||
| Title: Chief Financial Officer and Treasurer | ||
[Signature page to Administration Agreement]
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the “Agreement”) is made as of the date set forth on the signature page by and between TCW STAR DIRECT LENDING LLC, a Delaware limited liability company (the “Company”), and the director of the Company whose name is set forth on the signature page (the “Director”).
WHEREAS, the Director is a director of the Company, and the Company wishes the Director to continue to serve in that capacity; and
WHEREAS, the Company’s limited liability company agreement, as amended (the “LLC Agreement”), and applicable laws permit the Company to contractually obligate itself to indemnify the Director to the fullest extent permitted by law;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, the parties hereby agree as set forth below.
1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) “Board” shall mean the board of directors of the Company.
(b) “Cause” shall mean either (i) a final judicial determination by a court of competent jurisdiction that the Director has committed any action relating to the performance of his or her duties under the LLC Agreement that constitutes gross negligence, fraud or willful misconduct, or (ii) that the Director has been indicted or convicted in a court of competent jurisdiction of (A) a crime involving fraud or moral turpitude; (B) an intentional or material violation of applicable securities or regulatory laws; or (C) a felony relating to the performance of his or her duties under this Agreement.
(c) “Change in Control” shall mean that during any period of two consecutive years (or less), a majority of the existing members of the Board at the commencement of that period cease, for any reason, to constitute at least a majority of the Board.
(d) “Disabling Conduct” shall be as defined in Section 2 below.
(e) “Expenses” shall mean all costs, disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or acting as a witness in a Proceeding, including without limitation all judgments, penalties, fines, amounts paid or to be paid in settlement, ERISA excise taxes, liabilities, losses, interest, expenses of investigation, attorneys’ fees, retainers, court costs, transcript costs, fees of experts and witnesses, expenses of preparing for and attending depositions and other proceedings, travel expenses, duplicating costs, printing and binding costs, computerized legal research costs, telephone charges, postage, and delivery service fees.
(f) “Final Decision” or “Final Judgment” shall mean a final adjudication by court order or judgment of the court or other body before which a matter is pending, from which no further right of appeal or review exists.
(g) “Independent Counsel” shall mean a law firm, or a member of a law firm, that is experienced in matters of investment company law and neither at the time of designation is, nor in the five years immediately preceding such designation was, retained to represent (A) the Company or the Director in any matter material to either, or (B) any other party to the Proceeding giving rise to a claim for indemnification or advancements hereunder. Notwithstanding the foregoing, however, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest at the time of designation in representing either the Company or the Director in an action to determine the Director’s rights pursuant to this Agreement, regardless of when the Director’s act or failure to act occurred.
(h) “Independent Director” shall mean a director of the Company who is neither an “interested person” of the Company as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor a party to the Proceeding with respect to which indemnification or advances are sought.
(i) The term “Proceeding” shall mean a legal proceeding, including without limitation any threatened, pending or completed claim, demand, threat, discovery request, request for testimony or information, action, suit, arbitration, alternative dispute resolution mechanism, investigation, or hearing, and any appeal from any of the foregoing, whether civil, criminal, administrative or investigative, whether formally or informally initiated, and shall also include any proceeding brought by the Director against the Company if, but only if, the Director is the prevailing party in such proceeding against the Company.
(j) The Director’s “service to the Company” shall mean the Director’s service as a director, officer, employee, agent or representative of the Company, including without limitation his or her service at the request of the Company as a director, officer, employee, agent or representative of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
2. Indemnification. The Company shall indemnify and hold harmless the Director against any Expenses actually and reasonably incurred by the Director in any Proceeding arising out of or in connection with the Director’s service to the Company, to the maximum extent permitted by the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, as now or hereafter in force, subject to the conditions set forth in subparagraphs (a) through (d) below:
(a) Disabling Conduct. The Director shall be indemnified pursuant to this Section 2 against any Expenses reasonably incurred unless the Director incurred such Expenses by reason of the Director’s willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office as defined in Section 17(h) of the Investment Company Act of 1940, as amended (“Disabling Conduct”).
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(b) Conditions to Indemnification. The Director shall be indemnified pursuant to this Section 2 if either:
(i) the court or other body before which the Proceeding is brought shall have rendered a Final Decision on the merits, finding that the Director is not liable, has not engaged in Disabling Conduct, and/or is entitled to indemnification;
(ii) the Proceeding against the Director shall have been dismissed for insufficiency of evidence of any Disabling Conduct with which the Director has been charged; or
(iii) in the absence of such a Final Decision, dismissal or withdrawal, a determination shall have been made that the Director has not engaged in Disabling Conduct: (i) by the court or other body approving the settlement or other disposition of the Proceeding; or (ii) based upon a review of the available facts with respect to the Proceeding, by either the vote of a majority of a quorum of Independent Directors or by Independent Counsel in a written opinion.
(c) Other Restrictions. The Director shall not be indemnified and held harmless pursuant to this Section 2 if:
(i) the Director is seeking indemnification for Expenses in connection with acts that have formed the basis for such Director’s removal for Cause from the Board;
(ii) a Final Judgment has been entered that the Director’s act or omission was material to the matter giving rise to the Proceeding and was committed in bad faith or was the result of active and deliberate dishonesty;
(iii) a Final Judgment has been entered that the Director actually received an improper personal benefit in money, property or services;
(iv) in the case of a criminal Proceeding, a Final Judgment has been entered that the Director had reasonable cause to believe his or her conduct was unlawful; or
(v) if the Proceeding is an action by or in the right of the Company, the Director is adjudged liable to the Company.
(d) Conditions to 1933 Act Indemnification. In addition to the conditions set forth in subparagraphs (b) and (c), during any period in which an undertaking by the Company pursuant to Rule 484 under the Securities Act of 1933, as amended, is effective, the Director shall be indemnified pursuant to this Section 2 with respect to liabilities arising under the Securities Act of 1933, as amended, only if either:
(i) the indemnification request is made in connection with the successful defense of an action against the Director; or
(ii) in the opinion of Independent Counsel the question whether such indemnification is against public policy as expressed in such Act has been settled by controlling precedent; or if Independent Counsel is unable to provide such an opinion, Independent Counsel has submitted to a court of appropriate jurisdiction on behalf of the Company the question whether such indemnification is against public policy and a Final Decision has been rendered with respect to such submission that such indemnification is not against public policy.
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3. Advancement of Expenses. The Company shall promptly advance funds to the Director to cover any and all Expenses the Director reasonably incurs with respect to any Proceeding arising out of or in connection with the Director’s service to the Company, to the fullest extent permitted by the laws of the State of Delaware and the Investment Company Act of 1940, as amended, as such statutes are now or hereafter in force, subject to the provisions of subparagraphs (a) and (b) below.
(a) Affirmation of Conduct and Undertaking. A request by the Director for advancement of funds pursuant to this Section 3 shall be accompanied by (i) the Director’s written affirmation of his or her good faith belief that he or she met the standard of conduct necessary for indemnification, and (ii) a written undertaking by or on behalf of the Director to repay such advancements upon the occurrence of any of the events barring indemnification set forth in Section 2.
(b) Conditions to Advancement. Funds shall be advanced to the Director pursuant to this Section 3 if: (1) the Company is insured against losses arising by reason of any such lawful advancements to the Director; (2) a determination is made by the vote of a majority of a quorum of Independent Directors, or by Independent Counsel in a written opinion, based on a review of the readily available facts then known (as opposed to a full trial-type inquiry), that there is reason to believe that the Director ultimately will be found to be entitled to indemnification pursuant to Section 2; or (3) in the absence of insurance or such a determination by the Independent Directors or Independent Counsel, such undertaking as required by subparagraph 3(a) above is secured by a surety bond or other appropriate security provided by the Director.
4. Procedure for Determination of Entitlement to Indemnification and Advancements. The procedures set forth in this Section shall govern determinations regarding advancements of Expenses and indemnifications. A request by the Director for indemnification or advancement of Expenses shall be made in writing, and shall be accompanied by such relevant documentation and information as is reasonably available to the Director. The Secretary of the Company shall promptly advise the Board of such request.
(a) Rebuttable Presumption. In any determination by the Independent Directors or Independent Counsel, the Director shall be afforded a rebuttable presumption that the Director did not engage in Disabling Conduct.
(b) Cooperation. The Director shall cooperate with the person or persons making a determination, including without limitation providing to such persons upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and is reasonably available to the Director and reasonably necessary to such determination.
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(c) Methods of Determination. Except as specified in subparagraph 2(d)(ii), upon the Director’s request for indemnification or advancement of Expenses, a determination with respect to the Director’s entitlement thereto shall be made: (i) if there has been no Change in Control, by a quorum of the Board consisting of Independent Directors, or (if such a quorum is not obtainable or such Independent Directors so direct) by Independent Counsel, or (ii) if there has been a Change in Control, by Independent Counsel; provided , however, that the Director shall have the right, in his or her sole discretion, to request that the determination be made by Independent Counsel; and provided, further, that in any event that with regard to advancements no such determination shall be necessary if (x) the Company shall have received written confirmation in reasonably acceptable form that the Company is insured against all such losses arising by reason of any lawful advancements and that the insurer will pay all the Expenses of the Director in a reasonably prompt manner, or (y) the Director has provided an adequate security interest in addition to his affirmation and undertaking to repay (as required by subparagraph 3(a) above).
(d) Independent Counsel. If the determination of entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to the Director advising the Director of the identity of the Independent Counsel selected. The Director may, within five days after receipt of such written notice, deliver to the Company a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirement of independence set forth in the definition of Independent Counsel in Section 1, and shall set forth with particularity the factual basis of such assertion. Upon receipt of such objection, the Board shall select another Independent Counsel, subject to a similar right of objection.
If within fourteen days after submission by the Director of a written request for indemnification or advancement of Expenses no such Independent Counsel shall have been selected by the Board (whether or not an objection by the Director is the cause of the delay), then either the Company or the Director may petition a court of competent jurisdiction in California for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom an objection is favorably resolved or the person so appointed shall act as Independent Counsel.
The Company shall pay all reasonable fees and Expenses charged or incurred by Independent Counsel in connection with his or her determinations pursuant to this Agreement, and shall pay all reasonable fees and Expenses incident to the procedures described in this paragraph, regardless of the manner in which such Independent Counsel was selected or appointed.
(e) Failure to Make Timely Determination. If the person or persons empowered or selected under subparagraphs (c) or (d) to determine whether the Director is entitled to indemnification or advancement of Expenses shall not have made such determination within sixty days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification or advancement of Expenses shall be deemed to have been made, and the Director shall be entitled to such indemnification or advancement, absent (i) an intentional misstatement by the Director of a material fact, or an intentional omission of a material fact necessary to make the Director’s statement not materially misleading, in connection with the request for indemnification or advancement of Expenses, or (ii) a prohibition of such indemnification or advancements under applicable law; provided, however, that such period may be extended for a reasonable period of time, not to exceed an additional thirty days, if the person or persons making the determination in good faith require such additional time to obtain or evaluate documentation or information relating thereto.
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(f) Payment Upon Determination of Entitlement. If a determination is made pursuant to Sections 2, 3, and 4 (c) through (e) above that the Director is entitled to indemnification or advancement of Expenses, payment of any indemnification amounts or advancements owing to the Director shall be made within ten days after such determination (and, in the case of advancements of further Expenses, within ten days after submission of supporting information).
5. General Provisions.
(a) No Indemnification if Otherwise Reimbursed. The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Director has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(b) Alteration of Rights. No amendment of the LLC Agreement shall limit or eliminate the right of the Director to indemnification and advancement of Expenses set forth in this Agreement. Moreover, unless contrary to applicable law, the procedures set forth in Sections 2 through 5 of this Agreement shall be the exclusive means by which the parties’ rights and obligations with regard to indemnification and advancement of Expenses shall be determined, regardless of whether those rights and obligations arise by operation of law, the LLC Agreement or this Agreement.
(c) Selection of Counsel. The Company shall be entitled to assume the defense of any Proceeding for which the Director seeks indemnification or advancement of Expenses under this Agreement. However, a Director may request separate counsel if he or she so elects. Counsel selected by the Director shall conduct the defense of the Director to the extent reasonably determined by such counsel to be necessary to protect the interests of the Director, and the Company shall indemnify the Director therefor to the extent otherwise permitted under this Agreement, if the Director reasonably determines that there may be a conflict in the Proceeding between the positions of the Director and the positions of the Company or the other parties to the Proceeding that are indemnified by the Company and not represented by separate counsel, or the Director otherwise reasonably concludes that representation of both the Director, the Company and such other parties by the same counsel would not be appropriate. If the Company shall not have elected to assume the defense of any such Proceeding for the Director within thirty days after receiving written notice thereof from the Director, the Company shall be deemed to have waived any right it might otherwise have to assume such defense.
(d) D&O Insurance. For a period of six years after the Director has ceased to provide services to the Company, the Company shall purchase and maintain in effect one or more policies of insurance on behalf of the Director which collectively provide limits of coverage for claims made against the Director in the event of the insolvency of the Company which are consistent with the limits of coverage available for that Director in such circumstances when he or she ended service as a Director, unless (1) such insurance is not reasonably available, or (2) the limits of coverage which the Director had upon the termination of his service as a Director of the Company is in excess of that provided to any of the current Directors of the Company and the current Board provides coverage to the Director at least equal to the highest limit available to those current Directors.
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(e) Subrogation. In the event of any payment by the Company pursuant to this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Director, who shall, upon reasonable written request by the Company and at the Company’s expense, execute all such documents and take all such reasonable actions as are necessary to enable the Company to enforce such rights. Nothing in this Agreement shall be deemed to diminish or otherwise restrict the right of the Company or the Director to proceed or collect against any insurers and to give such insurers any rights against the Company under or with respect to this Agreement, including without limitation any right to be subrogated to the Director’s rights hereunder, unless otherwise expressly agreed to by the Company in writing, and the obligation of such insurers to the Company and the Director shall not be deemed to be reduced or impaired in any respect by virtue of the provisions of this Agreement.
(f) Notice of Proceedings. The Director shall promptly notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document commencing any Proceeding which may be subject to indemnification or advancement of expense pursuant to this Agreement, but no delay in providing such notice shall in any way limit or affect the Director’s rights or the Company’s obligations under this Agreement, except to the extent that the rights of the Company are materially adversely affected by such delay.
(g) Notices. All notices, requests, demands and other communications to a party pursuant to this Agreement shall be in writing, addressed to such party (and/or designated representative) at the address(es) specified on the signature page of this Agreement (or such other address as may have been furnished by such party by notice in accordance with this paragraph), and shall be deemed to have been duly given when delivered personally (with a written receipt signed by the addressee or its/his/her representative) or two days after being sent (1) by certified or registered mail, postage prepaid, return receipt requested, or (2) by nationally recognized overnight courier service.
(h) Severability. If any provision of this Agreement shall be held to be invalid, illegal, or unenforceable, in whole or in part, for any reason whatsoever, (1) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any provision that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (2) to the fullest extent possible, the remaining provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
(i) Modification and Waiver. This Agreement supersedes any existing or prior agreement between the Company and the Director pertaining to the subject matter of indemnification, advancement of Expenses and insurance and any such prior written or oral agreement shall be of no further force or effect. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties or their respective successors or legal representatives. Any waiver by either party of any breach by the other party of any provision contained in this Agreement to be performed by the other party must be in writing and signed by the waiving party or such party’s successor or legal representative, and no such waiver shall be deemed a waiver of similar or other provisions at the same or any prior or subsequent time.
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(j) Headings. The headings of the Sections of this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
(k) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which when taken together shall constitute one document.
(l) Applicable Law. This Agreement shall be governed by and construed and enforce in accordance with the laws of the state of Delaware without reference to principles of conflict of laws of the State of Delaware.
[The remainder of this page has been left intentionally blank. The signature pages follow.]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth below.
Dated: ________________, 2022
| TCW STAR DIRECT LENDING LLC, | ||
| a Delaware limited liability company | ||
| By: |
| |
| Name: Richard T. Miller | ||
| Title: President | ||
| Address for notices: | ||
| TCW Asset Management Company LLC | ||
| 865 South Figueroa Street | ||
| Suite 1800 | ||
| Los Angeles, CA 90017 | ||
| Attention: General Counsel | ||
[Signature page to Indemnification Agreement]
Dated: ________________, 2022
| DIRECTOR: |
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| Address for notices: |
|
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|
|
[Signature page to Indemnification Agreement]
CUSTODY AGREEMENT
THIS AGREEMENT is made and entered into as of the last date on the signature page, by and between TCW STAR DIRECT LENDING LLC, a limited liability company, (the “Fund”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America with its principal place of business at Minneapolis, Minnesota (the “Custodian”).
WHEREAS, the Fund is a closed-end management investment company, which intends to elect to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”); and
WHEREAS, TCW Asset Management Company LLC, a Delaware limited liability company, serves as administrator and investment manager to the Fund (the “Fund Administrator” or the “Investment Manager”); and
WHEREAS, the Custodian is a bank having the qualifications prescribed in Section 26(a)(1) of the 1940 Act; and
WHEREAS, the Board of directors (as defined below) has delegated to the Custodian the responsibilities set forth in Rule 17f-5(c) under the 1940 Act and the Custodian is willing to undertake the responsibilities and serve as the foreign custody manager for the Fund.
WHEREAS, the Fund desires to retain the Custodian to act as custodian of its cash, loans and securities; and
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the meanings set forth below unless the context otherwise requires:
1.01 “Authorized Person” means any Officer or person (including an authorized person of the Administrator or the Investment Manager) or other agent who has been designated by written notice as such from the Fund, the Administrator or the Investment Manager, or other agent and is named in Exhibit B attached hereto. Such officer or person shall continue to be an Authorized Person until such time as the Custodian receives Written Instructions from the Fund or the Fund’s investment advisor or other agent that any such person is no longer an Authorized Person.
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1.02 “Board of Directors” shall mean the directors from time to time serving under the Company’s Limited Liability Company Agreement, as amended from time to time.
1.03 “Book-Entry System” shall mean a federal book-entry system as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFR Part 350, or in such book-entry regulations of federal agencies as are substantially in the form of such Subpart O.
1.04 “Business Day” shall mean any day recognized as a settlement day by The New York Stock Exchange, Inc., and any day that is not a Saturday or Sunday and is not a legal holiday or a day on which banking institutions generally are authorized or obligated by law or regulations to remain closed in New York, New York.
1.05 “Eligible Foreign Custodian” has the meaning set forth in Rule 17f-5(a)(1), including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.
1.06 “Eligible Securities Depository” shall mean a system for the central handling of securities as that term is defined in Rule 17f-4 and 17f-7 under the 1940 Act.
1.07 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
1.08 “Foreign Securities” means any of the Fund’s investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund’s transactions in such investments.
1.09 “Fund Custody Account” shall mean any of the accounts in the name of the Fund, which is provided for in Section 3.02 below.
1.10 “IRS” shall mean the Internal Revenue Service.
1.11 “FINRA” shall mean the Financial Industry Regulatory Authority, Inc.
1.12 “Limited Liability Company Agreement” shall mean the Amended and Restated Limited Liability Company Agreement of TCW Star Direct Lending LLC, as amended from time to time.
1.13 “Loan” means any U.S. dollar denominated commercial loan, or participation therein, made by a bank or other financial institution that by its terms provides for payments of principal and/or interest, including discount obligations and payment- in-kind obligations, acquired by any Fund from time to time.
1.14 “Loan Checklist” means a list delivered to the Custodian in connection with delivery of a Loan to the Custodian that identifies the items contained in the related Loan File.
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1.15 “Loan Documents” means those documents related to Loans to the extent delivered to the Custodian.
1.16 “Loan File” means, with respect to each Loan delivered to the Custodian, each of the Loan Documents identified on the related Loan Checklist.
1.17 “Loan Trade Confirmation” means a confirmation to the Custodian from the Fund of the Fund’s acquisition of a Loan, and setting forth applicable information with respect to such Loan, which confirmation may be in the form of Schedule A attached hereto and made a part hereof, subject to such changes or additions as may be agreed to by, or in such other form as may be agreed to by, the Custodian and the Fund from time to time
1.18 “Noteless Loan” means a Loan with respect to which (i) the related loan agreement does not require the obligor to execute and deliver an Underlying Note to evidence the indebtedness created under such Loan and (ii) no Underlying Notes are outstanding with respect to the portion of the Loan transferred to a Fund.
1.19 “Officer” shall mean the Chairman, President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of the Fund.
1.20 “Participation” means an interest in a Loan that is acquired indirectly by way of a participation from a selling institution.
1.21 “Proper Instructions” shall mean Written Instructions.
1.22 “SEC” shall mean the U.S. Securities and Exchange Commission.
1.23 “Securities” shall include, without limitation, common and preferred stocks, bonds, call options, put options, debentures, notes, bank certificates of deposit, bankers’ acceptances, mortgage-backed securities or other obligations, and any certificates, receipts, warrants or other instruments or documents representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or any similar property or assets that the Custodian or its agents have the facilities to clear and service.
1.24 “Securities Depository” shall mean The Depository Trust Company and any other clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which acts as a system for the central handling of Securities where all Securities of any particular class or series of an issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of the Securities.
1.25 “Shares” shall mean, with respect to the Fund, the Common Units (as such term is defined by the Limited Liability Company Agreement) issued by the Fund on account of the Fund.
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1.26 “Sub-Custodian” shall mean and include (i) any branch of a “U.S. bank,” as that term is defined in Rule 17f-5 under the 1940 Act, and (ii) any “Eligible Foreign Custodian”, as that term is defined in Rule 17f-5 under the 1940 Act, having a contract with the Custodian which the Custodian has determined will provide reasonable care of assets of the Fund based on the standards specified in Section 3.03 below. Such contract shall be in writing and shall include provisions that provide: (i) for indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract; (ii) that the Foreign Securities will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Sub-Custodian or its creditors except a claim of payment for their safe custody or administration, in the case of cash deposits, liens or rights in favor of creditors of the Sub-Custodian arising under bankruptcy, insolvency, or similar laws; (iii) that beneficial ownership for the Foreign Securities will be freely transferable without the payment of money or value other than for safe custody or administration; (iv) that adequate records will be maintained identifying the assets as belonging to the Fund or as being held by a third party for the benefit of the Fund; (v) that the Fund’s independent public accountants will be given access to those records or confirmation of the contents of those records; and (vi) that the Fund will receive periodic reports with respect to the safekeeping of the Fund’s assets, including, but not limited to, notification of any transfer to or from the Fund’s account or a third party account containing assets held for the benefit of the Fund. Such contract may contain, in lieu of any or all of the provisions specified in (i)-(vi) above, such other provisions that the Custodian determines will provide, in their entirety, the same or a greater level of care and protection for Fund assets as the specified provisions.
1.27 “Underlying Note” means the one or more promissory notes executed by an obligor evidencing a Loan.
1.28 “Written Instructions” shall mean (i) written communications received by the Custodian and signed by an Authorized Person, (ii) communications by facsimile or Internet electronic e-mail or any other such system from one or more persons reasonably believed by the Custodian to be an Authorized Person, or (iii) communications between electronic devices.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
2.01 Appointment. The Fund hereby appoints the Custodian as custodian of all Securities and cash owned by or in the possession of the Fund at any time during the period of this Agreement, on the terms and conditions set forth in this Agreement, and the Custodian hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The Fund hereby delegates to the Custodian, subject to Rule 17f-5(b), the responsibilities with respect to the Fund’s Foreign Securities, and the Custodian hereby accepts such delegation as foreign custody manager with respect to the Fund. The services and duties of the Custodian shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against the Custodian hereunder.
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2.02 Documents to be Furnished. The following documents, including any amendments thereto, will be provided contemporaneously with the execution of the Agreement to the Custodian by the Fund:
| (a) | A copy of the Fund’s Limited Liability Company Agreement, certified by the Secretary; |
| (b) | A copy of the resolution of the Board of Directors of the Fund appointing the Custodian, certified by the Secretary; |
| (c) | A certification of the Secretary of the Fund setting forth the names and signatures of the current Officers of the Fund and other Authorized Persons; and |
| (d) | An executed authorization required by the Shareholder Communications Act of 1985, attached hereto as Exhibit C. |
2.03 Notice of Appointment of Transfer Agent. The Fund agrees to notify the Custodian in writing of the appointment, termination or change in appointment of any transfer agent of the Fund, except if the Fund appoints an affiliate of the Custodian to serve as transfer agent of the Fund, the Custodian hereby waives the Fund’s obligation to provide such written notice.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
3.01 Segregation. All Securities and non-cash property held by the Custodian for the account of the Fund (other than Securities maintained in a Securities Depository, Eligible Securities Depository or Book-Entry System) shall be physically segregated from other Securities and non-cash property in the possession of the Custodian (including the Securities and non-cash property of the other series of the Fund, if applicable) and shall be identified as subject to this Agreement.
3.02 Fund Custody and Cash Accounts. The Custodian shall open and maintain in its fund custody department: (x) a custody account in the name of the Fund coupled with the name of the Fund, subject only to draft or order of the Custodian, in which the Custodian shall enter and carry all Securities (other than Loans), cash and other assets of the Fund which are delivered to it and (y) cash accounts, including any subaccounts, in the name of the Fund, subject only to draft or order of the Custodian, in which the Custodian shall enter and carry all principal and interest received with respect to the Loans. The amounts held in the cash accounts shall be transferred in the respective Fund’s custody account on a daily basis.The Custodian shall be authorized to open such additional accounts as may be necessary or convenient for administration of its duties hereunder.
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3.03 Appointment of Agents.
| (a) | In its discretion, the Custodian may appoint one or more Sub-Custodians to establish and maintain arrangements with (i) Eligible Securities Depositories or (ii) Eligible Foreign Custodians that are members of the Sub-Custodian’s network to hold Securities and cash of the Fund and to carry out such other provisions of this Agreement as it may determine; provided, however, that the appointment of any such agents and maintenance of any Securities and cash of the Fund shall be at the Custodian’s expense and shall not relieve the Custodian of any of its obligations or liabilities under this Agreement. The Custodian shall be liable for the actions of any Sub-Custodians (regardless of whether assets are maintained in the custody of a Sub-Custodian, a member of its network or an Eligible Securities Depository) appointed by it as if such actions had been done by the Custodian. |
| (b) | If, after the initial appointment of Sub-Custodians by the Board of Directors in connection with this Agreement, the Custodian wishes to appoint other Sub-Custodians to hold property of the Fund, it will so notify the Fund and make the necessary determinations as to any such new Sub-Custodian’s eligibility under Rule 17f-5 under the 1940 Act. |
| (c) | In performing its delegated responsibilities as foreign custody manager to place or maintain the Fund’s assets with a Sub-Custodian, the Custodian will determine that the Fund’s assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Fund’s assets will be held by that Sub-Custodian, after considering all factors relevant to safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). |
| (d) | The agreement between the Custodian and each Sub-Custodian acting hereunder shall contain the required provisions set forth in Rule 17f-5(c)(2) under the 1940 Act. |
| (e) | At the end of each calendar quarter after the date of this Agreement, the Custodian shall provide written reports notifying the Board of Directors of the withdrawal or placement of the Securities and cash of the Fund with a Sub-Custodian and of any material changes in the Fund’s arrangements. Such reports shall include an analysis of the custody risks associated with maintaining assets with any Eligible Securities Depositories. The Custodian shall promptly take such steps as may be required to withdraw assets of the Fund from any Sub-Custodian arrangement that has ceased to meet the requirements of Rule 17f-5 or Rule 17f-7 under the 1940 Act, as applicable. |
| (f) | With respect to its responsibilities under this Section 3.03, the Custodian hereby warrants to the Fund that it agrees to exercise reasonable care, prudence and diligence , no less than a nationally recognized custodian exercises with respect to comparable assets; provided, however, with respect to custody of any Loans, the Custodian’s responsibility shall be limited to the exercise of reasonable care , no less than a nationally recognized custodian exercises with respect to comparable assets, by the Custodian in the physical custody of any such documents delivered to it, and any related instrument, security, credit agreement, assignment agreement and/or other agreements or documents, if any, that may be delivered to it. The Custodian further warrants that the Fund’s assets will be subject to reasonable care, no less than a nationally recognized custodian exercises with respect to comparable assets, if maintained with a Sub-Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation: (i) the Sub-Custodian’s practices, procedures, and internal controls for certificated securities (if applicable), its method of keeping custodial records, and its security and data protection |
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| practices; (ii) whether the Sub-Custodian has the requisite financial strength to provide reasonable care for Fund assets; (iii) the Sub-Custodian’s general reputation and standing and, in the case of a Securities Depository, the Securities Depository’s operating history and number of participants; and (iv) whether the Fund will have jurisdiction over and be able to enforce judgments against the Sub-Custodian, such as by virtue of the existence of any offices of the Sub-Custodian in the United States or the Sub-Custodian’s consent to service of process in the United States. |
| (g) | The Custodian shall establish a system or ensure that its Sub-Custodian has established a system to monitor on a continuing basis (i) the appropriateness of maintaining the Fund’s assets with a Sub-Custodian or Eligible Foreign Custodians who are members of a Sub-Custodian’s network; (ii) the performance of the contract governing the Fund’s arrangements with such Sub-Custodian or Eligible Foreign Custodian’s members of a Sub-Custodian’s network; and (iii) the custody risks of maintaining assets with an Eligible Securities Depository. The Custodian must promptly notify the Fund or its investment adviser of any material change in these risks. |
| (h) | The Custodian shall use commercially reasonable efforts to collect all income and other payments with respect to Foreign Securities to which the Fund shall be entitled and shall credit such income, as collected, to the Fund. In the event that extraordinary measures are required to collect such income, the Fund and Custodian shall consult as to the measurers and as to the compensation and expenses of the Custodian relating to such measures. |
3.04 Delivery of Assets to Custodian. The Fund shall deliver, or cause to be delivered, to the Custodian all of the Fund’s Securities, cash and other investment assets, including (i) all payments of income, payments of principal and capital distributions received by the Fund with respect to such Securities, cash or other assets owned by the Fund at any time during the period of this Agreement, and (ii) all cash received by the Fund for the issuance of Shares. The Custodian shall not be responsible for such Securities, cash or other assets until actually received by it.
3.05 Securities Depositories and Book-Entry Systems. The Custodian may deposit and/or maintain Securities (excluding Loans) of the Fund in a Securities Depository or in a Book-Entry System, subject to the following provisions:
| (a) | The Custodian, on an on-going basis, shall deposit in a Securities Depository or Book-Entry System all Securities eligible for deposit therein and shall make use of such Securities Depository or Book-Entry System to the extent possible and practical in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of collateral consisting of Securities. |
| (b) | Securities (other than Loans) of the Fund kept in a Book-Entry System or Securities Depository shall be kept in an account (“Depository Account”) of the Custodian in such Book-Entry System or Securities Depository which includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. |
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| (c) | The records of the Custodian with respect to Securities of the Fund maintained in a Book-Entry System or Securities Depository shall, by book-entry, identify such Securities (other than Loans) as belonging to the Fund. |
| (d) | If Securities purchased by the Fund are to be held in a Book-Entry System or Securities Depository, the Custodian shall pay for such Securities upon: (i) receipt of advice from the Book-Entry System or Securities Depository that such Securities have been transferred to the Depository Account; and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. If Securities sold by the Fund are held in a Book-Entry System or Securities Depository, the Custodian shall transfer such Securities upon (i) receipt of advice from the Book-Entry System or Securities Depository that payment for such Securities has been transferred to the Depository Account; and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. |
| (e) | The Custodian shall provide the Fund with copies of any report (obtained by the Custodian from a Book-Entry System or Securities Depository in which Securities of the Fund are kept) on the internal accounting controls and procedures for safeguarding Securities deposited in such Book-Entry System or Securities Depository. |
| (f) | Notwithstanding anything to the contrary in this Agreement, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from: (i) the use of a Book-Entry System or Securities Depository by reason of any negligence or willful misconduct on the part of the Custodian or any Sub-Custodian; or (ii) failure of the Custodian or any Sub-Custodian to enforce effectively such rights as it may have against a Book-Entry System or Securities Depository. At its election, the Fund shall be subrogated to the rights of the Custodian with respect to any claim against a Book-Entry System or Securities Depository or any other person from any loss or damage to the Fund arising from the use of such Book-Entry System or Securities Depository, if and to the extent that the Fund has not been made whole for any such loss or damage. |
| (g) | With respect to its responsibilities under this Section 3.05 and pursuant to Rule 17f-4 under the 1940 Act, the Custodian hereby warrants to the Fund that it agrees to (i) exercise due care in accordance with reasonable commercial standards in discharging its duty as a securities intermediary to obtain and thereafter maintain such assets, (ii) provide, promptly upon request by the Fund, such reports as are available concerning the Custodian’s internal accounting controls and financial strength, and (iii) require any Sub-Custodian to exercise due care in accordance with reasonable commercial standards in discharging its duty as a securities intermediary to obtain and thereafter maintain assets corresponding to the security entitlements of its entitlement holders. |
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3.06 Disbursement of Moneys from Fund Custody Account. Upon receipt of Written Instructions, the Custodian shall disburse moneys from the Fund Custody Account but only in the following cases:
| (a) | For the purchase of Securities for the Fund but only in accordance with Section 4.01 of this Agreement and only (i) in the case of Securities (other than options on Securities, futures contracts and options on futures contracts), against the delivery to the Custodian (or any Sub-Custodian) of such Securities registered as provided in Section 3.09 below or in proper form for transfer, or if the purchase of such Securities is effected through a Book-Entry System or Securities Depository, in accordance with the conditions set forth in Section 3.05 above; (ii) in the case of options on Securities, against delivery to the Custodian (or any Sub-Custodian) of such receipts as are required by the customs prevailing among dealers in such options; (iii) in the case of futures contracts and options on futures contracts, against delivery to the Custodian (or any Sub-Custodian) of evidence of title thereto in favor of the Fund or any nominee referred to in Section 3.09 below; and (iv) in the case of repurchase or reverse repurchase agreements entered into between the Fund and a bank that is a member of the Federal Reserve System or between the Fund and a primary dealer in U.S. Government securities, against delivery of the purchased Securities either in certificate form or through an entry crediting the Custodian’s account at a Book-Entry System or Securities Depository with such Securities; |
| (b) | In connection with the conversion, exchange or surrender, as set forth in Section 3.07(f) below, of Securities owned by the Fund; |
| (c) | For the payment of any dividends or capital gain distributions declared by the Fund; |
| (d) | In payment of the redemption price of Shares as provided in Section 5.01 below; |
| (e) | For the payment of any expense or liability incurred by the Fund, including, but not limited to, the following payments for the account of the Fund: interest; taxes; administration, investment advisory, accounting, auditing, transfer agent, custodian, trustee and legal fees; and other operating expenses of the Fund; in all cases, whether or not such expenses are to be in whole or in part capitalized or treated as deferred expenses; |
| (f) | For transfer in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with rules of the Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; |
| (g) | For transfer in accordance with the provisions of any agreement among the Fund, the Custodian and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; |
| (h) | For the funding of any uncertificated time deposit or other interest-bearing account with any banking institution (including the Custodian), which deposit or account has a term of one year or less; and |
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| (i) | For any other proper purpose, but only upon receipt, in addition to Proper Instructions, declaring such purpose to be a proper trust purpose, and naming the person or persons to whom such payment is to be made. |
3.07 Delivery of Securities from Fund Custody Account. Upon receipt of Proper Instructions, the Custodian shall release and deliver, or cause the Sub-Custodian to release and deliver, Securities from the Fund Custody Account or Loan Documents but only in the following cases:
| (a) | Upon the sale of Securities for the account of the Fund but only against receipt of payment therefor in cash, by certified or cashiers check or bank credit; |
| (b) | In the case of a sale effected through a Book-Entry System or Securities Depository, in accordance with the provisions of Section 3.05 above; |
| (c) | To an offeror’s depository agent in connection with tender or other similar offers for Securities of the Fund; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; |
| (d) | To the issuer thereof or its agent (i) for transfer into the name of the Fund, the Custodian or any Sub-Custodian, or any nominee or nominees of any of the foregoing, or (ii) for exchange for a different number of certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new Securities are to be delivered to the Custodian; |
| (e) | To the broker selling the Securities, for examination in accordance with the “street delivery” custom; |
| (f) | For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the issuer of such Securities, or pursuant to provisions for conversion contained in such Securities, or pursuant to any deposit agreement, including surrender or receipt of underlying Securities in connection with the issuance or cancellation of depository receipts; provided that, in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
| (g) | Upon receipt of payment therefor pursuant to any repurchase or reverse repurchase agreement entered into by the Fund; |
| (h) | In the case of warrants, rights or similar Securities, upon the exercise thereof, provided that, in any such case, the new Securities and cash, if any, are to be delivered to the Custodian; |
| (i) | For delivery in connection with any loans of Securities of the Fund, but only against receipt of such collateral as the Fund shall have specified to the Custodian in Proper Instructions; |
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| (j) | For delivery as security in connection with any borrowings by the Fund requiring a pledge of assets by the Fund, but only against receipt by the Custodian of the amounts borrowed; |
| (k) | Pursuant to any authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; |
| (l) | For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA, relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or of any similar organization or organizations) regarding escrow or other arrangements in connection with transactions by the Fund; |
| (m) | For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any contract market (or any similar organization or organizations) regarding account deposits in connection with transactions by the Fund; |
| (n) | For any other proper corporate purpose, but only upon receipt, in addition to Proper Instructions, specifying the Securities to be delivered, declaring such purpose to be a proper trust purpose, and naming the person or persons to whom delivery of such Securities shall be made; or |
| (o) | To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian’s own negligence or willful misconduct. |
3.08 Actions Not Requiring Proper Instructions. Unless otherwise instructed by the Fund, the Custodian shall with respect to all Securities held for the Fund:
| (a) | Subject to Section 9.04 below, collect on a timely basis all income and other payments to which the Fund is entitled either by law or pursuant to custom in the securities business; |
| (b) | Present for payment and, subject to Section 9.04 below, collect on a timely basis the amount payable upon all Securities that may mature or be called, redeemed, or retired, or otherwise become payable; |
| (c) | Endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; |
| (d) | Surrender interim receipts or Securities in temporary form for Securities in definitive form; |
| (e) | Execute, as custodian, any necessary declarations or certificates of ownership under the federal income tax laws or the laws or regulations of any other taxing authority now or hereafter in effect, and prepare and submit reports to the IRS and the Fund at such time, in such manner and containing such information as is prescribed by the IRS; |
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| (f) | Hold for the Fund, either directly or, with respect to Securities held therein, through a Book-Entry System or Securities Depository, all rights and similar Securities issued with respect to Securities of the Fund; and |
| (g) | In general, and except as otherwise directed in Proper Instructions, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with Securities and other assets of the Fund. |
| (h) | Important information related to ADR’s and Preferential Tax Treatment: With respect to any ADR’s you may purchase and own and which U.S. Bank (the “Bank”) custodies on your behalf, you understand that the holding of American Depository Receipts (“ADRs”) may require the disclosure of your beneficial ownership information (Name, Address, TIN/SSN, Share amount) by U.S. Bank to vendors, sub-custodians, or local tax authorities in foreign jurisdictions to avoid tax penalties and obtain for you the most preferential tax treatment. You acknowledge and consent to any and all disclosures or releases of beneficial information, described above, by U.S. Bank to any third parties relating to ADRs and release, hold harmless, and indemnify the Bank from any liability for doing so. |
3.09 Registration and Transfer of Securities. All Securities held for the Fund that are issued or issuable only in bearer form shall be held by the Custodian in that form, provided that any such Securities (other than Loans) shall be held in a Book-Entry System if eligible therefor. All other Securities held for the Fund may be registered in the name of the Fund, the Custodian, a Sub-Custodian or any nominee thereof, or in the name of a Book-Entry System, Securities Depository or any nominee of either thereof. The records of the Custodian with respect to the Fund’s Foreign Securities that are maintained with a Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers shall identify those securities as belonging to the Fund. The Fund shall furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of any of the nominees referred to above or in the name of a Book-Entry System or Securities Depository, any Securities (other than Loans) registered in the name of the Fund.
3.10 Records.
| (a) | The Custodian shall maintain complete and accurate records with respect to Securities, cash or other property held for the Fund, including (i) journals or other records of original entry containing an itemized daily record in detail of all receipts and deliveries of Securities and all receipts and disbursements of cash; (ii) ledgers (or other records) reflecting (A) Securities in transfer, (B) Securities in physical possession, (C) monies and Securities borrowed and monies and Securities loaned (together with a record of the collateral therefor and substitutions of such collateral), (D) dividends and interest received, and (E) dividends receivable and interest receivable; (iii) canceled checks and bank records related thereto; and (iv) all records relating to its activities and obligations under this Agreement. The Custodian shall keep such other books and records of the Fund as the Fund shall reasonably request, or as may be required by the 1940 Act, including, but not limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated thereunder. |
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| (b) | All such books and records maintained by the Custodian shall (i) be maintained in a form acceptable to the Fund and in compliance with the rules and regulations of the SEC, (ii) be the property of the Fund and at all times during the regular business hours of the Custodian be made available upon request for inspection by duly authorized officers, employees or agents of the Fund and employees or agents of the SEC, and (iii) if required to be maintained by Rule 31a-1 under the 1940 Act, be preserved for the periods prescribed in Rules 31a-1 and 31a-2 under the 1940 Act. |
3.11 Fund Reports by Custodian. The Custodian shall furnish the Fund with a daily activity statement and a summary of all transfers to or from each Fund Custody Account on the day following such transfers. At least monthly, the Custodian shall furnish the Fund with a detailed statement of the Securities and moneys held by the Custodian and the Sub-Custodians for the Fund under this Agreement.
3.12 Other Reports by Custodian. As the Fund may reasonably request from time to time, the Custodian shall provide the Fund with reports on the internal accounting controls and procedures for safeguarding Securities which are employed by the Custodian or any Sub-Custodian.
3.13 Proxies and Other Materials. The Custodian shall cause all proxies relating to Securities (excluding Loans) that are not registered in the name of the Fund to be promptly executed by the registered holder of such Securities (excluding Loans), without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such Securities. With respect to the foreign Securities, the Custodian will use reasonable commercially efforts to facilitate the exercise of voting and other shareholder rights, subject to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.
3.14 Information on Corporate Actions. The Custodian shall promptly deliver to the Fund all information received by the Custodian and pertaining to Securities being held by the Fund with respect to optional tender or exchange offers, calls for redemption or purchase or expiration of rights. If the Fund desires to take action with respect to any tender offer, exchange offer or other similar transaction, the Fund shall notify the Custodian at least three Business Days prior to the date on which the Custodian is to take such action. The Fund will provide or cause to be provided to the Custodian all relevant information for any Security which has unique put/option provisions at least three Business Days prior to the beginning date of the tender period. The Custodian shall have no duty or obligation hereunder to take any action on behalf of the Fund, to communicate on behalf of the Fund, to collect amounts or proceeds in respect of, or otherwise to interact or exercise rights or remedies on behalf of the Fund, with respect to any Loans. All such actions and communications are the responsibility of the Fund.
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ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
| 4.01 | Purchase of Securities. Promptly upon each purchase of Securities (other than Loans) for the Fund, Written Instructions shall be delivered to the Custodian, specifying (i) the name of the issuer or writer of such Securities, and the title or other description thereof, (ii) the number of shares, principal amount (and accrued interest, if any) or other units purchased, (iii) the date of purchase and settlement, (iv) the purchase price per unit, (v) the total amount payable upon such purchase, and (vi) the name of the person to whom such amount is payable. The Custodian shall upon receipt of such Securities purchased by the Fund pay out of the moneys held for the account of the Fund the total amount specified in such Written Instructions to the person named therein. The Custodian shall not be under any obligation to pay out moneys to cover the cost of a purchase of Securities for the Fund, if in the Fund Custody Account there is insufficient cash available to the Fund for which such purchase was made. |
(i) In connection with its acquisition of a Loan or other delivery of a Security constituting a Loan, the Fund shall deliver or cause to be delivered to the Custodian a properly completed Loan Trade Confirmation containing such information in respect of such Loan as the Custodian may reasonably require in order to enable the Custodian to perform its duties hereunder in respect of such Loan on which the Custodian may conclusively rely without further inquiry or investigation, in such form and format as the Custodian reasonably may require, and may, but is not required, deliver to the Custodian the Loan Documents for all Loans, including the Loan Checklist.
(ii) Notwithstanding anything herein to the contrary, delivery of Loans acquired by the Fund which constitute Noteless Loans or Participations or which are otherwise not evidenced by a “security” or “instrument” as defined in Section 8-102 and Section 9-102(a)(47) of the UCC, respectively, shall be made by delivery to the Custodian of (i) in the case of a Noteless Loan, a copy of the loan register with respect to such Noteless Loan evidencing registration of such Loan on the books and records of the applicable obligor or bank agent to the name of the Fund (or its nominee) or a copy (which may be a facsimile copy) of an assignment agreement in favor of the Fund as assignee, and (ii) in the case of a Participation, a copy of the related participation agreement. Any duty on the part of the Custodian with respect to the custody of such Loans shall be limited to the exercise of reasonable care, no less than a nationally recognized custodian exercises with respect to comparable assets, by the Custodian in the physical custody of any loan documents including any related instrument, security, credit agreement, assignment agreement and/or other agreements or documents, if any (collectively, “Financing Documents”), that may be delivered to it. Nothing herein shall require the Custodian to credit to the Securities Account or to treat as a financial asset (within the meaning of Section 8-102(a)(9) of the UCC) any such Loan or other asset in the nature of a general intangible (as defined in Section 9-102(a)(42) of the UCC) or to “maintain” a sufficient quantity thereof.
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(iii) The Custodian may assume the genuineness of any such Financing Document it may receive and the genuineness and due authority of any signatures appearing thereon, and shall be entitled to assume that each such Financing Document it may receive is what it purports to be. If an original “security” or “instrument” as defined in Section 8-102 and Section 9-102(a)(47) of the UCC, respectively, is or shall be or become available with respect to any Loan to be held by the Custodian under this Agreement, it shall be the sole responsibility of the Fund to make or cause delivery thereof to the Custodian, and the Custodian shall not be under any obligation at any time to determine whether any such original security or instrument has been or is required to be issued or made available in respect of any Loan or to compel or cause delivery thereof to the Custodian.
(iv) Contemporaneously with the acquisition of any Loan, the Fund may (i) cause the copies of the loan documents evidencing such Loan to be delivered to the Custodian; (ii) if requested by the Custodian, provide to the Custodian an amortization schedule of principal payments and a schedule of the interest payable date(s) identifying the amount and due dates of all scheduled principal and interest payments for such Loan and (iii) a properly completed Loan Trade Confirmation containing such information in respect of such Loan as the Custodian may reasonably require in order to enable the Custodian to perform its duties hereunder in respect of such Loan on which the Custodian may conclusively rely without further inquiry or investigation, in such form and format as the Custodian reasonably may require; (iv) take all actions reasonably necessary for the Fund to acquire good title to such Loan; and (v) take all actions as may be reasonably necessary (including appropriate payment notices and instructions to bank agents or other applicable paying agents) to cause (A) all payments in respect of the Loan to be made to the Custodian and (B) all notices, solicitations and other communications in respect of such Loan to be directed to the Fund. The Custodian shall have no liability for any delay or failure on the part of the Fund to provide necessary information to the Custodian, or for any inaccuracy therein or incompleteness thereof, or for any delay or failure on the part of the Fund to give such effective payment instruction to bank agents and other paying agents, in respect of the Loans. With respect to each such Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, obligor or similar party with respect to the related Loan Asset, and shall be entitled to update its records (as it may deem necessary or appropriate), or from the Fund, on the basis of such information or notices received, without any obligation on its part independently to verify, investigate or recalculate such information.
4.02 Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for the purchase of Securities for the Fund is made by the Custodian in advance of receipt of the Securities purchased and in the absence of specified Written Instructions to so pay in advance, the Custodian shall be liable to the Fund for such payment.
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4.03 Sale of Securities. Promptly upon each sale of Securities by the Fund, Written Instructions shall be delivered to the Custodian, specifying: (i) the name of the issuer or writer of such Securities, and the title or other description thereof; (ii) the number of shares, principal amount (and accrued interest, if any), or other units sold; (iii) the date of sale and settlement, (iv) the sale price per unit; (v) the total amount payable upon such sale; and (vi) the person to whom such Securities are to be delivered. Upon receipt of the total amount payable to the Fund as specified in such Written Instructions, the Custodian shall deliver such Securities to the person specified in such Written Instructions. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver Securities and arrange for payment in accordance with the customs prevailing among dealers in Securities.
4.04 Delivery of Securities Sold. Notwithstanding Section 4.03 above or any other provision of this Agreement, the Custodian, when instructed to deliver Securities (excluding Loans) against payment, shall be entitled, if in accordance with generally accepted market practice, to deliver such Securities (excluding Loans) prior to actual receipt of final payment therefor. In any such case, the Fund shall bear the risk that final payment for such Securities may not be made or that such Securities may be returned or otherwise held or disposed of by or through the person to whom they were delivered, and the Custodian shall have no liability for any for the foregoing.
4.05 Payment for Securities Sold. In its sole discretion and from time to time, the Custodian may credit the Fund Custody Account, prior to actual receipt of final payment thereof, with: (i) proceeds from the sale of Securities which it has been instructed to deliver against payment; (ii) proceeds from the redemption of Securities or other assets of the Fund; and (iii) income from cash, Securities or other assets of the Fund. Any such credit shall be conditional upon actual receipt by Custodian of final payment and may be reversed if final payment is not actually received in full. The Custodian may, in its sole discretion and from time to time, permit the Fund to use funds so credited to the Fund Custody Account in anticipation of actual receipt of final payment. Any such funds shall be repayable immediately upon demand made by the Custodian at any time prior to the actual receipt of all final payments in anticipation of which funds were credited to the Fund Custody Account.
4.06 Advances by Custodian for Settlement. The Custodian may, in its sole discretion and from time to time, advance funds to the Fund to facilitate the settlement of a Fund’s transactions in the Fund Custody Account. Any such advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V.
REDEMPTION OF FUND SHARES
5.01 Transfer of Funds. From such funds as may be available for the purpose in the relevant Fund Custody Account, and upon receipt of Proper Instructions specifying that the funds are required to redeem Shares of the Fund, the Custodian shall wire each amount specified in such Proper Instructions to or through such bank or broker-dealer as the Fund may designate.
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5.02 No Duty Regarding Paying Banks. Once the Custodian has wired amounts to a bank or broker-dealer pursuant to Section 5.01 above, the Custodian shall not be under any obligation to effect any further payment or distribution by such bank or broker-dealer.
ARTICLE VI.
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or Securities, including Securities maintained in a Depository Account:
| (a) | in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the 1934 Act and a member of FINRA (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of the Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund; |
| (b) | for purposes of segregating cash or Securities in connection with securities options purchased or written by the Fund or in connection with financial futures contracts (or options thereon) purchased or sold by the Fund; |
| (c) | which constitute collateral for loans of Securities made by the Fund; |
| (d) | for purposes of compliance by the Fund with requirements under the 1940 Act for the maintenance of segregated accounts by registered investment companies in connection with reverse repurchase agreements and when-issued, delayed delivery and firm commitment transactions; and |
| (e) | for other proper trust purposes, but only upon receipt of Proper Instructions, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper trust purposes. |
Each segregated account established under this Article VI shall be established and maintained for the Fund only. All Proper Instructions relating to a segregated account shall specify the Fund.
ARTICLE VII.
COMPENSATION OF CUSTODIAN
7.01 Compensation. The Custodian shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time). The Custodian shall also be compensated for such miscellaneous expenses (e.g., telecommunication charges, postage and delivery charges, and reproduction charges) as are reasonably incurred and evidenced in writing by the Custodian in performing its
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duties hereunder. The Fund shall pay all such fees and reimbursable expenses within 30 calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Fund shall notify the Custodian in writing within 30 calendar days following receipt of each invoice if the Fund is disputing any amounts in good faith. The Fund shall pay such disputed amounts within 10 calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Fund is disputing in good faith as set forth above, unpaid invoices shall accrue a finance change of 11⁄2 % per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Fund to the Custodian shall only be paid out of the assets and property of the particular Fund involved.
7.02 Overdrafts. The Fund is responsible for maintaining an appropriate level of short term cash investments to accommodate cash outflows. The Fund may obtain a formal line of credit for potential overdrafts of its custody account. In the event of an overdraft or in the event the line of credit is insufficient to cover an overdraft, the overdraft amount or the overdraft amount that exceeds the line of credit will be charged in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time)
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES
8.01 Representations and Warranties of the Fund. The Fund hereby represents and warrants to the Custodian, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (a) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (b) | This Agreement has been duly authorized, executed and delivered by the Fund in accordance with all requisite action and constitutes a valid and legally binding obligation of the Fund, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and |
| (c) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its certificate of formation, Limited Liability Company Agreement or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
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8.02 Representations and Warranties of the Custodian. The Custodian hereby represents and warrants to the Fund, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that:
| (a) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (b) | It is a “U.S. Bank” as defined in section (a)(7) of Rule 17f-5. |
| (c) | This Agreement has been duly authorized, executed and delivered by the Custodian in accordance with all requisite action and constitutes a valid and legally binding obligation of the Custodian, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and |
| (d) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
ARTICLE IX.
CONCERNING THE CUSTODIAN
9.01 Standard of Care. The Custodian shall exercise reasonable care, no less than a nationally recognized custodian exercises with respect to comparable assets that it manages for itself and for others in accordance with its existing practices and procedures relating to assets of the nature and character of the assets to be held by the Fund, in the performance of its duties under this Agreement. The Custodian shall not be liable for any error of judgment, mistake of law, shareholder fraud, or for any loss suffered by the Fund in connection with its duties under this Agreement, except a loss arising out of or relating to the Custodian’s (or a Sub-Custodian’s) refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement) or from its (or a Sub-Custodian’s) bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). The Custodian shall be entitled to rely on and may act upon advice of counsel on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall promptly notify the Fund of any action taken or omitted by the Custodian pursuant to advice of counsel.
9.02 Actual Collection Required. The Custodian shall not be liable for, or considered to be the custodian of, any cash belonging to the Fund or any money represented by a check, draft or other instrument for the payment of money, until the Custodian or its agents actually receive such cash or collect on such instrument.
9.03 No Responsibility for Title, etc. So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received or delivered by it pursuant to this Agreement.
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9.04 Limitation on Duty to Collect. Custodian shall not be required to enforce collection, by legal means or otherwise, of any money or property due and payable with respect to Securities held for the Fund if such Securities are in default or payment is not made after due demand or presentation.
9.05 Reliance Upon Documents and Instructions. The Custodian shall be entitled to rely upon any certificate, notice or other instrument in writing received by it and reasonably believed by it to be genuine. The Custodian shall be entitled to rely upon any Written Instructions actually received by it pursuant to this Agreement.
9.06 Cooperation. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Fund to keep the books of account of the Fund and/or compute the value of the assets of the Fund. The Custodian shall take all such reasonable actions as the Fund may from time to time request to enable the Fund to obtain, from year to year, favorable opinions from the Fund’s independent accountants with respect to the Custodian’s activities hereunder in connection with (i) the preparation of the Fund’s reports on Form N-SAR, Form N-CSR and any other reports required by the SEC or any future registration statement on Form N-2, and (ii) the fulfillment by the Fund of any other requirements of the SEC.
ARTICLE X.
INDEMNIFICATION
10.01 Indemnification by Fund. The Fund shall indemnify and hold harmless the Custodian, any Sub-Custodian and any nominee thereof (each, an “Indemnified Party” and collectively, the “Indemnified Parties”) from and against any and all claims, demands, losses, reasonable expenses and liabilities of any and every nature (including reasonable attorneys’ fees) that an Indemnified Party may sustain or incur or that may be asserted against an Indemnified Party by any person arising directly or indirectly (i) from the fact that Securities are registered in the name of any such nominee, (ii) from any action taken or omitted to be taken by the Custodian or such Sub-Custodian (a) at the request or direction of or in reliance on the advice of the Fund, or (b) upon Proper Instructions, or (iii) from the performance of its obligations under this Agreement or any sub-custody agreement, provided that neither the Custodian nor any such Sub-Custodian shall be indemnified and held harmless from and against any such claim, demand, loss, expense or liability arising out of or relating to its refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement), or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). This indemnity shall be a continuing obligation of the Fund, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the terms “Custodian” and “Sub-Custodian” shall include their respective directors, officers and employees.
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10.02 Indemnification by Custodian. The Custodian shall indemnify and hold harmless the Fund from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Fund may sustain or incur or that may be asserted against the Fund by any person arising directly or indirectly out of any action taken or omitted to be taken by an Indemnified Party as a result of the Indemnified Party’s refusal or failure to comply with the terms of this Agreement (or any sub-custody agreement), or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement (or any sub-custody agreement). This indemnity shall be a continuing obligation of the Custodian, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Fund” shall include the Fund’s trustees, officers and employees.
10.03 Security. If the Custodian advances cash or Securities to the Fund for any purpose, either at the Fund’s request or as otherwise contemplated in this Agreement, or in the event that the Custodian or its nominee incurs, in connection with its performance under this Agreement, any claim, demand, loss, expense or liability (including reasonable attorneys’ fees) (except such as may arise from its or its nominee’s bad faith, negligence or willful misconduct), then, in any such event, any property at any time held for the account of the Fund shall be security therefor, and should the Fund fail to promptly repay or indemnify the Custodian, the Custodian shall be entitled to utilize available cash of such Fund and to dispose of other assets of such Fund to the extent necessary to obtain reimbursement or indemnification.
10.04 Miscellaneous.
| (a) | Neither party to this Agreement shall be liable to the other party for consequential, special or punitive damages under any provision of this Agreement. |
| (b) | The indemnity provisions of this Article shall indefinitely survive the termination and/or assignment of this Agreement. |
| (c) | In order that the indemnification provisions contained in this Article shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this Article X. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent. |
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ARTICLE XI.
FORCE MAJEURE
Neither the Custodian nor the Fund shall be liable for any failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; acts of terrorism; sabotage; strikes; epidemics; riots; power failures; and any such circumstances beyond its reasonable control as may cause interruption, loss or malfunction of utility, transportation, computer (hardware or software) or telephone communication service; accidents; labor disputes; acts of civil or military authority; governmental actions; or inability to obtain labor, material, equipment or transportation; provided, however, that in the event of a failure or delay, the Custodian: (i) shall not discriminate against the Fund in favor of any other customer of the Custodian in making computer time and personnel available to input or process the transactions contemplated by this Agreement; and (ii) shall use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE XII.
PROPRIETARY AND CONFIDENTIAL INFORMATION
12.01 The Custodian agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Fund, all records and other information relative to the Fund and prior, present, or potential shareholders of the Fund (and clients of said shareholders), and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except: (i) after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply; (ii) when requested to divulge such information by duly constituted governmental or regulatory authorities with jurisdiction over the Custodian, although the Custodian will promptly report such disclosure to the Fund if disclosure is permitted by applicable law and regulation; or (iii) when so requested by the Fund. Records and other information which have become known to the public through no wrongful act of the Custodian or any of its employees, agents or representatives, and information that was already in the possession of the Custodian prior to receipt thereof from the Fund or its agent, shall not be subject to this paragraph.
12.02 Further, the Custodian will adhere to the privacy policies adopted by the Fund pursuant to Title V of the Gramm-Leach-Bliley Act, as may be modified from time to time. In this regard, the Custodian shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Fund and its shareholders. The Fund agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Custodian, all non-public information relative to the Custodian (including, without limitation, information regarding the Custodian’s pricing, products, services, customers, suppliers, financial statements, processes, know-how, trade secrets, market opportunities, past, present or future research, development or business plans, affairs, operations, systems, computer software in source code and object code form, documentation, techniques, procedures, designs, drawings, specifications, schematics, processes and/or intellectual property), and not to use such information for any purpose other than in connection with the services provided under this Agreement, except (i) after prior notification to and approval in writing by the Custodian, which approval shall not be unreasonably withheld and
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may not be withheld where the Fund may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities, or (iii) when so requested by the Custodian. Information which has become known to the public through no wrongful act of the Fund or any of its employees, agents or representatives, and information that was already in the possession of the Fund prior to receipt thereof from the Custodian, shall not be subject to this paragraph.
12.03 Notwithstanding anything herein to the contrary, (i) the Fund shall be permitted to disclose the identity of the Custodian as a service provider, redacted copies of this Agreement, and such other information as may be required in the Fund’s registration or offering documents, or as may otherwise be required by applicable law, rule, or regulation, and (ii) the Custodian shall be permitted to include the name of the Fund in lists of representative clients in due diligence questionnaires, RFP responses, presentations, and other marketing and promotional purposes.
ARTICLE XIII.
EFFECTIVE PERIOD; TERMINATION
13.01 Effective Period. This Agreement shall become effective as of the date first written above and will continue in effect for a period of three (3) years, which may be extended by notice to the Custodian by the Fund.
13.02 Termination.
| (a) | Following the initial term, this Agreement shall automatically renew for successive one (1) year terms unless either party provides written notice at least 90 days prior to the end of the then current term that it will not be renewing the Agreement. |
| (b) | Subject to Section 13.03, this Agreement may be terminated by either party (in whole or with respect to one or more Funds) upon giving 90 days’ prior written notice to the other party or such shorter notice period as is mutually agreed upon by the parties. |
| (c) | The Custodian may terminate this Agreement immediately (in whole or with respect to one or more Funds) if the continued service of the Fund would cause the Custodian or any of its affiliates to be in violation of any applicable law, rule, regulation, or order of any governmental, regulatory or judicial authority of competent jurisdiction, provided that in such event the Custodian shall, to the extent it is legally permitted and able to do so, provide reasonable assistance to transition the Fund to a successor service provider. |
| (d) | This Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within 30 days of notice of such breach to the breaching party. |
| (e) | The Fund may, at any time, immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by regulatory authorities or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. |
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13.03 Early Termination. In the absence of any material breach of this agreement, should the Fund elect to terminate this Agreement to the end of the then current term, the Fund agrees to pay the following fees:
a) All monthly fees through the life of the Agreement up to a maximum of 12 month, including the repayment of any negotiated discounts (provided that no such fees shall be paid with respect following the liquidation of the Fund);
b) All miscellaneous fees associated with converting services to a successor service provider;
c) All fees associated with any record retention and/or tax reporting
obligations that may not be eliminated due to the conversion to a
successor service provider;
d) All reasonable miscellaneous costs associated with a) through c) above
13.04 Appointment of Successor Custodian. If a successor custodian shall have been appointed by the Board of Directors, the Custodian shall, upon receipt of a notice from the of acceptance by the successor custodian, on such specified date of termination (i) deliver directly to the successor custodian all Securities (other than Securities held in a Book-Entry System or Securities Depository) and cash then owned by the Fund and held by the Custodian as custodian, and (ii) transfer any Securities held in a Book-Entry System or Securities Depository to an account of or for the benefit of the Fund at the successor custodian, provided that the Fund shall have paid to the Custodian all fees, expenses and other amounts to the payment or reimbursement of which it shall then be entitled. In addition, the Custodian shall, at the expense of the Fund, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by the Custodian under this Agreement in a form reasonably acceptable to the Fund (if such form differs from the form in which the Custodian has maintained the same, the Fund shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from the Custodian’s personnel in the establishment of books, records, and other data by such successor. Upon such delivery and transfer, the Custodian shall be relieved of all obligations under this Agreement.
13.05 Failure to Appoint Successor Custodian. If a successor custodian is not designated by the Fund on or before the date of termination of this Agreement, then the Custodian shall have the right to deliver to a bank or trust company of its own selection, which bank or trust company: (i) is a “bank” as defined in the 1940 Act; and (ii) has aggregate capital, surplus and undivided profits as shown on its most recent published report of not less than $25 million, all Securities, cash and other property held by the Custodian under this Agreement and to transfer to an account of or for the Fund at such bank or trust company all Securities of the Fund held in a Book-Entry System or Securities Depository. Upon such delivery and transfer, such bank or trust company shall be the successor custodian under this Agreement and the Custodian shall be relieved of all obligations under this Agreement. In addition, under these circumstances, all books, records and other data of the Fund shall be returned to the Fund.
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ARTICLE XIV.
CLASS ACTIONS
The Custodian shall use its best efforts to identify and file claims for the Fund involving any class action litigation that impacts any security the Fund may have held during the class period. The Fund agrees that the Custodian may file such claims on its behalf and understands that it may be waiving and/or releasing certain rights to make claims or otherwise pursue class action defendants who settle their claims. Further, the Fund acknowledges that there is no guarantee these claims will result in any payment or partial payment of potential class action proceeds and that the timing of such payment, if any, is uncertain.
However, the Fund may instruct the Custodian to distribute class action notices and other relevant documentation to the Fund or its designee and, if it so elects, will relieve the Custodian from any and all liability and responsibility for filing class action claims on behalf of the Fund.
ARTICLE XV.
MISCELLANEOUS
15.01 Compliance with Laws. The Fund has and retains primary responsibility for all compliance matters relating to the Fund, including but not limited to compliance with the 1940 Act, the Internal Revenue Code of 1986, the Sarbanes-Oxley Act of 2002, the USA Patriot Act of 2001 and the policies and limitations of the Fund relating to its portfolio investments. The Custodian’s services hereunder shall not relieve the Fund of its responsibilities for assuring such compliance or the Board of Trustee’s oversight responsibility with respect thereto. The Fund shall immediately notify the Custodian if the investment strategy of the Fund materially changes or deviates from the original investment strategy, or if it becomes subject to any new law, rule, regulation, or order of a governmental or judicial authority of competent jurisdiction that materially impacts the operations of the Fund or the services provided under this Agreement
15.02 Amendment. This Agreement may not be amended or modified in any manner except by written agreement executed by the Custodian and the Fund, and authorized or approved by the Board of Directors.
15.03 Assignment. This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund accompanied by the authorization or approval of the Board of Directors.
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15.04 Governing Law.
This Agreement shall be construed, and the provisions thereof interpreted under and in accordance with and governed by the laws of The State of New York for all purposes (without regard to its choice of law provisions); except to the extent such laws are inconsistent with federal securities laws, including the 1940 Act, in which case such federal securities laws shall govern. All actions and proceedings relating to or arising from, directly or indirectly, this Agreement may be brought in New York State or U.S. federal courts located within the City of New York, State of New York and the Company and the Custodian hereby submit to personal jurisdiction of such courts for such actions or proceedings. The Company and the Custodian each hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury and any objection to laying of venue in such courts on grounds of forum nonconveniens in respect of any claim based upon, arising out of or in connection with this Agreement. No actions or proceedings relating to or arising from, directly or indirectly, this Agreement shall be brought in a forum outside of the United States of America.
15.05 No Agency Relationship. Nothing herein contained shall be deemed to authorize or empower either party to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement.
15.06 Services Not Exclusive. Nothing in this Agreement shall limit or restrict the Custodian from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
15.07 Invalidity. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
15.08 Notices. Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
Notice to the Custodian shall be sent to:
U.S. Bank N.A.
U.S. Bank Tower
425 Walnut Street, Cincinnati,
OH 45202 | CN-OH-W6TC
Attn: Global Fund Custody Support Services
Phone: 513.632.2443
Fax: 844.206.1025
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and notice to the Fund shall be sent to:
TCW Star Direct Lending LLC
865 South Figueroa
Los Angeles, CA
Attention: Andrew Kim, Chief Financial Officer
Email: [email protected]
c/o TCW Asset Management Company LLC
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
Attn: Meredith Jackson, TCW General Counsel
Email: [email protected]
15.09 Multiple Originals. This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed an original, but such counterparts shall together constitute but one and the same instrument.
15.10 No Waiver. No failure by either party hereto to exercise, and no delay by such party in exercising, any right hereunder shall operate as a waiver thereof. The exercise by either party hereto of any right hereunder shall not preclude the exercise of any other right, and the remedies provided herein are cumulative and not exclusive of any remedies provided at law or in equity.
15.11 References to Custodian. The Fund shall not circulate any written material that contains any reference to the Custodian without the prior written approval of the Custodian, excepting such written material as merely identifies the Custodian as custodian for the Fund. The Fund shall submit written material requiring approval to the Custodian in draft form, allowing sufficient time for review by the Custodian and its counsel prior to any deadline for publication.
(signatures on the following page)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the last date written below.
| TCW STAR DIRECT LENDING , LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| Date: | ||
|
U.S. BANK NATIONAL ASSOCIATION | ||
| By: | ||
| Name: | ||
| Title: | ||
| Date: | ||
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List of Data Elements for Loan Trade Confirmation
Trade Date
Issuer Description
Investment Description
CUSIP/Investment ID
Maturity Date
Coupon Rate
Currency
Quantity
Price
Trade Fees
Accrued Interest
Broker
Comments
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EXHIBIT A
Custodian Compensation
Based upon an annual rate of average daily market value of all long securities and cash held in the portfolio*:
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EXHIBIT B
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons authorized by the Fund to administer the Fund Custody Accounts.
| Name |
Telephone/Fax Number |
Signature | ||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
|
| ||||
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EXHIBIT C
Shareholder Communications Act Authorization
NAME OF FUND: TCW Star Direct Lending LLC
The Shareholder Communications Act of 1985 requires banks and trust companies to make an effort to permit direct communication between a company which issues securities and the shareholder who votes those securities.
Unless you specifically require us to NOT release your name and address to requesting companies, we are required by law to disclose your name and address.
Your “yes” or “no” to disclosure will apply to all securities U.S. Bank holds for you now and in the future, unless you change your mind and notify us in writing.
| _____ Yes | U.S. Bank is authorized to provide my name, address and security position to requesting companies whose stock is owned by me. | |
| _____ No | U.S. Bank is NOT authorized to provide my name, address and security position to requesting companies whose stock is owned by me. | |
| Signature: | ||
| Date: | ||
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TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the last date written on the signature page, by and among TCW STAR DIRECT LENDING LLC, a Delaware limited liability company (the “Fund”), and U.S. BANCORP FUND SERVICES, LLC d/b/a U.S. Bank Global Fund Services, a Wisconsin limited liability company (“Fund Services”).
WHEREAS, the Fund is a closed-end management investment fund that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act” or the “Act”);
WHEREAS, the Fund is authorized to offer and sell common limited liability company units in the Fund (collectively, the “Shares”);
WHEREAS, Fund Services is, among other things, in the business of administering transfer agent and dividend disbursing functions for the benefit of its customers; and
WHEREAS, the Fund desires to retain Fund Services to provide transfer agent and dividend distribution agent services.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
| 1. | Appointment of Fund Services as Transfer Agent |
The Fund hereby appoints Fund Services as transfer agent of the Fund on the terms and conditions set forth in this Agreement, and Fund Services hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement. The services and duties of Fund Services shall be confined to those matters expressly set forth herein, and no implied duties are assumed by or may be asserted against Fund Services hereunder.
| 2. | Services and Duties of Fund Services |
Fund Services shall provide the following transfer agent services to the Fund:
| (1) | Receive and process orders for the purchase of Shares in accordance with applicable rules under the 1940 Act and other applicable regulations, and as specified in the Fund’s registration statement. |
| (2) | Process subscription agreements received from prospective holders of Shares (such holder of Shares, “Shareholders”). |
| (3) | Process purchase orders with prompt delivery, where appropriate, of payment and supporting documentation to the Fund’s custodian(s), and issue and record the appropriate number of uncertificated Shares with such uncertificated Shares being held in the appropriate Shareholder account. |
| (4) | Arrange for issuance of Shares obtained through transfers of funds from Shareholders’ accounts at financial institutions. |
| (5) | Process tender offers and related repurchase requests received in good order and, where relevant, deliver appropriate documentation to the Fund. |
| (6) | Pay monies upon receipt from the Fund where relevant, in accordance with the instructions of redeeming Shareholders. |
| (7) | Process transfers of Shares in accordance with the Shareholder’s instructions and as permitted by the Fund’s registration statement and other operative documents. |
| (8) | Prepare and transmit payments for distributions declared by the Fund, after deducting any amount required to be withheld by any applicable laws, rules and regulations and in accordance with Shareholder instructions. |
| (9) | Make changes to Shareholder records, including, but not limited to, address changes. |
| (10) | Prepare ad-hoc reports as necessary at prevailing rates; provided however any such ad-hoc reporting exceeding $500 in cost to be explicitly approved by the Fund. |
| (11) | Provide Shareholder account information upon Shareholder or Fund request and prepare and mail confirmations and statements of account to Shareholders for all purchases, redemptions, and other confirmable transactions as agreed upon with the Fund. |
| (12) | As requested, mail account statements and performance reports in a form approved by the Fund to Shareholders on a monthly basis and shareholder reports on annual basis. |
| (13) | In consultation with the Fund, prepare and file U.S. Treasury Department Forms 1099 and Forms 1042 and other appropriate information required with respect to dividends, distributions and repurchases for all shareholders. |
| (14) | As requested, answer correspondence from shareholders, securities brokers and others relating to Fund Services’ duties hereunder within required time periods established by applicable regulation. |
| (15) | As requested, provide service and support to financial intermediaries including but not limited to trade placements, settlements and corrections. |
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| (16) | Perform its duties hereunder in compliance with all applicable laws and regulations and provide any sub-certifications reasonably requested by the Fund in connection with any certification required of the Fund pursuant to the Sarbanes-Oxley Act of 2002 (“SOX Act”) or any rules or regulations promulgated by the U.S. Securities and Exchange Commission (“SEC”) thereunder, provided the same shall not be deemed to change Fund Services’ standard of care as set forth herein. |
| (17) | In order to assist the Fund in satisfying the requirements of Rule 38a-1 under the 1940 Act, Fund Services will provide the Fund’s Chief Compliance Officer with reasonable access to Fund Services’ Fund records relating to the services provided by it under this Agreement, and will provide quarterly compliance reports and related certifications regarding any Material Compliance Matter (as defined in the 1940 Act) involving Fund Services that affect or could affect the Fund. |
| (18) | Mail and/or obtain shareholders’ certifications under penalties of perjury and pay on a timely basis to the appropriate federal or state authorities any taxes to be withheld on dividends and distributions paid by the Fund, all as required by applicable federal and state tax laws and regulations. |
| (19) | Record the issuance of shares of the Fund and maintain, pursuant to Rule 17Ad-10(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), a record of the total number of shares of each Fund which are authorized, issued and outstanding. |
| 3. | Lost Shareholder Due Diligence Searches and Servicing |
The Fund hereby acknowledges that Fund Services has an arrangement with an outside vendor to conduct lost shareholder searches required by Rule 17Ad-17 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Costs associated with such searches will be passed through to the Fund as a miscellaneous expense in accordance with the fee schedule set forth in Exhibit A hereto. If a shareholder remains lost and the shareholder’s account unresolved after completion of the mandatory Rule 17Ad-17 search, the Fund hereby authorizes vendor to enter, at its discretion, into fee sharing arrangements with the lost shareholder (or such lost shareholder’s representative or executor) to conduct a more in-depth search in order to locate the lost shareholder before the shareholder’s assets escheat to the applicable state. The Fund hereby acknowledges that Fund Services is not a party to these arrangements and does not receive any revenue sharing or other fees relating to these arrangements. Furthermore, the Fund hereby acknowledges that vendor may receive up to 35% of the lost shareholder’s assets as compensation for its efforts in locating the lost shareholder. Fund Services shall report, or arrange to have reported, to the Fund shareholder account information where such accounts or funds have been turned over to applicable state authorities.
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| 4. | Anti-Money Laundering and Red Flag Identity Theft Prevention Programs |
The Fund acknowledges that it had an opportunity to review and consider the written procedures provided by Fund Services describing various processes used by Fund Services which are designed to promote the detection and reporting of potential money laundering activity and identity theft by monitoring certain aspects of shareholder activity as well as written procedures for verifying a customer’s identity (collectively, the “Procedures”). Further, the Fund has determined that the Procedures, as part of the Fund’s overall anti-money laundering program and identity theft prevention program responsibilities, are reasonably designed to help: (i) prevent the Fund from being used for money laundering or the financing of terrorist activities; (ii) prevent identity theft; and (iii) achieve compliance with the applicable provisions of the Bank Secrecy Act, the USA Patriot Act of 2001, the Fair and Accurate Credit Transactions Act of 2003, and the implementing regulations thereunder (together “AML Rules”).
Based on this determination, the Fund hereby instructs and directs Fund Services to implement the Procedures, as applicable, on the Fund’s behalf, as such may be amended from time to time. It is contemplated that these Procedures will be amended from time to time by Fund Services and any such amended Procedures will be provided to the Fund prior to their implementation. Should the Fund desire that Fund Services perform services not provided for in the Procedures, such additional services and the associated cost must be specifically detailed in the attached fee schedule.
The Fund acknowledges and agrees that although it is directing Fund Services to implement the Procedures on its behalf, Fund Services is implementing the Procedures as a service provider to the Fund and the Fund is and remains ultimately responsible for complying with all applicable laws, rules, and regulations with respect to anti-money laundering, customer identification, identity theft prevention, economic sanctions, and terrorist financing, whether under the AML Rules, or otherwise, such as, the establishment and board adoption of its own formal anti-money laundering program and the designation of its own anti-money laundering officer, as applicable.
The Fund further acknowledges and agrees that certain portions of the Procedures are applicable to certain products, entities, structures, or geographies and, accordingly, certain portions of the Procedures may not be implemented with respect to the Fund. The Fund has had the opportunity to discuss the Procedures with Fund Services, and the Fund understands and agrees which portions of the Procedures may not be implemented on behalf of the Fund. Without limitation of the foregoing, Fund Services shall not be responsible for providing anti-money laundering or customer identification services with respect to certain intermediary or dealer-controlled customer accounts (i.e., level 0 sub-accounts through the Fund/SERV system operated by the National Securities Clearing Fund) and other fund client relationships where there is a sub-transfer agency or similar arrangement between the Fund and the intermediary.
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The Fund hereby directs, and Fund Services acknowledges, that Fund Services shall (i) permit federal regulators access to such information and records maintained by Fund Services and relating to Fund Services’ implementation of the Procedures, on behalf of the Fund, as they may request, and (ii) permit such federal regulators to inspect Fund Services’ implementation of the Procedures on behalf of the Fund.
| 5. | Compensation |
Fund Services shall be compensated for providing the services set forth in this Agreement in accordance with the fee schedule set forth on Exhibit A hereto (as amended from time to time by consent of both parties to this agreement). Fund Services shall be compensated for such miscellaneous expenses as are reasonably incurred by Fund Services in performing its duties hereunder and as are described in Exhibit A hereto. In the event that any additional requirements are imposed upon Fund Services hereunder due to the adoption of any new or amended industry, regulatory or other applicable rules, the parties shall, acting in good faith, mutually agree upon any additional compensation in respect thereof. The Fund shall pay all such fees and reimbursable expenses within (30) calendar days following receipt of the billing notice, except for any fee or expense subject to a good faith dispute. The Fund shall notify Fund Services in writing within (30) calendar days following receipt of each invoice if the Fund is disputing any amounts in good faith. The Fund shall pay such disputed amounts within thirty (30) calendar days of the day on which the parties agree to the amount to be paid. With the exception of any fee or expense the Fund is disputing in good faith as set forth above, unpaid invoices shall accrue a finance charge of 11⁄2% per month after the due date. Notwithstanding anything to the contrary, amounts owed by the Fund to Fund Services shall only be paid out of assets and property of the Fund.
| 6. | Representations and Warranties |
| A. | The Fund hereby represents and warrants to Fund Services, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
| (1) | The Fund is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (2) | This Agreement has been duly authorized, executed and delivered by the Fund in accordance with all requisite action and constitutes a valid and legally binding obligation of the Fund, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; and |
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| (3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement. |
| B. | Fund Services hereby represents and warrants to the Fund, which representations and warranties shall be deemed to be continuing throughout the term of this Agreement, that: |
| (1) | It is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; |
| (2) | This Agreement has been duly authorized, executed and delivered by Fund Services in accordance with all requisite action and constitutes a valid and legally binding obligation of Fund Services, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties; |
| (3) | It is conducting its business in compliance in all material respects with all applicable laws and regulations, both state and federal, and has obtained all regulatory approvals necessary to carry on its business as now conducted; there is no statute, rule, regulation, order or judgment binding on it and no provision of its charter, bylaws or any contract binding it or affecting its property which would prohibit its execution or performance of this Agreement; and |
| (4) | It is a registered transfer agent under the Exchange Act. |
| 7. | Standard of Care; Indemnification; Limitation of Liability |
| A. | Fund Services shall exercise reasonable care in the performance of its duties under this Agreement. Fund Services shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with its duties under this Agreement, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond Fund Services’ control, except a loss arising out of or relating to Fund Services’ refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, if Fund Services has exercised reasonable care in the performance of its duties under this Agreement, the Fund shall indemnify and hold harmless Fund Services from and |
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| against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable and documented attorneys’ fees) that Fund Services may sustain or incur or that may be asserted against Fund Services by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, (ii) in reliance upon any written or oral instruction provided to Fund Services by the Fund’s investment adviser or by any duly authorized officer of the Fund, as approved by the Fund’s board of directors (the “Board of Directors”), except for any and all claims, demands, losses, expenses, and liabilities arising out of or relating to Fund Services’ refusal or failure to comply with the terms of this Agreement or from its bad faith, negligence or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of the Fund, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Fund Services” shall include Fund Services’ directors, officers and employees. |
Fund Services shall indemnify and hold the Fund harmless from and against any and all claims, demands, losses, expenses, and liabilities of any and every nature (including reasonable attorneys’ fees) that the Fund may sustain or incur or that may be asserted against the Fund by any person arising out of any action taken or omitted to be taken by Fund Services as a result of Fund Services’ refusal or failure to comply with the terms of this Agreement, bad faith, negligence, or willful misconduct in the performance of its duties under this Agreement. This indemnity shall be a continuing obligation of Fund Services, its successors and assigns, notwithstanding the termination of this Agreement. As used in this paragraph, the term “Fund” shall include the Fund’s directors, officers and employees.
Subject to each party’s indemnification obligations with respect to third party claims (as described above), neither party to this Agreement shall be liable to the other party for consequential, special or punitive damages under any provision of this Agreement.
In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, Fund Services shall take all reasonable steps to minimize service interruptions for any period that such interruption continues. Fund Services shall as promptly as possible under the circumstances notify the Fund in the event of any service interruption that materially impacts Fund Services’ services under this Agreement. Fund Services will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of Fund Services as soon as practicable. Fund Services agrees that it shall, at all times, have reasonable business continuity and disaster recovery contingency plans with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Fund shall be entitled to inspect Fund Services’ premises
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and operating capabilities, books and records maintained on behalf of the Fund at any time during regular business hours of Fund Services, upon reasonable notice to Fund Services. Fund Services shall promptly notify the Fund upon discovery of any material administrative error, and shall consult with the Fund about the actions it intends to take to correct the error prior to taking such actions. A “material administrative error” means any error which the Fund’s management, including its Chief Compliance Officer, would reasonably need to know to oversee Fund compliance. Moreover, Fund Services shall obtain and provide the Fund, at such times as the Fund may reasonably require, copies of reports rendered by independent accountants on the internal controls and procedures of Fund Services relating to the services provided by Fund Services under this Agreement.
Notwithstanding the above, Fund Services reserves the right to reprocess and correct administrative errors at its own expense.
| B. | In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the indemnitor may be asked to indemnify or hold the indemnitee harmless, the indemnitor shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the indemnitee will use all reasonable care to notify the indemnitor promptly concerning any situation that presents or appears likely to present the probability of a claim for indemnification. The indemnitor shall have the option to defend the indemnitee against any claim that may be the subject of this indemnification. In the event that the indemnitor so elects, it will so notify the indemnitee and thereupon the indemnitor shall take over complete defense of the claim, and the indemnitee shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. The indemnitee shall in no case confess any claim or make any compromise in any case in which the indemnitor will be asked to indemnify the indemnitee except with the indemnitor’s prior written consent. |
| C. | The indemnity and defense provisions set forth in this Section 7 shall indefinitely survive the termination and/or assignment of this Agreement. |
| D. | If Fund Services is acting in another capacity for the Fund pursuant to a separate agreement, nothing herein shall be deemed to relieve Fund Services of any of its obligations in such other capacity. |
| 8. | Data Necessary to Perform Services |
The Fund or its agent shall furnish to Fund Services the data necessary to perform the services described herein at such times and in such form as mutually agreed upon. For the avoidance of doubt, Fund Services agrees that, to the extent required in order to carry out any of its obligations hereunder, Fund Services will coordinate with all other service providers of the Fund as may be requested and authorized by the Fund, including each custodian of the Fund, as appropriate. If Fund Services is also acting in another capacity for the Fund, nothing herein shall be deemed to relieve Fund Services of any of its obligations in such capacity.
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| 9. | Proprietary and Confidential Information |
Fund Services agrees on behalf of itself and its directors, officers, and employees to treat confidentially and as proprietary information of the Fund, all records and other information relative to the Fund and prior, present, or potential shareholders of the Fund (and clients of said shareholders) including all shareholder trading information, and not to use such records and information for any purpose other than the performance of its responsibilities and duties hereunder, except (i) after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where Fund Services may be exposed to civil or criminal contempt proceedings for failure to comply, (ii) when requested to divulge such information by duly constituted authorities provided that to the extent permitted by law, Fund Services shall provide the Fund notice prior to such disclosures, or (iii) when so requested by the Fund; provided, however, that in the case of (i) and (ii) above, Fund Services shall reasonably cooperate with the Fund in its efforts to maintain the confidentiality of any such information. Records and other information which have become known to the public through no wrongful act of Fund Services or any of its employees, agents or representatives, and information that was already in the possession of Fund Services prior to receipt thereof from the Fund or its agent, shall not be subject to this paragraph. Further, Fund Services will adhere to the privacy policies adopted by the Fund pursuant to Title V of the Gramm Leach Bliley Act, as may be modified from time to time. In this regard, Fund Services shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to the Fund and its shareholders. In addition, Fund Services has implemented and will maintain an effective information security program reasonably designed to protect information relating to Shareholders (such information, “Personal Information”), which program includes sufficient administrative, technical and physical safeguards and written policies and procedures reasonably designed to (a) insure the security and confidentiality of such Personal Information; (b) protect against any anticipated threats or hazards to the security or integrity of such Personal Information, including identity theft; and (c) protect against unauthorized access to or use of such Personal Information that could result in substantial harm or inconvenience to the Fund or any Shareholder (the “Information Security Program”). The Information Security Program complies and shall comply with reasonable information security practices within the industry. Fund Services shall promptly notify the Fund in writing of any breach of security, misuse or misappropriation of, or unauthorized access to, (in each case, whether actual or alleged) any Personal Information (any or all of the foregoing referred to individually and collectively for purposes of this provision as a “Security Breach”). Fund Services shall promptly investigate and remedy, and bear the cost of the measures (including notification to any affected parties), if any, to address any Security Breach. Fund Services shall bear the cost of the Security Breach only if Fund Services is determined to be responsible for such Security Breach.
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In addition to, and without limiting the foregoing, Fund Services will promptly cooperate with the Fund or any of their affiliates’ regulators at Fund Services expense (only if Fund Services is determined to be responsible for such Security Breach) to prevent, investigate, cease or mitigate any Security Breach, including but not limited to investigating, bringing claims or actions and giving information and testimony. Notwithstanding any other provision in this Agreement, the obligations set forth in this paragraph 9 shall survive termination of this Agreement.
Fund Services will provide the Fund with certain copies of third party audit reports (e.g., SSAE 16 or SOC 1) through access to Fund Services CCO Portal (limited to two persons) to the extent such reports are available and related to services performed or made available by Fund Services under this Agreement. The Transfer Agent acknowledges and agrees that such reports are confidential and that it will not disclose such reports except to its employees and service providers who have a need to know and have agreed to obligations of confidentiality applicable to such reports.
Notwithstanding the foregoing, Fund Services will not share any nonpublic personal information concerning any of the Fund’s shareholders to any third party unless specifically directed by the Transfer Agent or allowed under one of the exceptions noted under the Gramm Leach Bliley Act.
| 10. | Records |
Fund Services shall keep records relating to the services to be performed hereunder in the form and manner, and for such period, as it may deem advisable and is agreeable to the Fund, but not inconsistent with the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. Fund Services agrees that all such records prepared or maintained by Fund Services relating to the services to be performed by Fund Services hereunder are the property of the Fund and will be preserved, maintained, and made available in accordance with such applicable sections and rules of the 1940 Act and will be promptly surrendered to the Fund or their designee on and in accordance with its request. Fund Services agrees to provide any records necessary to the Fund to comply with the Fund’s disclosure controls and procedures and internal control over financial reporting adopted in accordance with the SOX Act. Without limiting the generality of the foregoing, Fund Services shall cooperate with the Transfer Agent and assist the Fund, as necessary, by providing information to enable the appropriate officers of the Fund to (i) execute any required certifications and (ii) provide a report of management on the Fund’s internal control over financial reporting (as defined in Sections 13a-15(f) or 15a-15(f) of the Exchange Act).
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| 11. | Compliance with Laws |
| A. | The Fund has and retains primary responsibility for all compliance matters relating to the Fund, including but not limited to compliance with the Act, the Internal Revenue Code of 1986, the SOX Act, the USA Patriot Act of 2001 and the policies and limitations of the Fund relating to its portfolio investments as set forth in its registration statement. Fund Services’ services hereunder shall not relieve the Fund of its responsibilities for assuring such compliance and oversight responsibility with respect thereto. |
The foregoing shall not affect Fund Services’ responsibilities for compliance and related matters delegated to Fund Services by the Fund as expressly provided herein. Fund Services shall comply with changes to all regulatory requirements affecting its services hereunder to the Fund and shall implement any necessary modifications to the services prior to the deadline imposed, or extensions authorized by, the regulatory or other governmental body having jurisdiction for such regulatory requirements.
| B. | If, and to the extent that, the General Data Protection Regulation (EU) 2016/679, as amended (“GDPR”) or the Cayman Islands Data Protection Law, 2017, as amended (“DPL”), are applicable to Fund Services and the Fund the following provisions shall apply: |
| a. | The parties agree Fund Services is a “Data Processor” under GDPR and DPL, as applicable, in the performance of its services under this the Agreement. Notwithstanding the foregoing, the parties agree USBFS is a “Data Controller” under GDPR and DPL, as applicable, solely for the purpose of fulfilling its own pre-contractual AML/KYC new fund client onboarding obligations. In either case, the Fund shall ensure that all necessary and appropriate consents, disclosures and notices, including data subject consents, are in place to enable the processing of “Personal Data” (as defined by GDPR and DPL) by Fund Services, the transfer of Personal Data to Fund Services, and the transfer of Personal Data by Fund Services to third countries or regulatory organizations. |
| b. | The parties further agree the Fund is a “Data Controller” under GDPR and DPL, as applicable. The Fund, either alone or jointly with others, determines or controls the content, use, purpose and means of processing the Personal Data. |
| c. | Fund Services shall process the Personal Data: (i) in accordance with instructions of the Fund pursuant to this Agreement and any authorized persons list executed pursuant thereto, for the purpose of discharging Fund Services’ obligations under the Agreement; and (ii) when required by law or regulation, or required or requested by any court or regulator (each a “Processing Order”) to which Fund Services is subject. In the event Fund Services receives a request to process Personal Data pursuant to any Processing Order, it shall, to the extent legally permissible and reasonably practicable under the circumstances, notify the Fund prior to processing. |
11
| d. | The Fund is solely responsible for developing and implementing its internal policies and procedures with respect to GDPR and DPL. |
| e. | Fund Services shall: |
| i. | ensure that persons handling Personal Data on its behalf are subject to confidentiality obligations similar to those contained in this Agreement; |
| ii. | implement appropriate technical and organizational measures to protect Personal Data including against unauthorized or unlawful processing and against accidental loss, damage or destruction; |
| iii. | only appoint sub-processors with the prior written consent of the Fund (standing instructions or general written authorization are sufficient), and only if the sub-processors provide sufficient guarantees in writing to Fund Services that they have implemented appropriate technical and organizational measures in such a manner that processing will comply with GDPR and DPL, as applicable1; |
| iv. | beyond the initial appointment, inform the Fund of any intended material changes concerning the addition or replacement of sub-processors, thereby giving the Fund the opportunity to object; |
| v. | taking into account the nature of the processing, reasonably assist the Fund by appropriate technical and organizational measures, insofar as possible, to enable the Fund to comply with its obligation to respond to requests for exercising a data subject’s rights under GDPR or DPL; |
| vi. | provide reasonable assistance to the Fund in ensuring their compliance with obligations regarding Personal Data breaches, data protection impact assessments and prior consultation subject to the nature of the processing and the information reasonably available to Fund Services, and inform the Fund of Personal Data breaches without undue delay; |
| vii. | at the written direction of the Fund, delete or return all Personal Data to the Fund after the end of the provision of services under the Agreement relating to processing, and delete existing copies of Personal Data unless applicable law or internal data retention or backup procedures require the storage of such Personal Data; and |
| 1 | For the avoidance of doubt, Fund Services’ affiliates and third party software providers will be used as sub-processors under this Agreement, and the Fund hereby authorizes such use. |
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| viii. | make available to the Fund all information reasonably necessary to demonstrate compliance with GDPR or DPL, as applicable, and allow for and reasonably cooperate with audits, including inspections, conducted by the Fund or its auditor; and immediately inform the Fund if, in its opinion, the Fund’s instructions regarding this subsection infringes on GDPR or DPL. |
| f. | Each party shall comply with any other applicable law or regulation which implements GDPR and DPL in relation to the Personal Data. Nothing in the Agreement shall be construed as preventing either party from taking such other steps as are necessary to comply with GDPR, DPL or any other applicable data protection laws. |
| 12. | Term of Agreement; Amendment |
This Agreement shall become effective as of the date last written in the signature block and will continue in effect for a period of three (3) years, as may be extended. Following the initial term, this Agreement shall automatically renew for successive one year terms. This Agreement may be terminated by either party upon giving ninety (90) days’ prior written notice to the other party or such shorter period as is mutually agreed upon by the parties. Notwithstanding the foregoing, this Agreement may be terminated by any party upon the breach of the other party of any material term of this Agreement if such breach is not cured within fifteen (15) days of notice of such breach to the breaching party. This Agreement may not be amended or modified in any manner except by written agreement executed by Fund Services and the Fund, and authorized or approved by the Board of Directors.
| 13. | Duties in the Event of Termination |
In the event that, in connection with termination, a successor to any of Fund Services’ duties or responsibilities hereunder is designated by the Fund by written notice to Fund Services, Fund Services will promptly, upon such termination and, except in the case of a material breach by Fund Services, in which case all expenses shall be borne by Fund Services, at the expense of the Fund, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by Fund Services under this Agreement in a form reasonably acceptable to the Fund (if such form differs from the form in which Fund Services has maintained the same, the Fund shall pay any reasonable and documented expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Fund Services’ personnel in the establishment of books, records, and other data by such successor. If no such successor is designated, then such books, records and other data shall be returned to the Fund.
| 14. | Assignment |
This Agreement shall extend to and be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of Fund Services, or by Fund Services without the written consent of the Fund accompanied by the authorization or approval of the Board of Directors.
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| 15. | Governing Law |
This Agreement shall be construed in accordance with the laws of the State of New York, without regard to conflicts of law principles. To the extent that the applicable laws of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Act, the latter shall control, and nothing herein shall be construed in a manner inconsistent with the Act or any rule or order of the SEC thereunder.
| 16. | Services not Exclusive |
Nothing in this Agreement shall limit or restrict Fund Services from providing services to other parties that are similar or identical to some or all of the services provided hereunder.
| 17. | No Agency Relationship |
Nothing herein contained shall be deemed to authorize or empower either party to act as agent for the other party to this Agreement, or to conduct business in the name, or for the account, of the other party to this Agreement.
| 18. | Invalidity |
Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties.
| 19. | Notices |
Any notice required or permitted to be given by either party to the other shall be in writing and shall be deemed to have been given on the date delivered personally or by courier service, or three days after sent by registered or certified mail, postage prepaid, return receipt requested, or on the date sent and confirmed received by facsimile transmission to the other party’s address set forth below:
Notice to Fund Services shall be sent to:
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
14
Milwaukee, WI 53202
and notice to the Fund shall be sent to:
TCW Star Direct Lending LLC
865 South Figueroa
Los Angeles, CA
Attention: Andrew Kim, Chief Financial Officer
Email: [email protected]
With a copy to:
TCW Asset Management Company LLC
865 South Figueroa
Los Angeles, CA
Attention: Meredith Jackson, General Counsel
Email: [email protected]
| 20. | Multiple Originals |
This Agreement may be executed on two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
| 21. | Entire Agreement |
This Agreement, together with any exhibits, attachments, appendices or schedules expressly referenced herein, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, arrangements and understandings, whether written or oral.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by a duly authorized officer on one or more counterparts as of the date last written below.
| U.S. BANCORP FUND SERVICES, LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| Date: | ||
|
TCW STAR DIRECT LENDING LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| Date: | ||
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Exhibit A to the Transfer Agent Servicing Agreement –
Transfer Agency/Investor Services Fee Schedule*
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