-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+5UDQM1AXnYDOg0QzoLIuGB8F4T0Wv3vZ4S51Ham3TgtIMKifhnMV+FT6QMk5pT D6PlTVX1Y0sy/fz8SuGeog== 0000899652-96-000120.txt : 19960525 0000899652-96-000120.hdr.sgml : 19960525 ACCESSION NUMBER: 0000899652-96-000120 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960524 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINERGY CORP CENTRAL INDEX KEY: 0000899652 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 311385023 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-08867 FILM NUMBER: 96572442 BUSINESS ADDRESS: STREET 1: 139 E FOURTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5133812000 MAIL ADDRESS: STREET 1: 139 E FOURTH STREET CITY: CINCINATI STATE: OH ZIP: 45202 U-1 1 FORM U-1 File No. 70-____ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________________________________ FORM U-1 APPLICATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 ____________________________________________ Cinergy Corp. 139 East Fourth Street Cincinnati, Ohio 45202 (Name of company filing this statement and address of principal executive offices) Cinergy Corp. (Name of top registered holding company parent) William L. Sheafer Treasurer Cinergy Corp. (address above) (Name and address of agent of service) The Commission is requested to send copies of all notices, orders and communications in connection with this Application to: Cheryl M. Foley Vice President, General Counsel and Corporate Secretary Cinergy Corp. (address above) Item 1. Description of Proposed Transactions A. Requested Authorization Cinergy Corp. ("Cinergy"), a registered holding company under the Public Utility Holding Company Act of 1935 ("Act"), proposes to invest a total of $10 million from time to time through December 31, 2002 to acquire up to a 20% limited partnership interest in Nth Power Technologies Fund I, L.P. ("Fund" or "Partnership"), a California limited partnership formed to invest in energy technology companies. B. The Fund: Investments in Energy Technology Companies The goal of the Fund is both to create competitive advantages for its investing partners by identifying and investing in companies in the process of developing and commercializing energy technologies and to generate superior investment returns. The strategic benefits are anticipated to stem largely from the fact that Fund investors will have access to the portfolio companies and exposure to their technologies before others. As competition takes root in the energy industry, and utility companies strive to retain existing and attract new customers, the ability not merely to provide low-cost service but also to master technologies to differentiate products and services from competitors will become increasingly important. Accordingly, Cinergy believes that both its customers and shareholders will benefit from the proposed investment in the Fund. Generally, the Fund will invest in privately-held companies within any of three stages of development: emerging rapid growth companies (recently- formed companies with sales ranging up to $10 million), established growth companies (sales revenues in $10-100 million range with established record of profitability) and division spin-offs (i.e., often by large well- established corporations). In most cases, these companies will have progressed beyond the proof-of-concept or "seed" funding stage and will be on the threshold of introducing commercial products. Without the consent of a committee composed of three to five representatives of the limited partners (see note 2), no more than 10% of the Fund's committed capital will be invested in any one company. The following summarizes the broad investment categories expected to yield the great majority of portfolio companies. The Fund management will focus on companies within these categories whose management has a demonstrated record of successfully building companies. 1. Generation and Storage Most of the opportunities in this investment category are expected to arise in connection with distributed applications (rather than central generation and storage), inasmuch as the potential markets are large and the strategic implications for the utility industry are significant. Opportunities may arise in connection with, for example, fuel conversion technologies, fuel cells and eventually semiconductor generators. Opportunities may also arise in kinetic, thermal and electrochemical storage technologies. 2. Power Quality Opportunities are anticipated in connection with a wide range of products, ranging from substation-level storage and voltage improvement products to end-use load protection devices. 3. Communications, Control and Information Technologies Opportunities under this caption may emerge on a number of fronts. For example, information technologies may be incorporated in a broad range of energy-efficient end-use products facilitating customer choices while optimizing energy use, such as integrated residential automation, security, and energy management hardware and software. Additional opportunities may arise in connection with sensors and control algorithms; telecommunications, including fiber optic services; and related specialized software. Products of internal utility interest may include artificial intelligence-based monitoring and control systems, automated billing systems, and sophisticated productivity tools. 4. End-Use Products Opportunities may arise in advanced lighting and lighting controls, mechanical drives, drying processes, industrial furnaces, materials processing, environmental controls, refrigeration, HVAC, and advanced domestic applications. Opportunities may also emerge in storage technologies and other component parts with respect to the commercialization of electric, hybrid and natural gas vehicles. 5. Transmission and Distribution Most opportunities in this category are expected to involve technologies to minimize power losses or reduce operational costs. Opportunities may also arise in connection with power switching technologies; distribution automation; superconductivity; specialized metering technology; and noise and EMF abatement and other environmental concerns. C. Terms of Limited Partnership Agreement Pursuant to the terms of the limited partnership agreement filed herewith as exhibit B ("Agreement"), Cinergy proposes to acquire up to a 20% limited partner interest in the Fund by investing a total of $10 million from time to time through December 31, 2002. The sole general partner will be Nth Power Technologies Partners, L.P., a California limited partnership whose sole general partner in turn is Nth Power Technologies, Inc., a California corporation (collectively, "Nth Power")./1/ Nth Power's management has experience in energy technology finance and development, including in the case of the principals an average of 20 years' experience in the energy, telecommunications and related industries. The remaining limited partnership interests are being offered to one or more accredited investors. Given the Fund's objectives, the balance of the limited partnership interests are expected to be purchased principally by other utility companies or similar entities involved in the energy industry. The aggregate amount of capital to be invested in the Fund by all investors is anticipated not to be less than $50 million (in which case Cinergy will have a 20% limited partnership interest) nor to exceed $75 million (in which case Cinergy will have a 13% limited partnership interest). An initial closing is scheduled to take place on or around June 15, 1996, with Cinergy's participation contingent upon receipt of the authorization requested herein. The Partnership's term will be limited to 10 years from the later of the initial closing and the last date (generally, not to exceed in either case one year from the date of initial closing) on which a limited partner is admitted to the Partnership or increases its capital commitment, provided that the general partner may extend the term for up to two additional two-year periods under certain circumstances (Section 2.1). Each limited partner will be obligated to contribute an amount in cash equal to 5% of its commitment at the initial closing, with periodic drawdowns of the balance of the commitment as needed, provided that (1) drawdowns will not exceed 35% of the commitment in any calendar year and (2) the final drawdown will occur not later than 5 years after the later of the initial closing and the last date on which a limited partner is admitted to the Partnership or increases its capital commitment (Sections 4.2, 3.2). The general partner will contribute an aggregate amount equal to 1% of the Partnership capital (Section 4.3). Profits and losses with respect to investment securities of the Partnership will be allocated 80% to all limited partners on the basis of committed capital and 20% to the general partner, provided that any losses generally will not reduce the general partner's capital account to less than 1% of aggregate capital accounts (Article V). Distributions of cash representing net short-term investment income of the Partnership will be made within 90 days after the end of each calendar year during the term of the Partnership and allocated in proportion to committed capital (Section 7.6). Distributions in cash (other than cash representing net short-term investment income of the Partnership) or in securities of portfolio companies that are covered by an effective registration statement or traded on a national securities exchange or over-the-counter will be made at the discretion of the general partner. Any such cash distributions will be allocated 80% to the limited partners on the basis of committed capital and 20% to the general partner to the extent of net profits and, thereafter, 99% to the limited partners and 1% to the general partner. Any such distributions of securities of portfolio companies will be allocated 80% to the limited partners on the basis of committed capital and 20% to the general partner. (Sections 7.4, 7.5) With respect to such potential distributions to it of securities of portfolio companies, Cinergy anticipates that in each case it may then be entitled to retain such securities pursuant to a rule proposed by the Commission for adoption in June 1995 (see Rel. No. 35-26313 (proposed Rule 58)) inasmuch as, subject to the other conditions specified in the proposed rule, the portfolio companies are likely to constitute energy-related companies within the meaning thereof. To the extent that this proves otherwise, unless it obtains Commission approval to retain such securities, Cinergy will undertake to sell such securities as soon as practicable. Through the seventh anniversary of the initial closing date, the Partnership will pay the general partner, quarterly in advance and potentially subject to adjustment for changes in the consumer price index- urban consumers, an annual management fee equal to 2.5% of the aggregate committed capital; thereafter, the fee will be determined based on an annual budget procedure, provided that the fee shall not be less than 70% of the initial formula fee (Section 6.1). The general partner will be responsible for payment, from the management fee, of all normal operating expenses incurred in connection with the management of the Partnership, including salaries, wages, clerical and other expenses of employees of the Partnership and expenses relating to investigating and evaluating investment opportunities and managing investments of the Partnership. The foregoing notwithstanding, the Partnership will be responsible for, among other things, all legal, accounting and consulting fees with respect to the Partnership, costs relating to the purchase and sale of Partnership securities, Partnership taxes, costs of annual meetings, and fees and expenses incurred in organizing the Partnership (Section 6.2). Both the annual management fee and the Partnership expenses are payable from the limited partners' committed capital. Under the Agreement and applicable California law, the general partner has the sole and exclusive right to manage, control and conduct the affairs of the Partnership, subject to certain limited approval rights of the limited partners (Sections 8.1, 8.3, 11.8). Such limited voting rights are customary for limited partners in venture capital funds and in the aggregate are less than those potentially available to limited partners consistent with applicable California law. Specifically, under the Agreement, the approval of the limited partners is required only in the following circumstances: The vote of a majority in interest of the limited partners is required (i) if capital commitments will exceed $75 million (Section 3.2), (ii) for capital drawdowns that occur after the first anniversary of the later of the initial closing date and the last date on which a limited partner is admitted or increases its commitment (Section 4.2), (iii) to approve the general partner's management fee if the term of the Partnership is extended beyond 10 years (Section 6.1), (iv) to extend the term of the Partnership for up to two additional two-year periods (Section 10.1), (v) to elect a successor tax matters partner (Section 11.6), and (vi) to terminate the Partnership if the principals fail to devote substantially all of their business time to the Partnership and other specified entities (Section 14.9). The vote of two-thirds in interest of the limited partners is required (i) to admit an additional general partner (Section 3.2), (ii) to admit additional limited partners after the first anniversary of the initial closing date (Section 3.2), (iii) for the distribution of non-marketable securities (Section 7.5), (iv) for the Partnership to borrow (Section 8.6), and (v) for the Partnership to exercise its right of first refusal upon certain proposed transfers by limited partners (Section 9.4). The vote of 75% in interest of the limited partners is required to terminate the Partnership in certain events (Section 14.9). The vote of all limited partners is required to extend the term of the Partnership except as described in A(iv) above (Section 2.1). Finally, under California law, the limited partners also have the right to vote on certain matters relating to the merger of the Partnership with one or more other entities./2/ Limited partners are entitled to inspect the books and records of the Partnership upon reasonable advance notice and during normal business hours (Section 11.2). The general partner will be required to furnish the limited partners with annual and quarterly reports concerning the Partnership, which reports shall include financial statements of the Partnership (audited in the case of the annual reports) together with relevant information concerning Partnership investments (Sections 11.3 and 11.4). D. Statement Pursuant to Rule 54. Under Rule 54, in determining whether to approve the issue or sale of a security by a registered holding company for purposes other than the acquisition of an exempt wholesale generator ("EWG") or a foreign utility company ("FUCO"), or other transactions by such registered holding company or its subsidiaries other than with respect to EWGs and FUCOs, the Commission shall not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or a FUCO if the conditions in Rule 53(a), (b) and (c) are satisfied. As set forth below, all applicable conditions of Rule 53(a) are and, upon consummation of the proposed transactions, will be satisfied, and none of the conditions specified in Rule 53(b) exists or, as a result thereof, will exist. Rule 53(a)(1): At March 31, 1996, Cinergy had invested, directly or indirectly, an aggregate of approximately $11 million in EWGs and FUCOs (inclusive of indirect investments through Special Purpose Subsidiaries)./3/ The average of the consolidated retained earnings of Cinergy reported on Form 10-K or Form 10-Q, as applicable, for the four consecutive quarters ended March 31, 1996 is $946 million. Accordingly, based on Cinergy's "consolidated retained earnings" at March 31, 1996, the current Rule 53 aggregate investment limitation is approximately $462 million (i.e., 50% of "consolidated retained earnings" - $473 million - minus "aggregate investment" at March 31, 1996 - $11 million). Rule 53(a)(2): Cinergy maintains books and records enabling it to identify investments in and earnings from each EWG and FUCO in which it directly or indirectly holds an interest. At present, Cinergy does not hold any interest in a domestic EWG; Rule 53(a)(2)(i) is therefore inapplicable. In accordance with Rule 53(a)(2)(ii), the books and records and financial statements of each foreign EWG and FUCO which is a "majorityowned subsidiary company" of Cinergy are kept in conformity with and prepared according to U.S. generally accepted accounting principles ("GAAP"). Cinergy will provide the Commission access to such books and records and financial statements, or copies thereof, in English, as the Commission may request. In accordance with Rule 53(a)(2)(iii), for each foreign EWG and FUCO in which Cinergy directly or indirectly owns 50% or less of the voting securities, Cinergy will proceed in good faith, to the extent reasonable under the circumstances, to cause each such entity's books and records to be kept in conformity with, and the financial statements of each such entity to be prepared according to, GAAP. If such books and records are maintained, or such financial statements are prepared, according to a comprehensive body of accounting principles other than GAAP, Cinergy will, upon request of the Commission, describe and quantify each material variation from GAAP in the accounting principles, practices and methods used to maintain such books and records and each material variation from GAAP in the balance sheet line items and net income reported in such financial statements, as the case may be. In addition, Cinergy will proceed in good faith, to the extent reasonable under the circumstances, to cause access by the Commission to such books and records and financial statements, or copies thereof, in English, as the Commission may request, and in any event will make available to the Commission any such books and records that are available to Cinergy. Rule 53(a)(3): No more than 2% of the employees of Cinergy's operating utility subsidiaries will, at any one time, directly or indirectly, render services to EWGs and FUCOs. Based on current staffing levels of Cinergy's domestic operating utility subsidiaries (such companies currently employ, in the aggregate, approximately 5736 salaried and hourly employees), no more than 115 of the employees of these companies, in the aggregate, on a full-time equivalent basis, will be utilized at any one time in rendering services, directly or indirectly, to EWGs and FUCOs. Employees of PSI Energy, Inc., an Indiana utility subsidiary of Cinergy, have rendered services to certain Cinergy system foreign utility interests pursuant to the Commission's order in PSI Resources, Inc., et al., Rel. No. 35-25674, 52 SEC Docket 2533, 2534-35 (Nov. 13, 1992). Rule 53(a)(4): Cinergy will simultaneously submit a copy of this Declaration and of any Rule 24 certificate hereunder, as well as a copy of Cinergy's Form U5S and Exhibits H and I thereto, to each public utility commission having jurisdiction over the retail rates of any Cinergy utility subsidiary. Rule 53(b): The provisions of Rule 53(a) are not made inapplicable to the authorization herein requested by reason of the provisions of Rule 53(b). Rule 53(b)(1): Neither Cinergy nor any subsidiary thereof is the subject of any pending bankruptcy or similar proceeding. Rule 53(b)(2): Cinergy's average consolidated retained earnings for the four quarters ended March 31, 1996 are $946 million, versus $920 million for the four quarters ended March 31, 1995, a difference of approximately $26 million (representing an increase of 3%). Rule 53(b)(3): For the twelve months ended March 31, 1996, Cinergy did not report operating losses attributable to its direct and indirect investments in EWGs and FUCOs aggregating in excess of 5% of consolidated retained earnings. Item 2. Fees, Commissions and Expenses. In addition to the Partnership-related fees and expenses described above in Item 1.C, the fees, commissions and expenses to be incurred, directly or indirectly, by Cinergy or any associate company thereof in connection with the proposed transactions are estimated as follows: U-1 filing fee $2,000 Fees of Cinergy Services, Inc. $5,000 Fees of outside counsel $10,000 TOTAL $17,000 Item 3. Applicable Statutory Provisions. Section 9(c)(3) is applicable to the proposed transaction thereby exempting the proposed transaction from Section 9(a) of the Act. Rule 54 is also applicable. With respect to Section 9(c)(3), in the first place, Cinergy is proposing to acquire its limited partnership interest in the Fund in the "ordinary course of [its] business" and such investment will not be detrimental to the public interest or the interest of investors or consumers. As discussed in Item 1, by investing through the Fund in energy technology companies, Cinergy seeks not merely to realize a favorable return but also to gain competitive advantages in its core business through access to the portfolio companies and exposure to their technologies before others. These technologies may enable Cinergy to enhance the variety and quality of energy products and services it provides to existing customers and better position it to attract new customers. More generally, successful investments by the Partnership may ultimately benefit all utilities and their customers, by fostering the development and commercialization of energy technologies. As previously noted, the contemplated portfolio companies likely would constitute energy-related companies within the meaning of proposed Rule 58. Section 9(c)(3) is applicable for the further reason that, by virtue of the proposed acquisition, Cinergy will not have any right or power to control or otherwise direct the management or affairs of the Partnership. Cinergy will not acquire any "voting security" within the meaning of Section 2(a)(17) of the Act and, accordingly, the Partnership will not be an "affiliate" or "subsidiary company" of Cinergy within the meaning of the Act. Specifically, as a limited partner, Cinergy will not be entitled to take part in the control, management or investment decisions of the Partnership (or, through the Partnership, in the control or management of any company in which the Partnership invests), which are vested exclusively in the general partner. Rather, Cinergy will be entitled only to receive notices and other information from the general partner, to inspect the Partnership's books and records, and to vote on a limited number of matters that could fundamentally change the structure and purposes of the Partnership and its relationship with the general partner. Such limited voting rights are customary for limited partners in a venture capital fund and in the aggregate are less than those potentially available to limited partners consistent with applicable California law. Moreover, as stated in Item 1, Cinergy will not consent to serve on the Fund Committee and therefore will have less voting rights than those of the other limited partners, who will be eligible to serve on that committee and potentially to vote on the matters within the committee's purview. Finally, because its capital commitment to and corresponding limited partnership interest in the Fund will be relatively small, and actions of the Fund's limited partners require the assent of at least a majority in interest thereof (and often a supermajority vote of the limited partners), Cinergy will have no practical ability - assuming it were so disposed - unilaterally to direct the action of the Fund's limited partners with respect to those isolated matters over which the limited partners exercise voting rights. The Fund itself is similar in certain respects to the EnviroTech Partnership with respect to which a number of other registered holding companies have made investments (see, e.g., Rel. Nos. 35-262490, Feb. 28, 1995 (Southern Company); 35-26225, Feb. 1, 1995 (Allegheny Power System, Inc.)). Item 4. Regulatory Approval. No state or federal regulatory agency other than the Commission under the Act has jurisdiction over the proposed transactions. Item 5. Procedure. Cinergy requests that the Commission issue and publish not later than June 7, 1996 the requisite notice under Rule 23 with respect to the filing of this Application. Cinergy further requests that such notice specify a date not later than July 2, 1996 as the date after which the Commission may issue an order granting this Application. Cinergy waives a recommended decision by a hearing officer or other responsible officer of the Commission; consents that the Staff of the Division of Investment Management may assist in the preparation of the Commission's order; and requests that there be no waiting period between the issuance of the Commission's order and its effectiveness. Item 6. Exhibits and Financial Statements. (a) Exhibits: A Not applicable B Draft of Nth Power Technologies Fund I, L.P. Limited Partnership Agreement C Not applicable D Not applicable E Not applicable F Preliminary opinion of counsel G Form of Federal Register notice (b) Financial Statements: FS-1 Cinergy Consolidated Financial Statements, dated March 31, 1996. FS-2 Cinergy Financial Statements, dated March 31, 1996. FS-3 Cinergy Consolidated Financial Data Schedule (included in electronic submission only). FS-4 Cinergy Financial Data Schedule (included in electronic submission only). Item 7. Information as to Environmental Effects. (a)The Commission's action in this matter will not constitute major federal action significantly affecting the quality of the human environment. (b)No other federal agency has prepared or is preparing an environmental impact statement with regard to the proposed transactions. SIGNATURE Pursuant to the requirements of the Act, the undersigned company has duly caused this Application to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 24, 1996 Cinergy Corp. By:/s/ William L. Sheafer Treasurer ENDNOTES /1/ Cinergy does not propose to acquire a limited partnership or equity interest or otherwise to acquire securities of or to invest in Nth Power. /2/ The approval of a majority of the Partnership's "Fund Committee" (composed of three to five representatives of the limited partners) is required to approve, inter alia, any investment inconsistent with the Partnership's business plan (Section 8.6) and any investment of more than 10% of the Partnership's capital in any one company or in public securities (Section 8.6). For the duration of its investment in the Partnership, Cinergy will decline to be represented on or otherwise to participate in the Fund Committee. /3/ As of May 14, 1996, Cinergy had indirectly invested an additional $372 million in Midlands Electricity plc ("Midlands"), one of 12 regional electric companies in the United Kingdom, headquartered in Birmingham, England, in connection with a pending cash offer for the acquisition of Midlands by a joint venture entity controlled equally by Cinergy and General Public Utilities Corporation. As of said date, the joint venture entity owned or had agreed to acquire 114.9 million shares of Midlands, representing approximately 29% of the issued share capital of Midlands. For further information with respect to this transaction, reference is made to Cinergy's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 in Commission File No. 1-11377. EX-99.F 2 EXHIBIT F EXHIBIT F May 24, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: I am Associate General Counsel of Cinergy Corp. ("Cinergy"), a registered holding company under the Public Utility Holding Company Act of 1935 (the "Act"), and am furnishing this opinion as an exhibit to Cinergy's Form U-1 Application of even date herewith (the "U-1"), pursuant to which Cinergy proposes to invest a total of $10 million from time to time through December 31, 2002 to acquire up to a 20% limited partnership interest in Nth Power Technologies Fund I, L.P. ("Fund"), a California limited partnership formed to invest in energy technology companies. In connection with this opinion, I have reviewed or caused to be reviewed the U-1 and such other documents and records as I deemed necessary or appropriate in order to give this opinion. In the event that the proposed transactions are consummated in accordance with the Commission's order or orders under the Act to be issued with respect thereto and otherwise in accordance with the U-1 (including as it may be amended): (a) All state laws applicable to Cinergy's participation in the proposed transactions will have been complied with. (b) Cinergy will legally acquire the limited partnership interest in the Fund to be acquired by it. (c) The consummation of the proposed transactions will not violate the legal rights of the holders of any securities issued by Cinergy or any associate company thereof. I am a member of the Ohio Bar and accordingly do not express an opinion as to the laws of any other state. I hereby consent to the filing of this opinion as an exhibit to the U-1. Very truly yours, /s/ Jerome A. Vennemann Associate General Counsel EX-99.G 3 EXHIBIT G EXHIBIT G PROPOSED FORM OF NOTICE Cinergy Corp. 70- Notice of Proposal to Make Limited Partnership Investment in Energy Technology Fund Cinergy Corp., a registered holding company located at 139 East Fourth Street, Cincinnati, Ohio 45202 ("Cinergy"), has filed an application under Section 9(c)(3) of the Act and Rule 54 thereunder. Cinergy proposes to invest a total of $10 million from time to time through December 31, 2002 to acquire up to a 20% limited partnership interest in Nth Power Technologies Fund I, L.P. ("Fund" or "Partnership"), a California limited partnership formed to invest in energy technology companies. The sole general partner of the Fund will be Nth Power Technologies Partners, L.P., a California limited partnership whose sole general partner in turn is Nth Power Technologies, Inc., a California corporation (collectively, "Nth Power"). Nth Power's management has experience in energy technology finance and development. Cinergy does not propose to acquire a limited partnership or equity interest or otherwise to acquire securities of or to invest in Nth Power. The remaining limited partnership interests are being offered to one or more accredited investors. Given the Fund's objectives, the balance of the limited partner interests are expected to be purchased principally by other utility companies or similar entities involved in the energy industry. The aggregate amount of capital to be invested in the Fund by all investors is anticipated not to be less than $50 million (in which case Cinergy will have a 20% limited partnership interest) nor to exceed $75 million (in which case Cinergy will have a 13% limited partnership interest). An initial closing is scheduled to take place on or around June 15, 1996, with Cinergy's participation contingent upon receipt of Commission authorization under the Act. The goal of the Fund is both to create competitive advantages for its investing partners by identifying and investing in companies in the process of developing and commercializing energy technologies and to generate superior investment returns. Generally, the Fund will invest in privately- held companies within any of three stages of development: emerging rapid growth companies (recently-formed companies with sales ranging up to $10 million), established growth companies (sales revenues in $10-100 million range with established record of profitability) and division spin-offs (i.e., often by large well-established corporations). The Fund will focus on companies developing and commercializing energy technologies in areas such as generation and storage, power quality, communications, control and information technologies, end-use products, and transmission and distribution. Without the consent of a Fund committee composed of three to five representatives of the limited partners (excluding in any case Cinergy, which has committed not to serve on the Fund committee), no more than 10% of the Fund's committed capital will be invested in any one portfolio company. As provided under the terms of the limited partnership agreement governing the Partnership ("Agreement"), the Partnership's term will be limited to 10 years from the later of the initial closing and the last date (generally, not to exceed in either case one year from the date of initial closing) on which a limited partner is admitted to the Partnership or increases its capital commitment, provided that the general partner may extend the term for up to two additional two-year periods under certain circumstances. Each limited partner will be obligated to contribute an amount in cash equal to 5% of its commitment at the initial closing, with periodic drawdowns of the balance of the commitment as needed, provided that drawdowns will not exceed 35% of the commitment in any calendar year and the final drawdown will occur not later than 5 years after the later of the initial closing and the last date on which a limited partner is admitted to the Partnership or increases its capital commitment. The general partner will contribute an aggregate amount equal to 1% of the Partnership capital. Profits and losses with respect to investment securities of the Partnership will be allocated 80% to all limited partners on the basis of committed capital and 20% to the general partner, provided that any losses generally will not reduce the general partner's capital account to less than 1% of aggregate capital accounts. Distributions of cash representing net short-term investment income of the Partnership will be made within 90 days after the end of each calendar year during the term of the Partnership and allocated in proportion to committed capital. Distributions in cash (other than cash representing net short-term investment income of the Partnership) or in securities of portfolio companies that are covered by an effective registration statement or traded on a national securities exchange or over-the-counter will be made at the discretion of the general partner. Any such cash distributions will be allocated 80% to the limited partners on the basis of committed capital and 20% to the general partner to the extent of net profits and, thereafter, 99% to the limited partners and 1% to the general partner. Any distributions of securities of portfolio companies will be allocated 80% to the limited partners on the basis of committed capital and 20% to the general partner. With respect to such potential distributions to it of securities of portfolio companies, Cinergy anticipates that in each case it may then be entitled to retain such securities pursuant to a rule proposed by the Commission for adoption in June 1995 (see Rel. No. 35-26313) inasmuch as, subject to the other conditions specified in the proposed rule, the portfolio companies are likely to constitute energy-related companies within the meaning thereof. To the extent that this proves otherwise, unless it obtains Commission approval to retain such securities, Cinergy will undertake to sell such securities as soon as practicable. Through the seventh anniversary of the initial closing date, the Partnership will pay the general partner, quarterly in advance and potentially subject to adjustment for changes in the consumer price index- urban consumers, an annual management fee equal to 2.5% of the aggregate committed capital; thereafter, the fee will be determined based on an annual budget procedure, provided that the fee shall not be less than 70% of the initial formula fee. The general partner will be responsible for payment, from the management fee, of all normal operating expenses incurred in connection with the management of the Partnership. The foregoing notwithstanding, the Partnership will be responsible for, among other things, all legal, accounting and consulting fees with respect to the Partnership, costs relating to the purchase and sale of Partnership securities, Partnership taxes, costs of annual meetings, and fees and expenses incurred in organizing the Partnership. Both the annual management fee and the Partnership expenses are payable from the limited partners' committed capital. Under the Agreement and applicable California law, the general partner has the sole and exclusive right to manage, control and conduct the affairs of the Partnership, subject to certain limited approval rights of the limited partners. In general, such rights would entitle Cinergy to vote only on matters that could fundamentally change the structure and purposes of the Partnership and its relationship with the general partner. Cinergy represents that such limited voting rights are customary for limited partners in venture capital funds and collectively are less than those potentially available to limited partners consistent with applicable California law. Cinergy further notes, among other things, that since it will not consent to serve on the Fund committee referred to above, it will therefore have less voting rights than those of the other limited partners. Limited partners are also entitled to inspect the books and records of the Partnership, and the general partner will be required to furnish the limited partners with certain periodic reports (including financial statements) concerning the Partnership. For the Commission, by the Division of Investment Management, pursuant to delegated authority. EX-99.B 4 EXHIBIT B DRAFT EXHIBIT B Nth POWER TECHNOLOGIES FUND I, L.P. LIMITED PARTNERSHIP AGREEMENT Nth POWER TECHNOLOGIES FUND I, L.P. LIMITED PARTNERSHIP AGREEMENT This Agreement is made and entered into as of the ____ day of June 1996, by and among Nth Power Technologies Partners, L.P., a California limited partnership (the "General Partner"), and each of the persons listed as limited partners on the Schedule of Partners attached hereto as Exhibit A (the "Limited Partners"), who hereby form Nth Power Technologies Fund I, L.P. (the "Partnership"), pursuant to the provisions of the California Uniform Partnership Act (the "Act"), as follows: Article I Name, Purpose And Offices Of Partnership 1.1 Name. The name of the Partnership is Nth Power Technologies Fund I, L.P. The affairs of the Partnership shall be conducted under the Partnership name. 1.2 Purpose. The primary purpose of the Partnership is to make capital investments, principally by investing in equity or equity-oriented securities of privately held corporations that create products or provide services that offer significant strategic benefits to the electric utility industry. The general purposes of the Partnership are to: buy, sell, hold, and otherwise invest in securities of every kind and nature and rights and options with respect thereto, including, but not limited to, stock, notes, bonds, debentures, partnership interests, interests in limited liability companies and evidence of indebtedness; exercise all rights, powers, privileges, and other incidents of ownership or possession with respect to securities held or owned by the Partnership; enter into, make, and perform all contracts and other undertakings; and engage in all activities and transactions as may be necessary, advisable, or desirable to carry out the foregoing. 1.3 Principal Office. The principal office of the Partnership shall be located at 50 California Street, 32nd Floor, San Francisco, California 94111, or at such other place or places as the General Partner may from time to time designate by written notice to the Limited Partners. 1.4 Registered Agent And Office. The name of the registered agent for service of process of the Partnership and the address of the Partnership's registered office in the State of California shall be Maurice E.P. Gunderson, Nth Power Technologies, Inc., 50 California Street, 32nd Floor, San Francisco, California, 94111, or such other agent or office in the State of California as the General Partner may from time to time designate. Article II Term Of Partnership 2.1 Term. The term of the Partnership shall commence upon the later of the date first above written or the date of the filing of the Certificate of Limited Partnership of the Partnership with the office of the Secretary of State of the State of California (which date shall be hereinafter referred to as the "Formation Date"). The term of the Partnership shall continue until the tenth anniversary of the later of (i) the Formation Date or (ii) the last date on which a Limited Partner is admitted to the Partnership (or increases its Capital Commitment) pursuant to paragraph 3.2(b)(i), unless extended by a Notice of Extension or by unanimous agreement of the Partners or sooner dissolved upon the occurrence of an Event of Early Termination. 2.2 Events Affecting A Partner Of The General Partner. The death, bankruptcy, withdrawal, insanity, incompetency, temporary or permanent incapacity, expulsion or removal of any partner of the General Partner shall not dissolve the Partnership. 2.3 Events Affecting A Limited Partner. The death, temporary or permanent incapacity, insanity, incompetency, bankruptcy, liquidation, dissolution, reorganization, merger, sale of all or substantially all of the stock or assets of, or other change in the ownership or nature of a Limited Partner shall not dissolve the Partnership. 2.4 Events Affecting The General Partner. Except in the case of an Event of Early Termination, the bankruptcy, liquidation, dissolution, reorganization, merger, sale of all or substantially all the stock or assets of, or other change in the ownership or nature of the General Partner shall not dissolve the Partnership, and upon the happening of any such event, the affairs of the Partnership shall be continued automatically by a successor entity formed by the continuing general partners of the General Partner, including any newly admitted general partner, or by the remaining general partner(s) of the Partnership, if any. Article III Name And Admission Of Partners 3.1 Name And Address. The name and address of the General Partner and each Limited Partner (hereinafter the General Partner and the Limited Partners shall be referred to collectively as the "Partners" and individually as a "Partner"), the amount of such Partner's Capital Commitment to the Partnership and such Partner's Partnership Percentage are set forth on Exhibit A hereto. The General Partner shall cause Exhibit A to be amended from time to time to reflect the admission of any new Partner, the withdrawal or substitution of any Partner, the transfer of interests among Partners, receipt by the Partnership of notice of any change of address of a Partner, or a change in the Capital Commitment or Partnership Percentage of any Partner. An amended Exhibit A shall supersede any prior Exhibit A and become a part of this Agreement. A copy of the most recent amended Exhibit A shall be kept on file at the principal office of the Partnership. 3.2 Admission Of Additional Partners. (a) An additional person may be admitted as a General Partner to the Partnership only with the consent of the General Partner and Two-Thirds in Interest of the Limited Partners prior to an Event of Early Termination. (b) (i) An additional person may be admitted as a Limited Partner (or an existing Limited Partner may increase its Capital Commitment) with the consent of the General Partner until the first anniversary of the Formation Date; provided, however, that unless the General Partner provides the Limited Partners with advance written notice, the General Partner shall not admit an additional person to the Partnership or allow a Limited Partner to increase its Capital Commitment to the Partnership if such admission or increase would cause the total Capital Commitments of the Limited Partners to exceed sixty million dollars ($60,000,000). (ii) Subsequent to the first anniversary of the Formation Date, an additional person may be admitted as a Limited Partner (or an existing Limited Partner may increase its Capital Commitment) with the consent of the General Partner and Two-Thirds in Interest of the Limited Partners. (iii) Each such additional Limited Partner (or Limited Partner increasing its Capital Commitment) shall not be admitted as a Limited Partner (or be allowed to increase its Capital Commitment) until it contributes to the Partnership the sum of (A) its pro rata share of all previous capital contributions to the Partnership made by the Partners and (B) an interest component on its pro rata share of all previous capital contributions at the prime rate charged by the Partnership's primary banking facility for the periods from the Partners' previous capital contributions to the date such additional person is admitted as a Limited Partner (or increases its Capital Commitment) with such interest rate adjusted on the first business day of ________. Each person admitted as an additional Limited Partner (or increasing its Capital Commitment) shall not be entitled to share in the income or gain of the Partnership with respect to its new or increased Capital Commitment attributable to the period prior to such admission as a Limited Partner (or increase in Capital Commitment). (iv) The interest component paid by a Limited Partner pursuant to clause (iii) above (A) shall not be included in determining such Limited Partner's Capital Commitment or Partnership Percentage and shall not be included in determining the amount of capital contributed to the Partnership, and (B) shall be distributed to the Partners (excluding Partners admitted to the Partnership on the date such interest component is due) pro rata based on all previous capital contributions as adjusted to reflect the dates on which such previous capital contributions were made. (v) Each additional person admitted as a Partner shall execute and deliver to the Partnership a counterpart of this Agreement or otherwise become bound by the terms of this Agreement. Article IV Capital Accounts, Capital Contributions, And Noncontributing Partners 4.1 Capital Accounts. An individual Capital Account shall be maintained for each Partner. 4.2 Capital Contributions Of The Limited Partners. (a) Upon the date hereof, each Limited Partner shall contribute cash to the Partnership in the amount set forth opposite its name under the heading "Initial Capital Contributions" on Exhibit A, which amount shall be equal to five percent (5%) of such Partner's Capital Commitment. (b) Subsequent to its Initial Capital Contribution, each Limited Partner shall make additional contributions to the Partnership's capital (up to its respective Capital Commitment) in cash. The amount of each such additional capital contribution shall be made to the Partnership upon thirty (30) days' advance written notice by the General Partner with respect to each contribution; provided, however, that (i) no Limited Partner shall be required to contribute more than thirty-five percent (35%) of its Capital Commitment in any calendar year, (ii) except with respect to contributions used to fund Partnership expenses and follow-on investments in existing portfolio companies, the final contribution will occur not later than the fifth anniversary of the later of (A) the Formation Date, or (B) the last date on which a Limited Partner is admitted to the Partnership (or increases its Capital Commitment) pursuant to paragraph 3.2(b)(i) except with the written consent of a Majority in Interest of the Limited Partners, and (iii) capital shall only be called in anticipation of reasonable investment requirements of the Partnership or to provide funds for the payment of Partnership expenses. Contributions pursuant to this paragraph 4.2(b) shall be made by all the Limited Partners in proportion to Partnership Percentages. 4.3 Capital Contributions Of The General Partner. The General Partner shall make contributions to the capital of the Partnership in an amount equal to one percent (1%) of the total amount contributed by the Limited Partners and the General Partner on each date on which any Limited Partner makes a contribution. The General Partner's contributions shall, at its option, be in the form of cash or in the form of a full-recourse promissory note substantially in the form attached hereto as Exhibit B. 4.4 Acquisition Of An Additional Interest By The General Partner. In the event that the General Partner (a) acquires a Limited Partner's interest pursuant to the terms of this Agreement or (b) contributes to the capital of the Partnership an amount greater than one percent (1%) of the total amount contributed by the Partners, (A) the General Partner shall have two (2) Partnership Percentages and two (2) Capital Account balances for purposes of making Partnership allocations (including any reallocation of Contingent Losses pursuant to paragraph 5.2) as if such additional interest were held by a separate entity that is a Limited Partner, although for all other purposes the General Partner shall have only one (1) Capital Account, and (B) upon the admission of additional Limited Partners, the General Partner's Capital Commitment as a Limited Partner shall automatically be converted to a Capital Commitment as a General Partner as necessary to maintain a one percent (1%) interest as General Partner. 4.5 Noncontributing Partners. (a) The Partnership shall be entitled to enforce the obligations of each Limited Partner to make the contributions to capital set forth on Exhibit A, and the Partnership shall have all remedies available at law or in equity in the event any such contribution is not so made. If any legal proceedings relating to the failure of a Limited Partner to make such a contribution are commenced, such Limited Partner shall pay all costs and expenses incurred by the Partnership, including attorneys' fees, in connection with such proceedings but such payments shall not be treated as capital contributions to the Partnership. (b) Additionally, should any Limited Partner fail to make any of the contributions required of it under this Agreement, such Limited Partner (the "Optionor"), shall be in default and the other Limited Partners (the "Optionees") and the General Partner shall have the right and option to acquire the Partnership interest of the Optionor as follows: (i) The General Partner shall notify the Optionor within ten (10) days of the default. If the default continues for twenty (20) or more days after notice of the default, the General Partner shall notify the Optionees of the default within twenty (20) days of the expiration of the aforesaid twenty (20) day notice period. Such notice shall advise each Optionee of the portion and the price of the Optionor's interest available to it. The portion available to each Optionee shall be that portion of the Optionor's interest that bears the same ratio to the Optionor's entire interest as each Optionee's Partnership Percentage bears to the aggregate Partnership Percentages of all Optionees. The aggregate price for the Optionor's interest shall be the lesser of (A) the amount of the Optionor's Capital Account calculated as of the due date of the additional contribution and adjusted to reflect the allocation of the appropriate proportion of the Partnership's accrued income and expenses and unrecognized gains and losses as of the due date of such defaulted contribution, or (B) the aggregate amount of the Optionor's capital contributions actually made to the Partnership less any distributions (valued at their fair market value on the date of distribution) on or prior to the due date of such default in contribution. The price for each Optionee shall be prorated according to the portion of the Optionor's interest purchased by each such Optionee. The option granted hereunder shall be exercisable at any time within thirty (30) days of the date of the notice from the General Partner to the Optionees by delivery to the Optionor in care of the General Partner of a notice of exercise of option together with a nonrecourse promissory note for the purchase price and a security agreement in accordance with subparagraph (v) below, which notice and documents the General Partner shall forward to the Optionor. (ii) Should any Optionee not exercise its option within said fifty (50) day period provided in subparagraph (i), the General Partner shall immediately notify the other Optionees who have elected to exercise their option, which Optionees shall have the right and option ratably among them to acquire the portion of the Optionor's interest not so acquired (the "Remaining Portion") within thirty (30) days of the date of the notice specified in this subparagraph (ii) on the same terms as provided in subparagraph (i). (iii) The amount of the Remaining Portion not acquired by the Optionees pursuant to subparagraph (ii) may be acquired by the General Partner within thirty (30) days of the expiration of the thirty (30) day period specified in subparagraph (ii) on the same terms as set forth in subparagraph (i). (iv) The amount of the Remaining Portion not acquired by the Optionees and the General Partner pursuant to subparagraphs (ii) or (iii) may, if the General Partner deems it in the best interest of the Partnership, be sold by the General Partner to any other investor on terms not more favorable to such parties than those applicable to the Optionees' option, and any such purchaser shall become a Limited Partner to the extent of the interest purchased hereunder. Any consideration received by the Partnership for the Optionor's interest in excess of the price payable to the Optionor therefor shall be retained by the Partnership and allocated among the Partners' Capital Accounts (excluding the defaulting Partner) in accordance with their Partnership Percentages as determined prior to the defaulted contribution. (v) The price due from each of the General Partner and the Optionees shall be payable by a noninterest-bearing, nonrecourse promissory note (in such form as the General Partner shall designate) due one hundred eighty (180) days after the final dissolution of the Partnership. Each such note shall be secured by the portion of the Optionor's Partnership interest so purchased by its maker pursuant to a security agreement in a form designated by the General Partner and shall be enforceable by the Optionor only against such security. (vi) Upon exercise of any option hereunder, each Optionee (and, if applicable, the General Partner and any third party purchaser pursuant to subparagraph (iv)) shall be obligated (A) to contribute to the Partnership that portion of the additional capital then due from the Optionor equal to the percentage of the Optionor's interest purchased by such person and (B) to pay the same percentage of any further contributions otherwise due from such Optionor. Each person who purchases a portion of the Optionor's Partnership interest shall be deemed to have acquired such portion as of the due date of the additional capital contribution with respect to which the Optionor defaulted, and any distributions made after the due date on account of the Optionor's interest shall be distributed among such purchasers (and, unless the entire interest was purchased, the Optionor) in accordance with their ultimate respective interests in the Optionor's interest. Distributions otherwise allocable to the Optionor under the preceding sentence shall first be used to offset any defaulted contribution of the Optionor still due to the Partnership. Upon completion of any transaction hereunder, the General Partner shall cause Exhibit A to be amended to reflect all necessary changes resulting therefrom including, without limitation, adjustment of Partnership Percentages. (c) Notwithstanding any other provision of this Agreement, if at any time before a date on which any unpaid capital contribution is payable hereunder, any ERISA Partner shall obtain and deliver to the General Partner an opinion of independent legal counsel reasonably acceptable to the General Partner to the effect that, as a result of applicable statutes, regulations, case law, administrative interpretations, or similar authority, the payment by such ERISA Partner of such unpaid capital contribution would result, or there is a material likelihood that such payment would result, in a material violation of ERISA or any comparable state statute or in the fiduciaries of such ERISA Partner being deemed under ERISA or any comparable state statute to have delegated investment discretion over plan assets (as determined by or under ERISA or any comparable state statute) to any person or entity that is not an "investment manager" (as determined by or under ERISA or any comparable state statute), then such ERISA Partner shall be released from any further obligation to make further capital contributions under paragraph 4.2, and thereafter for purposes of this Agreement such ERISA Partner's obligation to make capital contributions to the Partnership shall be deemed to be equal to the total capital contributions theretofore made by such Partner to the Partnership. The General Partner shall cause Exhibit A to be amended to reflect all necessary changes resulting from this subparagraph (c) including, without limitation, adjustments to such ERISA Partner's Capital Commitment and Partnership Percentage. Article V Partnership Allocations 5.1 Allocation Of Profit And Loss. Except as hereinafter provided in this Article V: (a) Profit of the Partnership for each Accounting Period shall be allocated as follows: (i) Twenty percent (20%) of the Partnership's Profit shall be allocated to the Capital Accounts of all of the Partners to the extent that such accounts were previously allocated a Contingent Loss that has not been restored by previous allocations pursuant to this paragraph or paragraph 7.5(c). Such Profit shall be allocated to a Partner's Capital Account on the basis of the proportion that the unrestored Contingent Losses contained in such Partner's Capital Account bear to the aggregate unrestored Contingent Losses contained in all of the Partners' Capital Accounts. Any balance of said twenty percent (20%) of the Partnership's Profit shall be allocated to the Capital Account of the General Partner. (ii) Eighty percent (80%) of the Partnership's Profit shall be allocated to the Capital Accounts of all of the Partners in proportion to their respective Partnership Percentages. (b) Loss of the Partnership for each Accounting Period shall be allocated as follows: (i) Twenty percent (20%) of the Partnership's Loss shall be allocated to the Capital Account of the General Partner. (ii) Eighty percent (80%) of the Partnership's Loss shall be allocated to the Capital Accounts of all of the Partners in proportion to their respective Partnership Percentages. (c) Money Market Income received by the Partnership during an Accounting Period and expenses borne by the Partnership pursuant to subparagraphs 6.2(b) through 6.2(e) during such Accounting Period (other than (i) expenses properly allocated and charged to purchases, sales or exchanges of securities and (ii) expenses specially allocated pursuant to paragraph 5.3(c)) shall be allocated among the Capital Accounts of all of the Partners in proportion to their respective Partnership Percentages. 5.2 Reallocation Of Contingent Losses. If, for any Accounting Period, after the allocations provided in this Article V have been made, the balance of the Adjusted Capital Account Balance of the General Partner has been reduced to less than one percent (1%) of the sum of the balances of the Capital Accounts of all Partners with positive balances, an amount (the "Contingent Loss") shall be reallocated from the General Partner's Capital Account to all of the Partners' Capital Accounts (in proportion to each Partner's respective Partnership Percentage) so that the General Partner's Adjusted Capital Account Balance is equal to one percent (1%) of the sum of the balances of the Capital Accounts of all Partners with positive balances. Solely for purposes of this paragraph 5.2, the General Partner's Capital Account shall not be deemed to include any amounts attributable to any Limited Partner's interest held by the General Partner and shall be deemed to include (i) any promissory note contributed to the Partnership by the General Partner and not otherwise included in the General Partner's Capital Account and (ii) any outstanding obligations of the General Partner to contribute capital to the Partnership pursuant to paragraph 7.5(b)(i). 5.3 Other Allocations. Notwithstanding the foregoing, the allocations provided in this Article V shall be subject to the following exceptions: (a) (i) Any loss or expense otherwise allocable to a Limited Partner that exceeds the balance in such Limited Partner's Capital Account shall instead be allocated first to all Partners who have positive balances in their Capital Accounts in proportion to such positive balances, and when all Partners' Capital Accounts have been reduced to zero (0), then to the General Partner. (ii) In the event any Limited Partner unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4) through (d)(6), that causes the balance in such Partner's Capital Account to be reduced below zero (0), items of Partnership income and gain shall be specially allocated to such Limited Partner in an amount and manner sufficient to eliminate the deficit balance in its Capital Account created by such adjustments, allocations, or distributions as quickly as possible. (iii) For purposes of this subparagraph (a), the balance in a Partner's Capital Account shall take into account the adjustments provided in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4) through (d)(6). (iv) Any special allocations of items of profit, income, gain, loss or expense pursuant to this subparagraph (a) shall be taken into account in computing subsequent allocations, so that the net amount of any items so allocated and the profit, gain, loss, income, expense, and all other items allocated to each Partner shall, to the extent possible, be equal to the net amount that would have been allocated to each such Partner if such special allocations pursuant to this subparagraph (a) had not occurred. (b) To the extent the Partnership has taxable interest income or expense with respect to any promissory note (excluding any note contributed by the General Partner pursuant to paragraph 4.3) between any Partner and the Partnership as holder and maker or maker and holder pursuant to Section 483, Sections 1271 through 1288, or Section 7872 of the Code, such interest income or expense shall be specially allocated to the Partner to whom such promissory note relates, and such Partner's Capital Account adjusted if appropriate. (c) In the event that additional persons are admitted to the Partnership as Limited Partners subsequent to the Formation Date (or existing Limited Partners increase their Capital Commitments), organizational costs, fees (including the incremental management fee described in paragraph 6.1(c)), and expenses of the Partnership that are allocated to the Partners on or after the effective date of such admission (or increase) shall be allocated first to such Partners to the extent necessary to cause such persons to be treated with respect to such items as if they had been Partners (or had such increased Capital Commitments) from the Formation Date. (d) Except for the allocations provided for in paragraph 5.3(a)(ii), the interest of the General Partner in each material item of Partnership income, gain, loss, deduction, or credit shall equal at least one percent (1%) of each such item at all times during the existence of the Partnership. For purposes of the preceding sentence, in determining the General Partner's interest in such items, any interest treated as a limited partnership interest for purposes of determining allocations which is owned by the General Partner or partners of the General Partner shall be taken into account. 5.4 Income Tax Allocations. (a) Except as otherwise provided in this paragraph or as otherwise required by the Code and the rules and Treasury Regulations promulgated thereunder, a Partner's distributive share of Partnership income, gain, loss, deduction, or credit for income tax purposes shall be the same as is entered in the Partner's Capital Account pursuant to this Agreement. (b) In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any asset contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Adjusted Asset Value. (c) In the event the Adjusted Asset Value of any Partnership asset is adjusted pursuant to the terms of this Agreement, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Adjusted Asset Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder. Article VI Management Fee; Partnership Expenses 6.1 Management Fee. (a) Nth Power Technologies, Inc., a California corporation, shall act as administrative management agent for the Partnership (the "Management Agent"), and shall be compensated in advance and on a quarterly basis for services rendered during the term of the Partnership by the payment by the Partnership on the first day of each calendar quarter (or portion thereof) of a management fee. The Management Agent shall provide administrative services to the Partnership and the General Partner and shall be responsible for the expenses described in paragraph 6.2(a). Notwithstanding the foregoing, the appointment of the Management Agent shall not in any way relieve the General Partner of its responsibilities, duties or authority as the general partner of the Partnership. (b) (i) Through the seventh (7th) anniversary of the Formation Date, the management fee for each calendar quarter shall be an amount equal to five-eighths of one percent (.625%) of the aggregate Capital Commitments of all Partners as of the first day of each such quarter: the management fee will be adjusted on January 1st of each year for increases or decreases in the consumer price index--urban consumers occurring during the previous twelve (12) month period, provided however, that the cumulative compounded adjustment for changes in the consumer price index shall in no event exceed thirty percent (30%). (ii) After the seventh (7th) anniversary of the Formation Date and through the scheduled termination date of the Partnership as set forth in paragraph 2.1, the management fee shall be determined based on an annual budget prepared by the General Partner and the Management Agent and approved by the Fund Committee, which approval shall not be reasonably withheld, provided, however, that in no event shall the management fee payable pursuant to this clause (ii) be less than seventy percent (70%) of the fee that would have been payable had the provisions of clause (i) continued to apply (without considering the application of subparagraph (e)). (iii) In the event that the term of the Partnership is extended pursuant to paragraph 10.1, the management fee during the extension period shall be determined based on an annual budget prepared by the General Partner and the Management Agent and approved by a Majority of Interest of the Limited Partners, which approval shall not be unreasonably withheld. (iv) The management fee for the Partnership's first and last quarters shall be proportionately reduced based upon the ratio the number of days in each such period bears to ninety (90). (c) In addition to the foregoing, in the event that additional persons are admitted to the Partnership as Limited Partners (or existing Partners increase their Capital Commitments) subsequent to the Formation Date, the Management Agent shall be entitled to receive an additional management fee payment at the time of such admission (or increase) equal to the incremental amount of management fee that would have been paid to the Management Agent from the Formation Date through such admission (or increase) had such person been a Partner (or had such increased Capital Commitment) from the Formation Date. (d) The amount of management fee otherwise due for any quarter shall be reduced by any compensation received, in the preceding quarter, by the General Partner, the Principals, or any general partner of the General Partner from any entity in which the Partnership has an interest for services typically performed by venture capital fund managers but not including interim services normally provided by employees or third party consultants of operating companies; provided, however, that (i) if other investment funds managed by the General Partner, the Principals, general partners of the General Partner or their Affiliates also hold an interest in such an entity, the management fee hereunder shall be reduced only by the Partnership's allocable portion, based on the cost basis of each investment fund's interest, of such compensation and (ii) the Principals, general partners and employees of the General Partner who serve as directors for any entity in which the Partnership has an interest will be permitted to participate in standard stock incentive programs designed for the board members of such entity without causing an offset to the management fee otherwise due and payable to the Management Agent. In the event that the fees referred to in the first sentence of this subparagraph 6.1(c) exceed the management fee otherwise payable by the Partnership in the subsequent calendar quarter, the amount of any such excess shall be deducted from the management fee otherwise payable by the Partnership in future calendar quarters. (e) In the event that the General Partner [or the Management Agent] forms a subsequent investment fund with at least forty million dollars ($40,000,000) in committed capital and receives a management fee from such fund prior to the seventh (7th) anniversary of the Formation Date, the management fee payable pursuant to paragraph 6.1(b)(i) shall be reduced by twenty percent (20%) of the amount otherwise payable thereunder. 6.2 Expenses. (a) From the management fee, the Management Agent shall bear all normal operating expenses incurred in connection with the management of the Partnership, except for those expenses borne directly by the Partnership set forth in the immediately following subparagraphs. Such normal operating expenses to be borne by the Management Agent shall include, without limitation, expenditures on account of: salaries, wages, clerical, and other expenses relating to and incurred by the employees of the Partnership, the General Partner and the general partners of the General Partner; rentals payable for space used by the Partnership, the General Partner and the Management Agent; computers and other office equipment; bookkeeping services and preparing and distributing reports to the Partners; travel and entertainment; and investigating and evaluating investment opportunities in, and managing investments of, the Partnership. (b) The Partnership shall bear all costs and expenses incurred in the holding and purchase, sale or exchange of securities (whether or not ultimately consummated), including, but not by way of limitation, third party fees, interest on borrowed money, real property or personal property taxes on investments, brokerage fees, taxes applicable to the Partnership on account of its operations, fees incurred in connection with the maintenance of bank or custodian accounts, and all expenses incurred in connection with the registration of the Partnership's securities under applicable securities laws or regulations. The Partnership shall also bear expenses incurred by the General Partner in serving as the tax matters partner, the cost of liability and other insurance premiums for insurance in which the Partnership is the named beneficiary, expenses related to any escrow established pursuant to paragraph 7.5, costs associated with Partnership meetings and the Partnership's Fund Committee, the management fee paid to the Management Agent, all legal, accounting and consulting fees, all costs and expenses arising out of the Partnership's indemnification obligation pursuant to this Agreement, and all expenses that are not normal operating expenses. (c) The Partnership shall bear all organizational fees and expenses incurred by or on behalf of the General Partner in connection with the syndication, formation and organization of the Partnership and the General Partner, up to a maximum of one hundred fifty thousand dollars ($150,000), including legal and accounting fees, printing costs, travel and communication costs and consulting or similar fees incurred in connection with such organization and formation. (d) The Partnership shall bear all fees and expenses relating to any insurance policies or surety protection that the General Partner, in its sole discretion, may deem appropriate to purchase. (e) The Partnership shall bear all liquidation costs, fees, and expenses incurred by the General Partner (or its designee) in connection with the liquidation of the Partnership at the end of the Partnership's term, specifically including but not limited to legal and accounting fees and expenses. Article VII Withdrawals By And Distributions To The Partners 7.1 Interest. Except as specifically provided for herein, no interest shall be paid to any Partner on account of its interest in the capital of or on account of its investment in the Partnership. 7.2 Withdrawals By The Partners. No Partner may withdraw any amount from its Capital Account unless such withdrawal is made pursuant to this Article VII or Article XIII. 7.3 Partners' Obligation To Repay Or Restore. Except as required by law or the terms of this Agreement, no Partner shall be obligated at any time to repay or restore to the Partnership all or any part of any distribution made to it from the Partnership in accordance with the terms of this Article VII or Article X. 7.4 Cash Distributions. Cash proceeds from the disposition of long-term investments and ordinary income, other than Money Market Income, shall be distributed at such times and in such amounts as determined in the sole discretion of the General Partner. It is the intent of the General Partner to distribute proceeds from the disposition of long-term investments and portfolio income as soon as reasonably practicable; provided, however, that no such distribution shall be made unless the General Partner determines, in its sole discretion, that the distribution is consistent with the cash needs of the Partnership, including the maintenance of reasonable reserves; and, provided further, in no event shall the Partnership invest more than sixty million dollars ($60,000,000) in long-term investments. Any distribution under this paragraph 7.4 shall be allocated among the Partners (i) first in proportion to the amount of net recognized capital gains and ordinary income, other than Money Market Income, previously allocated to each Partner and not distributed and (ii) thereafter in proportion to Partnership Percentages; provided, however, that unless (A) there are no unrestored Contingent Losses allocated to the Limited Partners' Capital Accounts, (B) after a distribution the value of the Partnership portfolio will equal or exceed one hundred twenty percent (120%) of the cost basis of the portfolio, and (C) distributions will have been made to the Limited Partners in an amount at least equal to the Limited Partners' prior capital contributions (with in kind distributions valued at their fair market value at the time of their distributions), the General Partner's portion of the distribution described in the foregoing clause (i), in excess of that portion that is based on the General Partner's Partnership Percentage, shall be retained by the Partnership and distributed to the General Partner only upon the satisfaction of conditions (A) and (B) or, subject to paragraph 10.4, upon liquidation of the Partnership. 7.5 Discretionary In Kind Distributions. (a) At the discretion of the General Partner, distributions of Marketable Securities may be made in kind to the Partners as follows: (i) In kind distributions of securities whose fair market value exceeds their Adjusted Asset Value shall be distributed (A) twenty percent (20%) to the General Partner, and (B) eighty percent (80%) to all of the Partners in proportion to their Partnership Percentages, provided that there are at the date of such distribution no Contingent Losses in the Limited Partners' Capital Accounts that have not previously been restored or are not restored by adjustments to such distribution as provided in clause (ii) and, provided further, that unless, after the distribution, (X) the value of the Partnership portfolio will equal or exceed one hundred twenty percent (120%) of the cost basis of the portfolio, and (Y) distributions will have been made to the Limited Partners in an amount at least equal to the Limited Partners' prior capital contributions (with in kind distributions valued at their fair market value at the time of the distributions), the General Partner's portion of the distribution described in the foregoing clause (A) shall be placed in escrow pursuant to the terms of paragraph 7.5(e). (ii) If there are Contingent Losses in the Limited Partners' Capital Accounts that have not been previously restored, in kind distributions described in clause (A) of subsection (i) shall be distributed in accordance with Partnership Percentages until allocations made pursuant to paragraph 7.5(c) have restored such Contingent Losses. (iii) In kind distributions of securities whose fair market value is less than their Adjusted Asset Value shall be distributed to all of the Partners in proportion to Partnership Percentages. (b) In order to maintain its proportionate share of Partnership capital, the General Partner receiving a distribution in kind pursuant to subparagraph (a)(i)(A) of this paragraph (including a distribution which is placed in escrow), (i) shall be obligated to contribute to the capital of the Partnership in cash concurrently with such distribution an amount equal to the tax basis of the securities distributed to the General Partner in such distribution, which obligation shall be secured by the securities to be distributed in kind to the General Partner and shall be due upon liquidation of the Partnership; or (ii) may contribute to the capital of the Partnership in cash concurrently with such distribution an amount equal to the amount described in the foregoing clause (i) [; or (iii) may decline distribution of a portion of such securities, the fair market value of which is equal to the amount of cash described in the foregoing clause (i). The amount of cash or securities described in clauses (ii) and (iii) above shall thereafter be distributed to all Partners in proportion to their Partnership Percentages.] (c) Immediately prior to any distribution in kind, the difference between the fair market value and the Adjusted Asset Value of any securities distributed shall be allocated to the Capital Accounts of the Partners as a Profit or Loss pursuant to Article V. (d) Securities distributed in kind shall be subject to such conditions and restrictions as the General Partner determines are legally required or appropriate. Whenever classes of securities are distributed in kind, each Partner shall receive its ratable portion of each class of securities distributed in kind; provided, however, that in the event any Limited Partner would receive an amount of any security that would cause such Limited Partner to own or control in excess of the amount of such security that it may lawfully own or control or may own or control without tax penalty, then, upon receipt of notice to such effect from a Limited Partner, the General Partner shall vary the method of distribution, in an equitable manner, so as to avoid such excessive ownership or control. (e) (i) In the event that the General Partner's portion of a distribution is required to be placed in escrow pursuant to paragraph 7.5(a)(i), the securities distributed to the General Partner shall be deposited with an escrow agent, which may include, without limitation, the General Partner acting as escrow agent. The escrow agent shall hold the securities pursuant to an escrow agreement that reflects the terms of this subparagraph (e). The General Partner hereby grants to the Partnership a security interest in all securities distributed by the Partnership to the escrow agent. Assets held by the escrow agent shall be managed at the direction of the General Partner. The General Partner and its partners shall be liable for all taxes and other charges levied upon the assets held by the escrow agent or any income or distributions thereon. The General Partner shall have the benefit, and bear the risk, of all distributions of income, dividends, cash, or other property on or relating to the assets held in escrow or any other change in the character of any of the assets therein. All distributions on assets held in escrow shall also be held by the escrow agent. (ii) The escrow agreement shall provide that the funds, securities and other assets held in escrow shall be distributed by the escrow agent upon request by the General Partner as follows: (A) In the event that conditions (X) and (Y) of paragraph 7.5(a)(i) are satisfied, all or a portion of the assets held in escrow may be distributed to the General Partner; (B) In the event the Return Value (as defined in paragraph 10.4) of the assets held in escrow exceed twenty percent (20%) of the excess of (1) the sum of (x) previous capital contributions to the Partnership plus (y) Capital Commitments to the Partnership that have not yet been contributed, over (2) previous distributions to the Partners that were allocated among the Partners in accordance with Partnership Percentages, said excess amount held in escrow may be distributed to the General Partner. (C) As of the first day of March of each year (and upon termination of the Partnership), the escrow agreement shall provide that the General Partner shall have the right to cause the escrow agent to distribute cash to the General Partner in an amount equal to the product of forty percent (40%) (with such percentage to be adjusted in good faith by the General Partner to reflect changes in federal or California income tax rates on long-term capital gains occurring after the date of this Agreement) and the taxable income accruing to the General Partner in respect of the assets held in escrow during the prior calendar year; (D) Upon final liquidation of the Partnership, the assets held by the escrow agent shall be contributed by the escrow agent to the Partnership in satisfaction of and to the extent of the General Partner's obligations pursuant to subparagraph 10.4(b), if any, and distributed in accordance therewith. The balance, if any, shall be distributed to the General Partner; and [(E) Except as provided in paragraph (e)(ii)(C), if assets held in escrow are to be distributed to the General Partner, a pro rata portion of each asset held in escrow (determined by reference to the Return Value of such assets) shall be distributed.] (f) Non-Marketable Securities may be distributed only with the prior written consent of the General Partner and Two-Thirds in Interest of the Limited Partner. 7.6 Mandatory Distributions. (a) Within ninety (90) days after the end of each calendar year during the Partnership term, each Partner shall be paid in cash, to the extent of cash reasonably available to the Partnership, an amount equal to the excess, if any, of Money Market Income over Partnership expenses allocated to it for such calendar year pursuant to paragraph 5.1(c). (b) Within ninety (90) days after the end of each calendar year during the Partnership term, each Partner shall be paid in cash an amount representing a tax distribution equal to the product of (A) the taxable income included in such Partner's allocation of Profit during such calendar year and (B) forty percent (40%) (with such percentage to be adjusted in good faith by the General Partner to reflect changes in federal or California income tax rates on long-term capital gains occurring after the date of this Agreement); provided, however, that cash distributions made during the calendar year in which such Profit is recognized (other than distributions made pursuant to this paragraph) shall reduce the distributions otherwise required by this paragraph 7.6(b). 7.7 Withholding Obligations. (a) The Partnership shall make payments with respect to any Partner in amounts required to discharge any legal obligation of the Partnership to withhold or make payments to any governmental authority with respect to any federal, state or local tax liability, including penalties and interest, of such Partner arising as a result of such Partner's interest in the Partnership ("Tax Payments"). The amount of any such Tax Payments shall be deemed to be a loan by the Partnership to such Partner. The amount of such loan, plus interest at an annual rate equal to the prime rate then being charged by the Partnership's primary bank plus (i) two (2) percentage points from the date of any such Tax Payment and (ii) any costs of collection incurred by the Partnership (including legal fees), shall be repaid to the Partnership on demand or, at the election of the General Partner, by offset to distributions otherwise allocable to the debtor Partner. (b) If and to the extent the Partnership is required to make any Tax Payments with respect to any distribution in kind to a Partner pursuant to paragraph 7.5 or otherwise, at the option of the General Partner, either (i) such Partner's proportionate share of such distribution shall be reduced by securities equal in value to the amount of such Tax Payments, or (ii) such Partner shall pay to the Partnership prior to such distribution an amount of cash equal to such Tax Payments. The securities described in clause (i) may, in the discretion of the General Partner, either (A) be distributed to the Partners in accordance with this paragraph or (B) be sold by the Partnership to generate the cash necessary to satisfy such Tax Payments. If the securities are sold, then for purposes of income tax allocations only under this Agreement, any gain or loss on such sale or exchange shall be allocated to the Partner to whom the Tax Payments relate. Article VIII Management Duties And Restrictions 8.1 Management. The General Partner shall have the sole and exclusive right to manage, control, and conduct the affairs of the Partnership and to do any and all acts on behalf of the Partnership, including exercise of rights to elect to adjust the tax basis of Partnership assets and to revoke such elections and to make such other tax elections as the General Partner shall deem appropriate. If the General Partner elects to adjust the tax basis of Partnership assets upon request of one (1) or more of the Limited Partners, the incremental accounting costs incurred by the Partnership as a result of such election shall be charged to the requesting Limited Partner or Partners. 8.2 Time Commitment. For so long as any natural person remains (a) a general partner of the General Partner or (b) an officer of the general partner of the General Partner, the General Partner shall use its best efforts to cause each such person to devote substantially all of his or her business time to the Partnership, the Subsequent Funds, entities whose securities are held or were held by any of the foregoing and entities in which such person serves as a director on the Formation Date or on the date such person is admitted as a general partner of the General Partner or becomes an officer of the general partner of the General Partner. 8.3 No Control By The Limited Partners; No Withdrawal. The Limited Partners shall take no part in the control or management of the affairs of the Partnership nor shall the Limited Partners have any authority to act for or on behalf of the Partnership except as is specifically permitted by this Agreement. Except as specifically set forth in this Agreement, the Limited Partners shall have no right to withdraw from the Partnership. 8.4 Subsequent Funds. The General Partner or the Principals (for so long as such individuals serve as officers of the general partner of the General Partner) may not form a new venture capital fund until the earlier of (i) such time that at least two-thirds (2/3) of the Partnership's aggregate Capital Commitments have been invested, expenses, committed for investment in portfolio companies or reserved for expenses or (ii) five (5) years after the Formation Date. A subsequent fund formed in accordance with this paragraph shall be referred to herein as a "Subsequent Fund." In the event that a Subsequent Fund has been formed, the General Partner will allocate subsequent investment opportunities between the Partnership and such Subsequent Fund in such a manner as it reasonably determines to reflect the investment objectives and remaining term of each entity. Each of the Limited Partners hereby consents and agrees to the formation of Subsequent Funds and further consents and agrees that neither the Partnership nor any of its Partners shall have any rights in or to such Subsequent Funds, or any profits derived therefrom. 8.5 Compliance With Partnership Agreement; Detrimental Acts. No Partner, Principal nor any general partner of the General Partner shall enter into any agreement the result of which would be for another person, firm, or corporation to become directly interested in the Partnership other than as provided for in this Agreement and no Partner, Principal nor any partner of the General Partner shall do any act in contravention of this Agreement, or that would be detrimental to the best interests of the Partnership, or that would make it impossible to carry on the affairs of the Partnership. 8.6 Investment Opportunities And Restrictions. (a) Each of the Limited Partners hereby agrees that (i) the General Partner may provide, but is under no obligation to provide, co- investment opportunities to one (1) or more of the Limited Partners when the General Partner believes that it is appropriate and in the best interest of the Partnership; (ii) the General Partner may offer the right to participate in investment opportunities of the Partnership to other private investors, groups, partnerships, or corporations whenever the General Partner, in its sole discretion, determines, and (iii) the General Partner, its partners and the Principals may, in the General Partner's sole discretion and subject to the approval of the Fund Committee, invest in parallel with the Partnership; provided, however, that such co-investments will be on terms and conditions substantially identical (exclusive of amount) to those governing the Partnership's investments. (b) The General Partner and its general partner and their Affiliates will not engage in any transaction that might reasonably be viewed by an independent observer as trading against or in any way contrary to the best interests of the Partnership and its portfolio companies. (c) Unless approved by the Fund Committee, (i) not more than ten percent (10%) of the Partnership's Committed Capital shall be invested in any single portfolio company, (ii) the Partnership shall not invest in any entity in which the General Partner, a Principal or Limited Partner (or an Affiliate of any of the foregoing) has previously invested or otherwise has a material direct or indirect economic interest, provided, however, that this restriction will not prevent follow-on investments in existing portfolio companies of the Partnership, and (iii) the General Partner shall not cause the Partnership to make any investment that is inconsistent with the Partnership's Business Plan dated ___________. (d) The General Partner shall not borrow money or otherwise incur indebtedness (including guarantees of loans to portfolio companies) on behalf of the Partnership, including by acquiring property subject to indebtedness, except (i) with the approval of Two-Thirds in Interest of the Limited Partners, or (ii) on a short-term basis in anticipation of the receipt of Additional Capital Contributions in an aggregate principal amount at any one time not in excess of an amount equal to ten (10%) of the aggregate Capital Commitments of all Partners. (e) The General Partner will use its best efforts to operate the Partnership in a manner that will not subject the income of any Partner, or any partner of any Partner, subject to Section 511 of the Code to taxation of such income as unrelated business taxable income, including unrelated debt financed income, as defined in Sections 512 and 514 of the Code. The General Partner shall not cause the Partnership to invest in any operating partnership or other entity the operations of which would subject the income of any Partner, or any partner of any Partner, subject to Section 511 of the Code to taxation of such income as unrelated business taxable income, including unrelated debt financed income, as defined in Sections 512 and 514 of the Code. (f) The General Partner will use its reasonable best efforts to conduct the affairs of the Partnership so as to avoid having the Partnership, or any Partner or partner thereof, treated as engaged in a trade or business within the United States for purposes of Sections 871, 875, 882, 884 and 1446 of the Code. (g) The General Partner shall not cause the Partnership to invest in any other investment fund (excluding investments in money market or similar funds) in which the manager thereof receives, as compensation, a portion of the profits of such fund. (i) Except with the prior approval of the Fund Committee, the General Partner shall use its best efforts to ensure that not more than ten percent (10%) of the Partnership's Capital Commitments shall be invested in securities that are publicly traded when acquired by the Partnership (excluding securities received in exchange for other securities that were not publicly traded when acquired by the Partnership). 8.7 Business Opportunities. Consistent with the General Partner's approach of adding value to the portfolio companies of the Partnership, the General Partner will use reasonable efforts to identify and to refer, at its discretion, any indirect business opportunities relating to portfolio companies to one or more of the Limited Partners. Article IX Investment Representation And Transfer Of Partnership Interests 9.1 Investment Representation Of The Limited Partners. This Agreement is made with each of the Limited Partners in reliance upon each Limited Partner's representation to the Partnership, which by executing this Agreement each Limited Partner hereby confirms, that its interest in the Partnership is to be acquired for investment, and not with a view to the sale or distribution of any part thereof, and that it has no present intention of selling, granting participation in, or otherwise distributing the same, and each Limited Partner understands that its interest in the Partnership has not been registered under the Securities Act and that any transfer or other disposition of the interest may not be made without registration under the Securities Act or pursuant to an applicable exemption therefrom. Each Limited Partner further represents that it does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participations to such person, or to any third person, with respect to its interest in the Partnership. 9.2 Qualifications Of The Limited Partners. Each Limited Partner represents that it is an "accredited investor" within the meaning of that term as defined in Regulation D promulgated under the Securities Act. 9.3 Transfer By Limited Partner. (a) No Limited Partner shall sell, assign, pledge, mortgage, or otherwise dispose of or transfer its interest in the Partnership without the prior written consent of the General Partner. Notwithstanding the foregoing, after delivery of the opinion of counsel hereinafter required by this Article IX, a Limited Partner may sell, assign, pledge, mortgage, or otherwise dispose of or transfer its interest in the Partnership without such consent (i) to any corporation directly or indirectly holding eighty percent (80%) or more of the shares of the Limited Partner or any corporation of which eighty percent (80%) or more of the shares are held directly or indirectly by such corporation, including any corporation of which the Limited Partner holds, directly or indirectly, eighty percent (80%) or more of the shares; or (ii) pursuant to a merger, plan of reorganization, sale or pledge of, or other general encumbrance on all or substantially all of the Limited Partner's stock or assets; (iii) as may be required by any law or regulation; or (iv) to a successor trust or trustee of any Limited Partner that is an "employee benefit plan" within the meaning of, and subject to the provisions of, ERISA. (b) In addition to other restrictions on transfer contained herein, a Limited Partner that is not a United States person, as defined in the Securities Act, shall in no event transfer its Partnership interest to a United States person for a period of one (1) year after the acquisition of such interest. (c) Notwithstanding anything in this Agreement to the contrary, no interest in the Partnership may be subdivided for assignment or transfer into interests smaller than an interest the aggregate initial offering price of which would have been less than twenty-thousand dollars ($20,000). 9.4 Right Of First Refusal. If at any time a Limited Partner wishes to transfer its Partnership interest, in whole or in part (and such transfer is not permitted by, or consented to by the General Partner pursuant to the other provisions of this Article IX), such Limited Partner shall send a written notice to the General Partner and the other Limited Partners indicating its desire to transfer all or part of its Partnership interest, the price at which it proposes to make such transfer, and the identity, if known, of the proposed transferee or transferees. At any time within thirty (30) days after the sending of such notice, the General Partner, with the consent of Two-Thirds in Interest of the Limited Partners, may cause the Partnership to agree to purchase such interest at the price stated in such notice, or, subject to such procedures as the General Partner may determine, the other Limited Partners may agree to purchase such interest at such price. If the Partnership or the Limited Partners do not agree to purchase such interest at such price, the General Partner may purchase it at such price not sooner than thirty (30) but within sixty (60) days after the sending of the notice. If the entire interest being offered by such Limited Partner is not so purchased, then the Limited Partner may, within ninety (90) days of the original notice to the Partners and subject to the general requirements of transfers hereinafter set forth, sell any portion of such interest not so purchased to any institution, of quality and standing comparable to the other Limited Partners and approved by the General Partner, on terms that are economically no more favorable to such buyer than were stated in such Limited Partner's initial notice to the other Partners. 9.5 Requirements For Transfer. Notwithstanding the foregoing, unless consented to by the General Partner, the transfer or other disposition of the interest of a Limited Partner shall not be permitted if such transfer or disposition would: (i) result in the Partnership's assets being considered, in the opinion of counsel for the Partnership, as "plan assets" within the meaning of ERISA or any regulations proposed or promulgated thereunder; (ii) result in the termination of the Partnership's tax year under Section 708(b)(1)(B) of the Code; (iii) result in violation of the Securities Act or any comparable state law; (iv) require the Partnership to register as an investment company under the Investment Company Act of 1940, as amended; (v) require the Partnership, the Principals, the General Partner, or any partner of the General Partner to register as an investment adviser under the Investment Advisers Act of 1940, as amended; (vi) result in a termination of the Partnership's status as a partnership for tax purposes; (vii) result in a violation of any law, rule, or regulation by the Limited Partner, the Partnership, the Principals, the General Partner, or any partner of the General Partner; or (viii) result in the Partnership being considered a publicly traded partnership under Section 7704 of the Code. Prior to effecting any transfer of Limited Partner interests the General Partner shall have received an opinion satisfactory to it, or shall have waived the requirement of such an opinion, covering the substance of (i) through (viii). Such legal opinion shall be provided to the General Partner by the transferring Limited Partner or the proposed transferee, and any costs associated therewith, as well as all costs incurred by the Partnership in connection with the transfer, shall be borne by the transferring Limited Partner or the proposed transferee. 9.6 Substitution As A Limited Partner. A transferee of a Limited Partner's interest pursuant to this Article IX shall become a substituted Limited Partner only with the consent of the General Partner, which consent may be withheld for any reason or for no reason, and only if such transferee (a) elects to become a substituted Limited Partner by delivering a notice of such election to the Partnership and (b) executes, acknowledges and delivers to the Partnership such other instruments as the General Partner may deem necessary or advisable to effect the admission of such transferee as a substituted Limited Partner, including, without limitation, the written acceptance and adoption by such transferee of the provisions of this Agreement. 9.7 Transfer Of General Partnership Interest. The General Partner may not sell, assign, pledge, mortgage, or otherwise dispose of its Partnership interest without the prior written consent of Two-Thirds in Interest of the Limited Partners. Article X Dissolution And Liquidation Of The Partnership 10.1 Extension Of Partnership Term. On the tenth anniversary of the later of (i) the Formation Date or (ii) the last date on which a Limited Partner is admitted to the Partnership (or increases its Capital Commitment) pursuant to paragraph 3.2(b)(i), the General Partner may, if it determines in its sole discretion that such extensions are in the best interest of the Partnership, extend the Partnership term for not more than two (2) successive two (2) year periods by delivery of notice to the Limited Partners (a "Notice of Extension"). During said two (2) year extension periods, the General Partner shall use its best efforts to convert the Partnership's Nonmarketable Securities into Marketable Securities or cash. The General Partner shall not purchase the securities of any new portfolio company during such period; provided, however, that the General Partner may (a) purchase additional securities of an existing portfolio company if it deems such a purchase to be in the best interest of the Partnership and (b) exchange the securities of an existing portfolio company for other securities. The management fee payable to the Management Agent during any extension period shall be as determined by the General Partner and approved by the Fund Committee, which approval shall not be unreasonably withheld. 10.2 Liquidation After An Event Of Early Termination. In the event of liquidation of the Partnership after an Event of Early Termination, a Majority in Interest of the Limited Partners shall elect one (1) or more liquidators to manage the liquidation of the Partnership. 10.3 Winding Up Procedures. (a) Promptly upon final dissolution of the Partnership, the affairs of the Partnership shall be wound up and the Partnership liquidated. The closing Capital Accounts of all the Partners shall be computed as of the date of final dissolution as if the date of final dissolution were the last day of an Accounting Period in accordance with Article V, and then adjusted in the following manner: (i) All assets and liabilities of the Partnership shall be valued as of the date of final dissolution. For purposes of this paragraph, the amount of any obligation of the General Partner to the Partnership shall be deemed an asset of the Partnership. (ii) The Partnership's assets as of the date of final dissolution shall be deemed to have been sold at their fair market values and the resulting Profit or Loss shall be allocated to the Partners' Capital Accounts in accordance with the provisions of Article V. (iii) With respect to any obligations on the part of the General Partner pursuant to any promissory notes contributed to the Partnership under paragraph 4.3 or to contribute capital pursuant to paragraph 7.5(b)(i) that are outstanding at the time of the Partnership's final dissolution, the General Partner may elect to satisfy such obligations either (A) in cash or in securities previously received by the General Partner from the Partnership (with such securities valued pursuant to paragraph 12.1 and 12.2(e) at the time they are transferred to the Partnership) within ninety (90) days after the partnership's dissolution, (B) by reducing the General Partner's closing Capital Account, but not below zero, or (C) by a combination of the foregoing. The result for each Partner shall be its closing Capital Account. The amount of each Partner's closing Capital Account divided by the sum of the closing Capital Accounts for all of the Partners as of such date shall be such Partner's "Final Partnership Percentage." (b) Distributions in liquidation may be made in cash or in kind or partly in cash and partly in kind. The General Partner or the liquidator shall use its best judgment as to the most advantageous time for the Partnership to sell investments or to make distributions in kind. All cash and each security distributed in kind after the date of final dissolution of the Partnership shall be distributed ratably in accordance with the General Partner and the Limited Partners' Final Partnership Percentages, unless such distribution would result in a violation of a law or regulation applicable to a Limited Partner or a tax penalty to such Limited Partner, in which event, upon receipt by the General Partner of notice to such effect, such Limited Partner may designate a different entity to receive the distribution, or designate, subject to the approval of the General Partner, an alternative distribution procedure (provided such alternative distribution procedure does not prejudice any of the other Partners). Each security so distributed shall be subject to reasonable conditions and restrictions necessary or advisable in order to preserve the value of such security or for legal reasons. 10.4 Payments In Liquidation. (a) The assets of the Partnership shall be distributed in liquidation of the Partnership in the following order: (i) to the creditors of the Partnership, other than Partners, in the order of priority established by law, either by payment or by establishment of reserves; (ii) to the Partners, in repayment of any loans made to, or other debts owed by, the Partnership to such Partners; (iii) to the General Partner and the Limited Partners in respect of the positive balances in their Capital Accounts in compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2). (b) (i) If, upon liquidation of the Partnership, it is determined that distributions made to the General Partner with respect to its twenty percent (20%) interest in Partnership Profit or Loss have exceeded twenty percent (20%) of the aggregate distributions of cumulative net Profit of the Partnership over its entire term (with distributions in kind valued at the time of distribution and reduced to the extent the General Partner has previously made or is obligated to make a contribution pursuant to paragraph 7.5(b)), the General Partner shall promptly return such part or all of the distributions made to it with respect to its twenty percent (20%) interest, excluding distributions made pursuant to paragraph 7.6(b) (and other distributions to the extent said distributions reduce distributions under paragraph 7.6(b)), to the extent of such excess. Returns made by the General Partner pursuant to this paragraph 10.4(b) shall be distributed promptly to all Partners in accordance with their Final Partnership Percentages. (ii) Any return obligation pursuant to clause (b)(i) shall be satisfied first out of any assets held in escrow pursuant to paragraph 7.5(e), and the balance of such return obligation, if any, may be satisfied, at the election of the General Partner, in cash or by the return of securities previously distributed to the General Partner. To the extent assets held in escrow are used to satisfy the return obligation, unless otherwise agreed to by the General Partner and a Majority in Interest of the Limited Partners, a pro rata portion of each such asset (calculated by reference to the Return Value of such assets as defined below) shall be returned to the Partnership. Upon the return of any assets other than cash to the Partnership, such assets shall be valued at their Return Value for purposes of determining when the General Partner has satisfied its return obligation pursuant to clause (b)(i). In the case of assets held in escrow pursuant to paragraph 7.5(e) prior to transfer to the Partnership, the Return Value shall be equal to the greater of the fair market value (determined pursuant to paragraph 12.1) of such assets determined (1) on the dates such assets were distributed by the Partnership, and (2) on the date such assets are transferred to the Partnership. In the case of assets transferred to the Partnership directly from the General Partner, the Return Value shall be equal to the fair market value (determined pursuant to paragraph 12.1) of such assets on the date returned to the Partnership. Article XI Financial Accounting, Reports, Meetings And Voting 11.1 Financial Accounting; Fiscal Year. The books and records of the Partnership shall be kept in accordance with the provisions of this Agreement and otherwise in accordance with generally accepted accounting principles consistently applied, and shall be audited at the end of each fiscal year by a nationally recognized independent certified public accounting firm selected by the General Partner. The Partnership's fiscal year shall be the calendar year. 11.2 Supervision; Inspection Of Books. Proper and complete books of account of the business of the Partnership, copies of the Partnership's federal, state and local tax returns for each fiscal year, the schedule of partners set forth in Exhibit A, this Agreement and the Partnership's Certificate of Limited Partnership shall be kept under the supervision of the General Partner at the principal office of the Partnership. Such books and records shall be open to inspection by the Limited Partners, or their accredited representatives, at any reasonable time during normal business hours after reasonable advance notice. 11.3 Quarterly Reports. Beginning with the first full calendar quarter of Partnership operations, the General Partner shall transmit to the Limited Partners within thirty (30) days after the close of each of the first three (3) calendar quarters of each year, unaudited financial statements (including each Partner's Capital Account as adjusted for its allocable share of unrealized gains and losses), a summary of acquisitions and dispositions of investments made by the Partnership during that quarter, and a list of investments then held, together with a valuation of such investments. 11.4 Annual Report; Financial Statements Of The Partnership. The General Partner shall transmit to the Limited Partners within seventy-five (75) days after the close of the Partnership's fiscal year audited financial statements of the Partnership prepared in accordance with the terms of this Agreement and otherwise in accordance with generally accepted accounting principles, including an income statement for the year then ended and balance sheet as of the end of such year, a statement of changes in the Partners' Capital Accounts (as adjusted for unrealized gains and losses), and a list of investments then held. The financial statements shall be accompanied by a report from the General Partner to the Limited Partners, which shall include a status report on investments then held, a summary of acquisitions and dispositions of investments made by the Partnership during the preceding quarter, a valuation of each such investment, and a brief statement on the affairs of the Partnership during the fiscal year then ended. 11.5 Tax Returns And Information. The General Partner shall cause the Partnership's tax return and IRS Form 1065, Schedule K-1, to be prepared and delivered to the Limited Partners within seventy-five (75) days after the close of the Partnership's fiscal year. The Partnership shall upon the request of any Limited Partner promptly furnish to such Limited Partner any information such Limited Partner may require or reasonably request in order to withhold tax or to file tax returns and reports or to furnish tax information to any of its partners. 11.6 Tax Matters Partner. The General Partner shall be the Partnership's tax matters partner under the Code and under any comparable provision of state law. The General Partner shall have the right to resign as tax matters partner by giving thirty (30) days' written notice to each Partner. Upon such resignation a successor tax matters partner shall be elected by a Majority in Interest of the Limited Partners. The tax matters partner shall employ experienced tax counsel to represent the Partnership in connection with any audit or investigation of the Partnership by the Internal Revenue Service and in connection with all subsequent administrative and judicial proceedings arising out of such audit. If the tax matters partner is required by law or regulation to incur fees and expenses in connection with tax matters not affecting all the Partners, then the tax matters partner may, in its sole discretion, seek reimbursement from those Partners on whose behalf such fees and expenses were incurred. The tax matters partner shall keep the Partners informed of all administrative and judicial proceedings, as required by Section 6223(g) of the Code, and shall furnish to each Partner, if such Partner so requests in writing, a copy of each notice or other communication received by the tax matters partner from the Internal Revenue Service, except such notices or communications as are sent directly to such requesting Partner by the Internal Revenue Service. The relationship of the tax matters partner to the Limited Partners is that of a fiduciary, and the tax matters partner has fiduciary obligations to perform its duties as tax matters partner in such manner as will serve the best interest of the Partnership and all of the Partnership's Partners. To the fullest extent permitted by law, the Partnership agrees to indemnify the tax matters partner and its agents and save and hold them harmless, from and in respect to all (i) fees, costs and expenses in connection with or resulting from any claim, action, or demand against the tax matters partner, the General Partner or the Partnership that arise out of or in any way relate to the tax matters partner's status as tax matters partner for the Partnership, and (ii) all such claims, actions, and demands and any losses or damages therefrom, including amounts paid in settlement or compromise or any such claim, action, or demand; provided that this indemnity shall not extend to conduct by the tax matters partner adjudged (i) not to have been undertaken in good faith to promote the best interest of the Partnership or (ii) to have constituted recklessness or intentional wrongdoing by the tax matters partner. 11.7 Annual Meetings. An annual meeting of the Partners shall be held during each full calendar year of the Partnership's term at such time and place as the General Partner may designate in a notice to the Limited Partners delivered at least thirty (30) days in advance of the scheduled date of each such meeting. The purpose of each such meeting shall be to present the annual report and to discuss issues and opportunities associated with the Partnership. The Partners shall bear their own costs associated with attending such annual meetings. 11.8 Voting. Except as specifically set forth in this Agreement, the Limited Partners shall have no right to vote on any matter relative to the Partnership and its affairs. Article XII Valuation And Fund Committee 12.1 Valuation. Subject to the specific standards set forth below and any valuation guidelines adopted by the General Partner and approved by the Fund Committee, which guidelines shall not be inconsistent with the terms of this Agreement, the valuation of securities and other assets and liabilities under this Agreement shall be at fair market value. Except as may be required under applicable Treasury Regulations, no value shall be placed on the goodwill or the name of the Partnership in determining the value of the interest of any Partner or in any accounting among the Partners. (a) The following criteria shall be used for determining the fair market value of securities: (i) Securities not subject to investment letter or other similar restrictions on free Marketability: (A) If traded on one (1) or more securities exchanges of any country or quoted on the NASDAQ National Market System, the value shall be deemed to be the securities' closing price as reported in the Wall Street Journal or another nationally recognized publication or service that reports such data. (B) If actively traded over-the-counter in any country but not quoted on the NASDAQ National Market System, the value shall be deemed to be the closing bid price of such securities on the valuation date reflecting an appropriate discount, if any, for the illiquidity of the Partnership's position. (C) If there is no active public market, the General Partner shall make a determination of the fair market value, taking into consideration the cost basis of the securities, developments concerning the issuing company subsequent to the acquisition of the securities, any financial data and projections of the issuing company provided to the General Partner, and such other factor or factors as the General Partner may deem relevant. (ii) Securities subject to investment letter or other restrictions on free Marketability shall be valued by making an appropriate adjustment from the value determined under (A), (B), or (C) above to reflect the effect of the restrictions on transfer. (b) If the General Partner in good faith determines that, because of special circumstances, the valuation methods set forth in this paragraph do not fairly determine the value of a security, the General Partner shall make such adjustments or use such alternative valuation method as it deems appropriate. 12.2 Fund Committee. (a) The Partnership shall have an Fund Committee appointed by the General Partner and comprised of not fewer than three (3) nor more than five (5) voting members who shall be representatives of the Limited Partners. The chair of the Fund Committee shall be designated by the General Partner. The Fund Committee shall be responsible for: (i) approving any valuation guidelines adopted by the General Partner pursuant to paragraph 12.1 and approving, pursuant to the provisions of paragraph 12.2(e), the General Partner's determination of the fair market value of the Partnership's assets and liabilities (for this purpose the Fund Committee may request such information concerning the Partnership's assets and liabilities as is reasonable); (ii) reviewing the status of the Partnership's portfolio companies; (iii) approving investments as described in paragraph 8.6(a); (iv) evaluating the Partnership's investments and dispositions; (v) providing the Partnership and the General Partner with such counsel and advice as the General Partner shall reasonably request, including advice with respect to any potential conflicts of interest between the General Partner and the Partnership and advice regarding potential investments and investment opportunities; and (vi) performing such other functions as may be provided for herein or as otherwise agreed to by the General Partner and the Fund Committee. (b) The Fund Committee shall conduct its affairs in such manner and by such procedures as a majority of its members deems appropriate; provided, however, that the Fund Committee shall not schedule meetings more often than annually unless called more frequently by the General Partner or, in exceptional circumstances, by a majority of the Fund Committee. All actions taken by the Fund Committee shall be taken by majority vote. Notice to Fund Committee members shall be made pursuant to the procedures set forth in this Agreement for notices to Partners. (c) The reasonable out-of-pocket expenses incurred by the Fund Committee shall be an expense to be borne by the Partnership. (d) The Fund Committee shall take no part in the control or management of the Partnership's affairs, nor shall the Fund Committee have any power or authority to act for or on behalf of the Partnership. Members of the Fund Committee shall be entitled to the benefits of the exculpation and indemnification provisions of paragraphs 15.3 and 15.4 as provided therein. (e) Subject to the provisions of this paragraph 12.2(e), the General Partner shall have the power at any time to determine, for all purposes of this Agreement, the fair market value of any of the assets and liabilities of the Partnership. A statement setting forth in writing in reasonable detail such fair market value, with necessary explanations thereof, shall be sent to each member of the Fund Committee when a determination of such value is necessary pursuant to the terms of this Agreement, who shall have thirty (30) days after the transmittal of such notice to approve or disapprove such valuation of specific assets and liabilities. Approval of such valuation in accordance with valuation guidelines established under paragraph 12.1 shall not be unreasonably withheld. If within thirty (30) days of delivery of such statement a majority of the Fund Committee members fail to notify the General Partner of their disapproval of any such determination, or if a majority of the members notify the General Partner of their approval, such valuation shall be final and conclusive with respect to all of the Partners. If within thirty (30) days of delivery of such statement a majority of the Fund Committee members notify the General Partner of their disapproval of any such determination, the General Partner shall either submit a new determination in place of the one disapproved or request a meeting with the Fund Committee to discuss a mutually satisfactory valuation. If within thirty (30) days of the end of such first-mentioned thirty (30) day period values satisfactory to the General Partner and the Fund Committee shall not have been determined, the General Partner shall submit the dispute to arbitration in San Francisco, California, in accordance with the rules, then obtaining, of the American Arbitration Association. In such arbitration, the General Partner and the Fund Committee shall each select an arbitrator and the two arbitrators so selected shall choose a third arbitrator to resolve the dispute. The fees and expenses of any arbitrator retained in accordance with the provisions hereof shall be borne by the Partnership. Article XIII Partners Subject To Special Regulation 13.1 ERISA Partners. (a) Each Limited Partner that is an "employee benefit plan" or is an entity that is deemed to hold "plan assets" (the "ERISA Partner"), each within the meaning of, and subject to the provisions of, ERISA hereby (i) acknowledges that, for so long as the Partnership is a venture capital operating company within the meaning of Section 2510.3-101(d) of Title 29 of the Code of Regulations, it is its understanding that neither the Partnership, the General Partner, nor any of the Affiliates of the General Partner, are "fiduciaries" of such Limited Partner within the meaning of ERISA by reason of the Limited Partner investing its assets in, and being a Limited Partner of, the Partnership; (ii) acknowledges that it has been informed of and understands the investment objectives and policies of, and the investment strategies that may be pursued by, the Partnership; (iii) acknowledges that it is aware of the provisions of Section 404 of ERISA relating to the requirements for investment and diversification of the assets of employee benefit plans and trusts subject to ERISA; (iv) represents that it has given appropriate consideration to the facts and circumstances relevant to the investment by that ERISA Partner's plan in the Partnership and has determined that such investment is reasonably designed, as part of such portfolio, to further the purposes of such plan; (v) represents that, taking into account the other investments made with the assets of such plan, and the diversification thereof, such plan's investment in the Partnership is consistent with the requirements of Section 404 and other provisions of ERISA; (vi) acknowledges that it understands that current income will not be a primary objective of the Partnership; and (vii) represents that, taking into account the other investments made with the assets of such plan, the investment of assets of such plan in the Partnership is consistent with the cash flow requirements and funding objectives of such plan; provided, however, that the representations in clauses (iv), (v) and (vii) shall apply only to "employee benefit plan" Limited Partners. (b) Notwithstanding any provision contained herein to the contrary, each ERISA Partner may elect to withdraw from the Partnership, or upon demand by the General Partner shall withdraw from the Partnership, at the time and in the manner hereinafter provided, if either the ERISA Partner or the General Partner shall obtain an opinion of counsel (which counsel shall be reasonably acceptable to both the ERISA Partner and the General Partner) to the effect that, as a result of applicable statutes, regulations, case law, administrative interpretations, or similar authority (i) the continuation of the ERISA Partner as a Limited Partner of the Partnership or the conduct of the Partnership will result, or there is a material likelihood the same will result, in a material violation of ERISA, or (ii) all or any portion of the assets of the Partnership constitute assets of the ERISA Partner for the purposes of ERISA and are subject to the provisions of ERISA to substantially the same extent as if owned directly by the ERISA Partner. In the event of the issuance of such opinion of counsel, a copy of such opinion shall be given to all the Partners, together with the written notice of the election of the ERISA Partner to withdraw or the written demand of the General Partner for withdrawal, whichever the case may be. Thereupon, unless within one hundred twenty (120) days after receipt of such written notice and opinion the General Partner is able to eliminate the necessity for such withdrawal to the reasonable satisfaction of the ERISA Partner and the General Partner, whether by correction of the condition giving rise to the necessity of the Limited Partner's withdrawal, or the amendment of this Agreement, or otherwise, such Limited Partner shall withdraw its entire interest in the Partnership, such withdrawal to be effective upon the last day of the fiscal quarter during which such one hundred twenty (120) day period expired. (c) The withdrawing Limited Partner shall be entitled to receive within one hundred twenty (120) days after the date of such withdrawal an amount equal to the amount of such Partner's Capital Account, adjusted to reflect unrealized gains and losses of the Partnership, as of the effective date of such withdrawal. (d) Any distribution or payment to a withdrawing Limited Partner pursuant to this paragraph may, in the sole discretion of the General Partner, be made in cash, in a pro rata distribution of securities, in the form of a promissory note, the terms of which shall be mutually agreed upon by the General Partner and the withdrawing Limited Partner and which shall provide for partial payments, as if such promissory note represented an equity interest in the Partnership, at the time of cash distributions to the Partners, or any combination thereof. In determining the form of payment to be made to the withdrawing Limited Partner, the General Partner will use reasonable efforts to make payments in cash to the extent reasonably available and subject to the ongoing cash requirements of the Partnership as determined by the General Partner. Article XIV Certain Definitions 14.1 Accounting Period. An Accounting Period shall be (i) a calendar year if there are no changes in the Partners' respective interests in the Profits or Losses of the Partnership during such calendar year except on the first day thereof, or (ii) any other period beginning on the first day of a calendar year, or any other day during a calendar year upon which occurs a change in such respective interests, and ending on the last day of a calendar year, or on the day preceding an earlier day upon which any change in such respective interest shall occur. 14.2 Adjusted Asset Value. The Adjusted Asset Value with respect to any asset shall be the asset's adjusted basis for federal income tax purposes, except as follows: (a) The initial Adjusted Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset at the time of contribution, as determined by the contributing Partner and the Partnership. (b) In the discretion of the General Partner, the Adjusted Asset Values of all Partnership assets may be adjusted to equal their respective gross fair market values, as determined by the General Partner, and the resulting unrecognized profit or loss allocated to the Capital Accounts of the Partners pursuant to Article V, as of the following times: (i) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis capital contribution; and (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership assets, unless all Partners receive simultaneous distributions of either undivided interests in the distributed property or identical Partnership assets in proportion to their interests in Partnership distributions as provided in paragraphs 7.4, 7.5 and 7.6. (c) The Adjusted Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner, and the resulting unrecognized profit or loss allocated to the Capital Accounts of the Partners pursuant to Article V, as of the following times: (i) the termination of the Partnership for federal income tax purposes pursuant to Code Section 708(b)(1)(B); and (ii) the termination of the Partnership either by expiration of the Partnership's term or the occurrence of an Event of Termination. 14.3 Adjusted Capital Account Balance. With respect to the General Partner, the balance in the General Partner's Capital Account as of the end of the relevant Accounting Period, after giving effect to the following adjustments: (a) Credit to such Capital Account any amounts which the General Partner is obligated to restore, including, without limitation, the amount described in paragraph 10.4(b), or is deemed to be obligated to restore pursuant to the penultimate sentence of Treasury Regulations Section 1.704-1(b) (4)(iv)(f); and (b) Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2) (ii)(d)(6) of the Treasury Regulations. 14.4 Affiliate. An Affiliate of any person shall mean any person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by or is under common control with the person specified. 14.5 Capital Account. The Capital Account of each Partner shall consist of its original capital contribution (i) increased by any additional capital contributions, its share of income or gain that is allocated to it pursuant to this Agreement, and the amount of any Partnership liabilities that are assumed by it or that are secured by any Partnership property distributed to it, and (ii) decreased by the amount of any withdrawals by it, its share of expense or loss that is allocated to it pursuant to this Agreement, and the amount of any of its liabilities that are assumed by the Partnership or that are secured by any property contributed by it to the Partnership. The foregoing provision and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulation Section 1.704-1(b)(2) (iv), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto, are computed in order to comply with such Regulations, the General Partner may make such modification, provided that it is not likely to have more than an insignificant effect on the total amounts distributable to any Partner pursuant to Article VII and Article X. 14.6 Capital Commitment. A Partner's Capital Commitment shall mean the aggregate amount of capital that such Partner has agreed to contribute to the Partnership. 14.7 Code. The Code is the Internal Revenue Code of 1986, as amended (or any corresponding provisions of succeeding law). 14.8 ERISA. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. 14.9 Event Of Early Termination. An Event of Early Termination shall mean: (a) the withdrawal, bankruptcy, or dissolution and commencement of winding up of the sole remaining general partner of the Partnership; or (b) the election by Seventy-Five Percent in Interest of the Limited Partners to terminate the Partnership in the event that the principal officers of the general partner of the General Partner (i) fail, in the aggregate, to devote substantially all of their business time to the business of the Partnership or the Subsequent Funds, (ii) engage, individually or collectively, in fraud with respect to the operation of the Partnership, or (iii) substantially neglect, in the aggregate, their duties arising under this Agreement to the material detriment of the Partnership; or (c) the election by a Majority in Interest of the Limited Partners to terminate the Partnership in the event that both of the Principals fail to devote substantially all of their business time to the business of the Partnership, the Subsequent Funds, entities whose securities are held or were held by the Partnership or the Subsequent Funds and entities in which a Principal serves as a director on the Formation Date. 14.10 Marketable; Marketable Securities; Marketability. These terms shall refer to securities that are (a) registered under the Securities Act, (b) traded on a national securities exchange or over-the- counter in any country, (c) currently the subject of an effective issuer- filed Securities Act registration statement or similar registration statement outside of the United States, or (d) direct obligations of, or obligations guaranteed as to principal and interest by, the United States, certificates of deposit maturing within one (1) year or less issued by an institution insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, or similar securities. 14.11 Money Market Income. Money Market Income shall be income received from commercial paper, certificates of deposit (other than certificates of deposit placed with banks to secure loans made by the banks on behalf of the Partnership to potential portfolio companies of the Partnership), treasury bills, other money market investments with maturities of less than twelve (12) months and the interest on any promissory notes contributed by the General Partner pursuant to paragraph 4.3. Money Market Income shall not include other interest income or dividends or other non-liquidating corporate distributions which are not a return of capital for federal income tax purposes. 14.12 Nonmarketable Securities. Nonmarketable Securities are all securities other than Marketable Securities. 14.13 Partnership Percentage. The Partnership Percentage for each Partner shall be determined by dividing the amount of each Partner's Capital Commitment by the sum of the Capital Commitments of all of the Partners. The sum of the Partners' Partnership Percentages shall be one hundred percent (100%). 14.14 Percentage In Interest; Majority In Interest. A specified fraction or percentage in interest of the Partners or of the Limited Partners shall mean Partners or Limited Partners whose Partnership Percentages exceed the required fraction or percentage of the Partnership Percentages of all such Partners or Limited Partners. (If the fraction or percentage in interest is specified as not including the General Partner, then the Partnership Percentage assigned any Limited Partner interest held by the General Partner shall not be considered in making such calculation.) A Majority in Interest shall mean 50.01% in interest. 14.15 Principals. Principals shall mean Nancy C. Floyd and Maurice E.P. Gunderson. 14.16 Profit Or Loss. Profit or Loss shall be an amount computed for each Accounting Period as of the last day thereof that is equal to the Partnership's taxable income or loss for such Accounting Period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profit or Loss pursuant to this paragraph shall be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profit or Loss pursuant to this paragraph shall be subtracted from such taxable income or loss; (c) Gain or loss resulting from any disposition of a Partnership asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Adjusted Asset Value of the asset disposed of rather than its adjusted tax basis; (d) The difference between the gross fair market value of all Partnership assets and their respective Adjusted Asset Values shall be added to such taxable income or loss in the circumstances described in paragraph 14.2; and (e) Items which are specially allocated pursuant to paragraphs 5.1(c) and 5.3 hereof shall not be taken into account in computing Profit or Loss. 14.17 Securities Act. Securities Act is the Securities Act of 1933, as amended. 14.18 Treasury Regulations. Treasury Regulations shall mean the Income Tax Regulations promulgated under the Code, as such Regulations may be amended from time to time (including corresponding provisions of succeeding Regulations). Article XV Other Provisions 15.1 Governing Law; Consent To Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among the residents of such state made and to be performed entirely within such state. Each of the parties hereto consents to the personal jurisdiction of, and agrees venue shall be proper in, the state and federal courts located in the State of California with respect to any lawsuit arising from, or relating to, this Agreement. 15.2 Limitation Of Liability Of The Limited Partners. Except as required by law, no Limited Partner shall be bound by, nor be personally liable for, the expenses, liabilities, or obligations of the Partnership in excess of its Capital Commitment to the Partnership. 15.3 Exculpation. Neither the General Partner, any member of the Fund Committee, the Principals nor their respective partners, employees, or Affiliates shall be liable to any Limited Partner or the Partnership for honest mistakes of judgment, or for action or inaction, taken in good faith for a purpose that was reasonably believed to be in the best interest of the Partnership, or for losses due to such mistakes, action, or inaction, or to the negligence, dishonesty, or bad faith of any employee, broker, or other agent of the Partnership, provided that such employee, broker, or agent was selected, engaged, or retained with reasonable care. The General Partner may consult with counsel and accountants in respect of Partnership affairs and be fully protected and justified in any action or inaction that is taken in accordance with the advice or opinion of such counsel or accountants, provided that they shall have been selected with reasonable care. Notwithstanding any of the foregoing to the contrary, the provisions of this paragraph and the immediately following paragraph shall not be construed so as to relieve (or attempt to relieve) any person of any liability by reason of gross negligence or intentional wrongdoing or to the extent (but only to the extent) that such liability may not be waived, modified, or limited under applicable law, but shall be construed so as to effectuate the provisions of such paragraphs to the fullest extent permitted by law. 15.4 Indemnification. The Partnership agrees to indemnify, out of the assets of the Partnership only, the General Partner, the Principals each member of the Fund Committee, and their respective partners, employees and Affiliates (collectively, the "Indemnified Parties") to the fullest extent permitted by law and to save and hold them harmless from and in respect of all (a) reasonable fees, costs, and expenses paid in connection with or resulting from any claim, action, or demand against an Indemnified Party that arise out of or in any way relate to the Partnership, its properties, business, or affairs and (b) such claims, actions, and demands and any losses or damages resulting from such claims, actions, and demands, including amounts paid in settlement or compromise (if recommended by attorneys for the Partnership) of any such claim, action or demand; provided, however, that this indemnity shall not extend to (i) conduct not undertaken in good faith to promote the best interest of the Partnership or the portfolio companies of the Partnership or (ii) conduct which is grossly negligent or intentionally wrongful. Expenses incurred by any Indemnified Party in defending a claim or proceeding covered by this paragraph shall be paid by the Partnership in advance of the final disposition of such claim or proceeding provided the Indemnified Party undertakes to repay such amount if it is ultimately determined that such Indemnified Party was not entitled to be indemnified. The provisions of this paragraph shall remain in effect as to each Indemnified Party whether or not such Indemnified Party continues to serve in the capacity that entitled such person to be indemnified. 15.5 Execution. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one (1) and the same instrument. 15.6 Other Instruments And Acts. The Partners agree to execute any other instruments or perform any other acts that are or may be necessary to effectuate and carry on the partnership created by this Agreement. 15.7 Binding Agreement. This Agreement shall be binding upon the transferees, successors, assigns, and legal representatives of the Partners. 15.8 Notices. Any notice or other communication that one Partner desires to give to another Partner shall be in writing, and shall be deemed effectively given upon personal delivery or three (3) days after deposit in any United States mail box, by registered or certified mail, postage prepaid, upon confirmed transmission by facsimile or upon confirmed delivery by an overnight commercial courier service addressed to the other Partner at the address shown on Exhibit A or at such other address as a Partner may designate by fifteen (15) days' advance written notice to the other Partners. 15.9 Power Of Attorney. By signing this Agreement, each Limited Partner designates and appoints the General Partner its true and lawful attorney, in its name, place, and stead to make, execute, sign, and file the Certificate of Limited Partnership and any amendment thereto and such other instruments, documents, or certificates that may from time to time be required of the Partnership by the laws of the United States of America, the laws of the state of the Partnership's formation, or any other state or jurisdiction in which the Partnership shall do business in order to qualify or otherwise enable the Partnership to do business in such states or jurisdictions. Such attorney is not hereby granted any authority on behalf of the Limited Partners to amend this Agreement except that as attorney for each of the Limited Partners, the General Partner shall have the authority to amend this Agreement and the Certificate of Limited Partnership (and to execute any amendment to the Agreement or the Certificate of Limited Partnership on behalf of itself and as attorney-in-fact for each of the Limited Partners) as may be required to effect: (a) Admission of additional Partners pursuant to Article III; (b) Transfers of Limited Partnership interests pursuant to Article IX; (c) Additional capital contributions pursuant to Article IV; (d) Extensions of the Partnership term pursuant to Article X; or (e) Withdrawal of Partners pursuant to Article XIII. This power of attorney granted by each Limited Partner shall expire as to such Partner immediately after the amendment of the Partnership's Exhibit A to reflect the complete withdrawal of such Partner as a Partner of the Partnership. 15.10 Amendment; Waiver. (a) Except as provided by the immediately preceding paragraph, this Agreement may be amended only with the written consent of the General Partner and Two-Thirds in Interest of the Limited Partners. No term or condition contained in the Exhibits to this Agreement or in any note or security agreement entered into pursuant to this Agreement may be waived, discharged, terminated, or modified without the consent of the General Partner and Two-Thirds in Interest of the Limited Partners. (b) Notwithstanding the above and except as provided in paragraph 14.5: (i) No amendment of this Agreement may modify the method of making Partnership allocations, modify the method of determining the Partnership Percentage or Final Partnership Percentage of any Partner, modify any provision requiring the consent of all of the Partners or all of the Limited Partners to a specified action, or modify the restrictions contained in this subparagraph (b), unless each Partner materially and adversely affected thereby has expressly consented in writing to such amendment; and (ii) No amendment of this Agreement may modify Article XIII or paragraph 8.6(e) unless each ERISA Partner has expressly consented in writing to such amendment. (c) Notwithstanding the above, the Partnership's or General Partner's (or its partners' or employees') noncompliance with any provision hereof in any single transaction or event may be waived in writing by Two- Thirds in Interest of the Limited Partners (not including the General Partner); provided, however, that no such waiver of noncompliance with any provision specifically requiring the approval of more than Two-Thirds in Interest of the Limited Partners shall be effective without the approval of such larger percentage in Interest of the Limited Partners; provided further, that no such waiver shall be effective if such noncompliance directly injures some but not all of the Limited Partners unless the Limited Partners directly injured waive such noncompliance. No waiver shall be deemed a waiver of any subsequent event of noncompliance. 15.11 Legal Counsel. Each Partner hereby agrees and acknowledges that: (a) Cooley Godward Castro Huddleson & Tatum ("Cooley Godward") has been retained by the General Partner in connection with the formation of the Partnership and the offering of Limited Partner interests and in such capacity has provided legal services to the General Partner and the Partnership. The General Partner expects to retain Cooley Godward to provide legal services to the General Partner and the Partnership in connection with the management and operation of the Partnership. (b) Cooley Godward is not and will not represent the Limited Partners in connection with the formation of the Partnership, the offering of Limited Partner interests, the management and operation of the Partnership, or any dispute that may arise between the Limited Partners on the one hand and the General Partner and the Partnership on the other (the "Partnership Legal Matters"). (c) Each Limited Partner will, if it wishes counsel on a Partnership Legal Matter, retain its own independent counsel with respect thereto and, except as otherwise specifically provided by this Agreement, will pay all fees and expenses of such independent counsel. (d) Each Limited Partner hereby agrees that Cooley Godward may represent the General Partner and the Partnership in connection with any and all Partnership Legal Matters (including any dispute between the General Partner or the Partnership and one (1) or more Limited Partners) and waives any present or future conflict of interest with Cooley Godward regarding Partnership Legal Matters arising by virtue of any representation or deemed representation of such Limited Partner or the Partnership on account of Cooley Godward's representation described in paragraph 15.11(a) above; provided, however, that the Limited Partners are not hereby agreeing to Cooley Godward's representation of the Partnership in a derivative action on their behalf against the General Partner. 15.12 Entire Agreement. This Agreement and each subscription agreement executed by the Limited Partners in connection with an investment in the Partnership constitute the full, complete, and final agreement of the Partners and supersede all prior agreements between the Partners with respect to the Partnership. 15.13 Titles; Subtitles. The titles and subtitles used in this Agreement are used for convenience only and shall not be considered in the interpretation of this Agreement. 15.14 Partnership Name. The Partnership shall have the exclusive right to use the Partnership name as long as the Partnership continues. Upon termination of the Partnership, the Partnership shall assign whatever rights it may have in such name to the General Partner. No value shall be placed upon the name or the goodwill attached to it for the purpose of determining the value of any Partner's Capital Account or interest in the Partnership. In Witness Whereof, the Partners have executed this Agreement as of the date first written above. General Partner: Limited Partner: Nth Power Technologies Partners, L.P. by its general partner, Nth Power Technologies, Inc. By: By: (signature) Name: (print name) Title: THE SECURITIES EVIDENCED BY THIS PARTNERSHIP AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS PURSUANT TO SEC RULE 144 OR THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE GENERAL PARTNER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE GENERAL PARTNER, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT. SIGNATURE PAGE FOR LIMITED PARTNERSHIP AGREEMENT Nth POWER TECHNOLOGIES FUND I, L.P. __________ __, 1996 Exhibit A SCHEDULE OF PARTNERS Initial Capital Capital Partnership Name and Address Commitment Contribution Percentage General Partner: Nth Power Technologies Partners, L.P. c/o Nth Power Technologies, Inc. 50 California Street 32nd Floor San Francisco, CA 94111 Limited Partners: Total 100.0000% Partnership Percentages shown on this Exhibit A are rounded. Actual Partnership Percentages are determined pursuant to paragraph 14.13 of this Agreement. Exhibit B $_____________ __________, 1996 San Francisco, California PROMISSORY NOTE For value received, Nth Power Technologies Partners, L.P., a California limited partnership ("Payor"), hereby promises to pay to Nth Power Technologies Fund I, L.P., a California limited partnership ("Payee") at 50 California Street, 32nd Floor, San Francisco, California, 94111, or at such other place as Payee may designate, the aggregate principal sum of ____________________ Dollars ($_________) according to the following terms and conditions: 1. Interest. This Note shall bear interest at the rate of ____ percent (__%) per annum initially which rate shall be adjusted on the 1st banking day of January and July of each year during the term of this Note to the prime rate then being charged by Payee's primary banking facility. Interest shall compound annually. 2. Payment. This Note and all accrued but unpaid interest shall become due and payable upon the final liquidation of Payee. This Note and all accrued but unpaid interest may be paid, in whole or in part, at any time prior to such due date without penalty. All payments by Payor toward the satisfaction of this Note shall be applied first to the payment of interest and then to the retirement of the principal. Payments by Payor toward the satisfaction of this Note may be paid, at the option of Payor, in either: (a) lawful money of the United States of America and in immediately available funds; (b) securities received by Payor in any distribution from Payee, or (c) any combination of the methods of payment specified in clauses (a) and (b) above. In the event that payment is made in whole or in part in securities, the amount of such payment shall be equal to the value of the securities transferred to Payee on the date of payment valued in accordance with the valuation procedures set forth in paragraphs 12.1 and 12.2(e) of that certain limited partnership agreement dated _________, 1995, by and among Payee, Payor and the limited partners named therein (the "Partnership Agreement"). In addition to the foregoing, upon dissolution of the Partnership Payor may elect to reduce the amount outstanding under this Note, in whole or in part, by effecting a corresponding reduction in Payor's capital account in Payee as provided for in paragraph 10.3 of the Partnership Agreement. 3. Type of Debt. Payor hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. 4. Waiver. Payor hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. 5. Costs of Collection. In the event that any payment under this Note is not made when due, Payee shall be entitled to recover, and Payor agrees to pay when incurred, all costs and expenses of collection of this Note, including without limitation, reasonable attorneys' fees. 6. Binding Agreement. This Note shall be binding upon the undersigned, its successors and assigns, and any subsequent holders of this Note. 7. Governing Law. This Note shall be governed by, and construed under the laws of, the State of California as applied to agreements between California residents entered into and to be performed entirely within California. Nth Power Technologies Partners, L.P. by its general partner, Nth Power Technologies, Inc. By: Name: Title: Accepted: Nth Power Technologies Fund I, L.P. By: Nth Power Technologies Partners, L.P. by its general partner, Nth Power Technologies, Inc. By: Name: Title: TABLE OF CONTENTS Page Article I Name, Purpose And Offices Of Partnership . . . . . . . . . 1 1.1 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Registered Agent And Office . . . . . . . . . . . . . . . . . . . 1 Article II Term Of Partnership. . . . . . . . . . . . . . . . . . . . 2 2.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Events Affecting A Partner Of The General Partner . . . . . . . . 2 2.3 Events Affecting A Limited Partner. . . . . . . . . . . . . . . . 2 2.4 Events Affecting The General Partner. . . . . . . . . . . . . . . 2 Article III Name And Admission Of Partners . . . . . . . . . . . . . . 2 3.1 Name And Address. . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Admission Of Additional Partners. . . . . . . . . . . . . . . . . 3 Article IV Capital Accounts, Capital Contributions, And Noncontributing Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 4 4.2 Capital Contributions Of The Limited Partners . . . . . . . . . . 4 4.3 Capital Contributions Of The General Partner. . . . . . . . . . . 4 4.4 Acquisition Of An Additional Interest By The General Partner. . . 5 4.5 Noncontributing Partners. . . . . . . . . . . . . . . . . . . . . 5 Article V Partnership Allocations. . . . . . . . . . . . . . . . . . 7 5.1 Allocation Of Profit And Loss . . . . . . . . . . . . . . . . . . 7 5.2 Reallocation Of Contingent Losses . . . . . . . . . . . . . . . . 8 5.3 Other Allocations . . . . . . . . . . . . . . . . . . . . . . . . 8 5.4 Income Tax Allocations. . . . . . . . . . . . . . . . . . . . . . 10 Article VI Management Fee; Partnership Expenses . . . . . . . . . . . 10 6.1 Management Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Article VII Withdrawals By And Distributions To The Partners . . . . . 13 7.1 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 7.2 Withdrawals By The Partners . . . . . . . . . . . . . . . . . . . 13 7.3 Partners' Obligation To Repay Or Restore. . . . . . . . . . . . . 13 7.4 Cash Distributions. . . . . . . . . . . . . . . . . . . . . . . . 13 7.5 Discretionary In Kind Distributions . . . . . . . . . . . . . . . 14 7.6 Mandatory Distributions . . . . . . . . . . . . . . . . . . . . . 16 7.7 Withholding Obligations . . . . . . . . . . . . . . . . . . . . . 17 Article VIII Management Duties And Restrictions . . . . . . . . . 17 8.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.2 Time Commitment. . . . . . . . . . . . . . . . . . . . . . . . 18 8.3 No Control By The Limited Partners; No Withdrawal. . . . . . . 18 8.4 Subsequent Funds . . . . . . . . . . . . . . . . . . . . . . . 18 8.5 Compliance With Partnership Agreement; Detrimental Acts. . . . 18 8.6 Investment Opportunities And Restrictions. . . . . . . . . . . 18 8.7 Business Opportunities . . . . . . . . . . . . . . . . . . . . 20 Article IX Investment Representation And Transfer Of Partnership Interests 20 9.1 Investment Representation Of The Limited Partners. . . . . . . 20 9.2 Qualifications Of The Limited Partners . . . . . . . . . . . . 20 9.3 Transfer By Limited Partner. . . . . . . . . . . . . . . . . . 21 9.4 Right Of First Refusal . . . . . . . . . . . . . . . . . . . . 21 9.5 Requirements For Transfer. . . . . . . . . . . . . . . . . . . 22 9.6 Substitution As A Limited Partner. . . . . . . . . . . . . . . 22 9.7 Transfer Of General Partnership Interest . . . . . . . . . . . 23 Article X Dissolution And Liquidation Of The Partnership. . . . . . 23 10.1 Extension Of Partnership Term. . . . . . . . . . . . . . . . . 23 10.2 Liquidation After An Event Of Early Termination. . . . . . . . 23 10.3 Winding Up Procedures. . . . . . . . . . . . . . . . . . . . . 23 10.4 Payments In Liquidation. . . . . . . . . . . . . . . . . . . . 24 Article XI Financial Accounting, Reports, Meetings And Voting . 26 11.1 Financial Accounting; Fiscal Year. . . . . . . . . . . . . . . 26 11.2 Supervision; Inspection Of Books . . . . . . . . . . . . . . . 26 11.3 Quarterly Reports. . . . . . . . . . . . . . . . . . . . . . . 26 11.4 Annual Report; Financial Statements Of The Partnership . . . . 26 11.5 Tax Returns And Information. . . . . . . . . . . . . . . . . . 26 11.6 Tax Matters Partner. . . . . . . . . . . . . . . . . . . . . . 27 11.7 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . 27 11.8 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Article XII Valuation And Fund Committee . . . . . . . . . . . . 28 12.1 Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 12.2 Fund Committee . . . . . . . . . . . . . . . . . . . . . . . . 29 Article XIII Partners Subject To Special Regulation . . . . . . . 30 13.1 ERISA Partners . . . . . . . . . . . . . . . . . . . . . . . . 30 Article XIV Certain Definitions. . . . . . . . . . . . . . . . . 32 14.1 Accounting Period. . . . . . . . . . . . . . . . . . . . . . . 32 14.2 Adjusted Asset Value . . . . . . . . . . . . . . . . . . . . . 32 14.3 Adjusted Capital Account Balance . . . . . . . . . . . . . . . 33 14.4 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.5 Capital Account. . . . . . . . . . . . . . . . . . . . . . . . 33 14.6 Capital Commitment . . . . . . . . . . . . . . . . . . . . . . 33 14.7 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.8 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.9 Event Of Early Termination . . . . . . . . . . . . . . . . . . 33 14.10 Marketable; Marketable Securities; Marketability. . . . . 34 14.11 Money Market Income . . . . . . . . . . . . . . . . . . . 34 14.12 Nonmarketable Securities. . . . . . . . . . . . . . . . . 34 14.13 Partnership Percentage. . . . . . . . . . . . . . . . . . 34 14.14 Percentage In Interest; Majority In Interest. . . . . . . 34 14.15 Principals. . . . . . . . . . . . . . . . . . . . . . . . 35 14.16 Profit Or Loss. . . . . . . . . . . . . . . . . . . . . . 35 14.17 Securities Act. . . . . . . . . . . . . . . . . . . . . . 35 14.18 Treasury Regulations. . . . . . . . . . . . . . . . . . . 35 Article XV Other Provisions. . . . . . . . . . . . . . . . . . . . . 36 15.1 Governing Law; Consent To Jurisdiction . . . . . . . . . . . . 36 15.2 Limitation Of Liability Of The Limited Partners. . . . . . . . 36 15.3 Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . 36 15.4 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 36 15.5 Execution. . . . . . . . . . . . . . . . . . . . . . . . . . 37 15.6 Other Instruments And Acts . . . . . . . . . . . . . . . . . . 37 15.7 Binding Agreement. . . . . . . . . . . . . . . . . . . . . . . 37 15.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 15.9 Power Of Attorney. . . . . . . . . . . . . . . . . . . . . . . 37 15.10 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . 38 15.11 Legal Counsel . . . . . . . . . . . . . . . . . . . . . . 39 15.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . 39 15.13 Titles; Subtitles . . . . . . . . . . . . . . . . . . . . 39 15.14 Partnership Name. . . . . . . . . . . . . . . . . . . . . 40 INDEX OF DEFINITIONS Term Paragraph Page Accounting Period 14.1 29 Accredited Investor 9.2 18 Act -- 1 Additional Capital Contributions 4.2(b) 4 Adjusted Asset Value 14.2 29 Adjusted Capital Account Balance 14.3 30 Affiliate 14.4 30 Capital Account 14.5 30 Capital Commitment 14.6 30 Code 14.7 30 Cooley Godward 15.11 35 Contingent Loss 5.2 8 ERISA 14.8 30 ERISA Partner 13.1 27 Event of Early Termination 14.9 31 Final Partnership Percentage 10.3(a) 22 Formation Date 2.1 2 General Partner -- 1 Indemnified Parties 15.4 33 Initial Capital Contributions 4.2(a) 4 Limited Partners -- 1 Management Agent 6.1(a) 10 Marketable 14.10 31 Marketable Securities 14.10 31 Marketability 14.10 31 Majority in Interest 14.18 32 Money Market Income 14.11 31 Nonmarketable Securities 14.12 31 Notice of Extension 10.1 21 Optionee 4.5(b) 5 Optionor 4.5(b) 5 Partners 3.1 2 Partnership -- 1 Partnership Legal Matters 15.11 35 Partnership Percentage 14.13 31 Principals 14.14 31 Profit or Loss 14.15 32 Remaining Portion 4.5(b)(ii) 6 Return Value 10.4(b)(ii) 24 Securities Act 14.16 32 Subsequent Funds 8.3 16 Tax Payments 7.7(a) 15 Treasury Regulations 14.17 32 Percentage in Interest 14.18 32 EX-27.0 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000899652 CINERGY CORP. 0 CINERGY CORP. (CONSOLIDATED) 1,000 12-MOS 12-MOS DEC-31-1996 DEC-31-1996 APR-01-1995 APR-01-1995 MAR-31-1996 MAR-31-1996 PER-BOOK PRO-FORMA 6,232,079 6,232,079 0 0 585,782 585,262 1,037,369 1,037,369 185,784 195,784 8,041,014 8,050,494 1,577 1,577 1,595,435 1,595,435 992,558 992,038 2,589,570 2,589,050 160,000 160,000 227,885 227,885 2,522,784 2,522,784 96,300 106,300 0 0 0 0 60,400 60,400 0 0 0 0 0 0 2,384,075 2,384,075 8,041,014 8,050,494 3,099,749 3,099,749 232,893 232,893 2,273,323 2,273,323 2,506,216 2,506,216 593,533 593,533 10,624 10,904 604,157 604,437 219,479 220,279 384,678 384,158 28,965 28,965 355,713 355,193 269,836 269,836 207,985 207,985 0 0 2.27 2.26 2.27 2.26 EX-27.1 6 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
OPUR1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 0000899652 CINERGY CORP. 1 CINERGY CORP. 1,000 12-MOS 12-MOS DEC-31-1996 DEC-31-1996 APR-01-1995 APR-01-1995 MAR-31-1996 MAR-31-1996 PER-BOOK PRO-FORMA 0 0 2,606,198 2,606,198 4,113 3,593 0 0 845 10,845 2,611,156 2,620,636 1,577 1,577 1,595,435 1,595,435 992,558 992,038 2,589,570 2,589,050 0 0 0 0 0 0 3,400 13,400 0 0 0 0 0 0 0 0 0 0 0 0 18,186 18,186 2,611,156 2,620,636 0 0 0 0 0 0 0 0 0 0 357,049 357,329 357,049 357,329 1,336 2,136 355,713 355,193 0 0 355,713 355,193 269,836 269,836 0 0 0 0 2.27 2.26 2.27 2.26 EX-99.FS.1 7 FINANCIAL STATEMENTS SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM U-1 CINERGY CORP. CONSOLIDATED AS OF MARCH 31, 1996 (Unaudited) Pages 1 through 6
CINERGY CORP. PRO FORMA CONSOLIDATED STATEMENT OF INCOME TWELVE MONTHS ENDED MARCH 31, 1996 Pro Forma Actual Adjustments Pro Forma (in thousands, except per share amounts) OPERATING REVENUES Electric $2,664,953 - $2,664,953 Gas 434,796 - 434,796 3,099,749 - 3,099,749 OPERATING EXPENSES Fuel used in electric production 722,297 - 722,297 Gas purchased 204,982 - 204,982 Purchased and exchanged power 69,587 - 69,587 Other operation 549,985 - 549,985 Maintenance 181,500 - 181,500 Depreciation 276,498 - 276,498 Amortization of phase-in deferrals 12,491 - 12,491 Post-in-service deferred operating expenses - net (1,339) - (1,339) Income taxes 232,893 - 232,893 Taxes other than income taxes 257,322 - 257,322 2,506,216 - 2,506,216 OPERATING INCOME 593,533 - 593,533 OTHER INCOME AND EXPENSES - NET Allowance for equity funds used during construction 1,361 - 1,361 Post-in-service carrying costs 961 - 961 Phase-in deferred return 8,496 - 8,496 Income taxes 9,482 280 9,762 Other - net (9,676) - (9,676) 10,624 280 10,904 INCOME BEFORE INTEREST AND OTHER CHARGES 604,157 280 604,437 INTEREST AND OTHER CHARGES Interest on long-term debt 207,985 - 207,985 Other interest 18,386 800 19,186 Allowance for borrowed funds used during construction (6,892) - (6,892) Preferred dividend requirements of subsidiaries 28,965 - 28,965 248,444 800 249,244 NET INCOME $355,713 ($520) $355,193 AVERAGE COMMON SHARES OUTSTANDING 157,113 157,113 EARNINGS PER COMMON SHARE $2.27 $2.26 DIVIDENDS DECLARED PER COMMON SHARE $1.72
CINERGY CORP. PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 ASSETS Pro Forma Actual Adjustments Pro Forma (in thousands) UTILITY PLANT - ORIGINAL COST In service Electric $8,645,996 - $8,645,996 Gas 684,822 - 684,822 Common 184,142 - 184,142 9,514,960 - 9,514,960 Accumulated depreciation 3,417,926 - 3,417,926 6,097,034 - 6,097,034 Construction work in progress 135,045 - 135,045 Total utility plant 6,232,079 - 6,232,079 CURRENT ASSETS Cash and temporary cash investments 67,562 (520) 67,042 Restricted deposits 1,387 - 1,387 Accounts receivable less accumulated provision of $10,967 for doubtful accounts 191,775 - 191,775 Materials, supplies and fuel - at average cost Fuel for use in electric production 101,280 - 101,280 Gas stored for current use 8,556 - 8,556 Other materials and supplies 89,973 - 89,973 Property taxes applicable to subsequent year 87,617 - 87,617 Prepayments and other 37,632 - 37,632 585,782 (520) 585,262 OTHER ASSETS Regulatory Assets Amounts due from customers - income taxes 423,611 423,611 Post-in-service carrying costs and deferred operating expenses 188,113 - 188,113 Phase-in deferred return and depreciation 99,082 - 99,082 Deferred demand-side management costs 130,137 - 130,137 Deferred merger costs 55,309 - 55,309 Unamortized costs of reacquiring debt 74,532 - 74,532 Other 66,585 - 66,585 Other 185,784 10,000 195,784 1,223,153 10,000 1,233,153 $8,041,014 $9,480 $8,050,494
CINERGY CORP. PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 CAPITALIZATION AND LIABILITIES Pro Forma Actual Adjustments Pro Forma (dollars in thousands) COMMON STOCK EQUITY Common stock - $.01 par value; Authorized shares - 600,000,000 Outstanding shares - 157,679,129 $1,577 - 1,577 Paid-in capital 1,595,435 - 1,595,435 Retained earnings 992,558 (520) 992,038 Total common stock equity 2,589,570 (520) 2,589,050 CUMULATIVE PREFERRED STOCK OF SUBSIDIARIES Not subject to mandatory redemption 227,885 - 227,885 Subject to mandatory redemption 160,000 - 160,000 LONG-TERM DEBT 2,522,784 - 2,522,784 Total capitalization 5,500,239 (520) 5,499,719 CURRENT LIABILITIES Long-term debt due within one year 60,400 - 60,400 Notes payable 96,300 10,000 106,300 Accounts payable 280,814 - 280,814 Litigation settlement 80,000 - 80,000 Accrued taxes 324,170 - 324,170 Accrued interest 41,807 - 41,807 Other 53,053 - 53,053 936,544 10,000 946,544 OTHER LIABILITIES Deferred income taxes 1,141,769 - 1,141,769 Unamortized investment tax credits 182,815 - 182,815 Accrued pension and other postretirement benefit costs 183,272 - 183,272 Other 96,375 - 96,375 1,604,231 - 1,604,231 $8,041,014 $9,480 $8,050,494
CINERGY CORP. PRO FORMA CONSOLIDATED STATEMENT OF CHANGES IN RETAINED EARNINGS TWELVE MONTHS ENDED MARCH 31, 1996 Pro Forma Actual Adjustments Pro Forma (in thousands) BALANCE APRIL 1, 1995 $2,466,894 - $2,466,894 Net income 355,713 (520) 355,193 Issuance of 1,758,652 shares of common stock - net 42,668 - 42,668 Common stock issuance expenses (45) - (45) Dividends on common stock (see page 2 (269,836) - (269,836) for per share amounts) Other (5,824) - (5,824) BALANCE MARCH 31, 1996 $2,589,570 ($520) $2,589,050
CINERGY CORP. Pro Forma Consolidated Journal Entries to Give Effect to the proposed investment in a limited partnership. Entry No. 1 Cash $10,000,000 Notes payable $10,000,000 To record record issuance of notes payable. Entry No. 2 Investment in Nth Power Technologies Fund I, L.P. $10,000,000 Cash $10,000,000 To record the acquisition of a 20% limited partnership interest in Nth Power Technologies Fund I, L.P. Entry No. 3 Other interest expense $800,000 Cash $800,000 To record interest expense on $10,000,000 of notes payable at an assumed interest rate of 8%. Entry No. 4 Cash $280,000 Other income and expenses - income taxes $280,000 To record the reduction of income taxes due to increased other interest expense ($800,000 at an assumed income tax rate of 35%).
EX-99.FS.2 8 FINANCIAL STATEMENTS SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM U-1 CINERGY CORP. AS OF MARCH 31, 1996 (Unaudited) Pages 1 through 5
CINERGY CORP. PRO FORMA STATEMENT OF INCOME TWELVE MONTHS ENDED MARCH 31, 1996 Pro Forma Actual Adjustments Pro Forma (in thousands, except per share amounts) OTHER INCOME AND EXPENSES - NET Equity in earnings of subsidiaries 357,536 - 357,536 Income taxes 981 280 1,261 Other - net (1,468) - (1,468) 357,049 280 357,329 INCOME BEFORE INTEREST AND OTHER CHARGES 357,049 280 357,329 INTEREST 1,336 800 2,136 NET INCOME $355,713 ($520) $355,193 AVERAGE COMMON SHARES OUTSTANDING 157,113 157,113 EARNINGS PER COMMON SHARE $2.27 $2.26 DIVIDENDS DECLARED PER COMMON SHARE $1.72
CINERGY CORP. PRO FORMA BALANCE SHEET AT MARCH 31, 1996 Pro Forma Actual Adjustments Pro Forma (in thousands) ASSETS CURRENT ASSETS Cash and temporary cash investments 799 (520) 279 Accounts receivable 47 - 47 Accounts receivable from affiliated companies 3,267 - 3,267 4,113 (520) 3,593 OTHER ASSETS Investment in subsidiaries 2,606,198 - 2,606,198 Other 845 10,000 10,845 2,607,043 10,000 2,617,043 $2,611,156 $9,480 $2,620,636 CAPITALIZATION AND LIABILITIES COMMON STOCK EQUITY Common stock - $.01 par value; Authorized shares - 600,000,000 Outstanding shares - 157,679,129 $1,577 - 1,577 Paid-in capital 1,595,435 - 1,595,435 Retained earnings 992,558 (520) 992,038 Total common stock equity 2,589,570 (520) 2,589,050 CURRENT LIABILITIES Notes payable 3,400 10,000 13,400 Accounts payable 207 - 207 Accounts payable to affiliated companies 18,144 - 18,144 Accrued taxes 86 - 86 Accrued interest 6 - 6 21,843 10,000 31,843 OTHER LIABILITIES Deferred income taxes (258) - (258) Other 1 - 1 (257) - (257) $2,611,156 $9,480 $2,620,636
CINERGY CORP. PRO FORMA STATEMENT OF CHANGES IN RETAINED EARNINGS TWELVE MONTHS ENDED MARCH 31, 1996 Pro Forma Actual Adjustments Pro Forma (in thousands) BALANCE APRIL 1, 1995 $2,466,894 - $2,466,894 Net income 355,713 (520) 355,193 Issuance of 1,758,652 shares of common stock - net 42,668 - 42,668 Common stock issuance expenses (45) - (45) Dividends on common stock (269,836) - (269,836) Other (5,824) - (5,824) BALANCE MARCH 31, 1996 $2,589,570 ($520) $2,589,050
CINERGY CORP. Pro Forma Journal Entries to Give Effect to the Proposed Investment in a Limited Partnership. Entry No. 1 Cash $10,000,000 Notes payable $10,000,000 To record issuance of notes payable. Entry No. 2 Investment in Nth Power Technologies Fund I, L.P. $10,000,000 Cash $10,000,000 To record the acquisition of a 20% limited partnership interest in Nth Power Technologies Fund I, L.P. Entry No. 3 Other interest expense $800,000 Cash $800,000 To record interest expense on $10,000,000 of notes payable at an assumed interest rate of 8%. Entry No. 4 Cash $280,000 Other income and expenses - income taxes $280,000 To record the reduction of income taxes due to increased other interest expense ($800,000 at an assumed income tax rate of 35%).
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