OPERATING AGREEMENT for ALCOR ENDOWMENT TRUST SUPPORTING ORGANIZATION, in cooperation with the ALCOR LIFE EXTENSION FOUNDATION (ALCOR)
[Ratified unanimously December 27, 2017; Article 3 amended December 16, 2019]
THIS OPERATING AGREEMENT (this “Agreement”), is made and entered as of December 27, 2017 (the “Effective Date”), by and between the undersigned Trustees (each individually a “Trustee,” and collectively the “Trustees”) of the ALCOR ENDOWMENT TRUST SUPPORTING ORGANIZATION U/T/A dated October 14, 2013 (the “Supporting Organization”).
R-1 The Supporting Organization was created when the Trustor and the Trustees executed the Trust Agreement for the Alcor Endowment Trust Supporting Organization on October 14, 2013 (the “Trust Agreement”).
R-2 Pursuant to the Trust Agreement, the Supporting Organization is a Type II Supporting Organization, and at all times operates exclusively for the benefit of its supported organization: Alcor Life Extension Foundation (“Alcor”).
R-3 Pursuant to the Trust Agreement, the Supporting Organization is under the control and management of Alcor.
R-4 In particular, the Supporting Organization consists of a fund (the “Fund”), which receives, holds, invests, and distributes funds to Alcor for the benefit of Alcor’s existing and future programs.
R-5 The Supporting Organization’s primary purpose is to build the Fund as an endowment for the ongoing support of Alcor.
R-6 The Trustees have agreed to enter into this Agreement to establish rules and procedures for how the Fund receives, holds, invests, and distributes funds to Alcor.
R-7 The Supporting Organization’s principal governing instrument is the Trust Agreement. To the extent that any provision within this Agreement is inconsistent with any provision within the Trust Agreement, the Trust Agreement will govern.
NOW, THEREFORE, in consideration of the above Recitals, which are hereby incorporated into this Agreement by this reference, and intending to be legally bound, the undersigned Trustees agree as follows:
ARTICLE 1. NAME; OFFICE
The name of this Supporting Organization is the ALCOR ENDOWMENT TRUST SUPPORTING ORGANIZATION. The Supporting Organization’s Trustees may designate the location of the Supporting Organization’s principal office in any location. Other offices may be established at any time and at any place or places specified by the Trustees.
ARTICLE 2. OBJECTIVES AND PURPOSES
1. Specific Purposes. The Supporting Organization has been formed for charitable and educational purposes, to establish the Fund in support of Alcor, its supported organization, as stated in greater detail in Article 3 of the Supporting Organization’s Trust Agreement.
2. Incidental Purposes. In addition, the Supporting Organization is formed for the purposes of performing all things incidental to, or appropriate in, the achievement of the Supporting Organization’s specific and primary purposes. However, the Supporting Organization must not, except to an insubstantial degree, engage in any activities or exercise any powers that are not in furtherance of its specific and primary purposes.
3. Limitations on Supporting Organization’s Purposes.
A. The Supporting Organization holds and may exercise all such powers as may be conferred upon a trust by the laws of the Commonwealth of Virginia and as may be necessary or expedient for the administration of the Fund’s affairs and attainment of the Supporting Organization’s purposes. Despite anything in this Agreement to the contrary, in all events, the Supporting Organization must not engage in activities that are not permitted to be carried on by a supporting organization exempt under Sections 501(c)(3) and 509(a)(3) of the Internal Revenue Code, as amended.
B. The Supporting Organization has been formed for the charitable and educational purposes described in this Article 2, and it will be nonprofit and nonpartisan. No substantial part of the Supporting Organization’s activities will consist of the publication or dissemination of materials or statements with the purpose of attempting to influence legislation, and the Supporting Organization will not participate or intervene in any political campaign on behalf of or in opposition to any candidate for public office.
ARTICLE 3. FUND DISTRIBUTION POLICY
1. Policy Rationale. Pursuant to a new distribution policy (the “Policy”), each year the Supporting Organization will distribute, on average, two percent (2%) of the Fund’s net assets to Alcor. The Policy is designed to ensure the long-term survival of the Fund, while reducing year-to-year fluctuations that would otherwise complicate Alcor’s financial planning.
2. Implementation. The Policy’s implementation is governed by the definitions and provisions contained in Exhibit A, which is hereto attached to, and made a part of, this Agreement.
3. Alternative Method of Distributing Funds. The Endowment can, under extraordinary circumstances, distribute funds to Alcor above and beyond the annual distribution defined in paragraphs 1 and 2 of this Article given the following approvals:
1. Supporting Organization Trustees. The affirmative vote of 80% or more of the Trustees then in office, who have been in office for at least six (6) months.
2. Alcor Board of Directors. The affirmative vote of 80% or more of the Alcor Board of Directors then in office, who have been in office for at least six (6) months.
3. Benefactors. Upon approval by the Supporting Organization’s Board of Trustees and the Alcor Board of Directors, the proposed disbursement will be considered a “Board Approved Disbursement,” which must be submitted to and approved by 2/3 or more of the Benefactors who voted on the Board Approved Disbursement (in accordance with the same procedures described in Article 6 for modifications to this operating agreement).
ARTICLE 4. TRUSTEES
1. Powers. The Supporting Organization’s Trustees will manage all of the Fund’s activities and affairs. The Trustees may delegate the management of the day-to-day operation of the Fund’s business to a management company, committee (however composed), or other person, provided that the Trustees will manage all of the Supporting Organization’s activities and affairs and that the Trustees will have ultimate discretion regarding the exercise of all powers granted to the Trustees under the Trust Agreement.
2. Number of Trustees. The authorized number of Trustees will be five (5), until changed by amendment of the Trust Agreement and Section 4.2 of this Agreement.
3. Qualifications of Trustees. The Supporting Organization intends that the composition of the Trustees represent a diversity of technical skills to enable the Trustees to make informed, wellbalanced decisions on the Fund’s economic viability and social impact of the Supporting Organization’s activities. However, notwithstanding anything to the contrary in this Agreement or the Trust Agreement, all of the Trustees must be “Members” of Alcor and a majority of the Trustees must also serve concurrently on Alcor’s Board of Directors. For purposes of this Agreement, a “Member” of Alcor is a person who has full legal and financial arrangements in effect for cryopreservation with Alcor, and does not include associate members.
4. Term of Office. The Trustees will serve until their death, resignation, or removal.
5. Vacancies and Removal.
A. A vacancy will be deemed to exist on the occurrence of a Trustee’s death, resignation, or removal.
B. The Trustees, by affirmative vote of a majority of the Trustees then in office, may remove any Trustee without cause at any regular or special meeting. Before a Trustee can be removed, he or she must have been notified in writing in the manner set forth in Section 4.9 of this Agreement that such action would be considered at the meeting.
C. All vacancies may be filled by vote of a majority of the Trustees then in office, whether or not the number of Trustees then in office is less than a quorum, or by vote of a sole remaining Trustee.
D. Any Trustee may resign effective upon giving written notice to any other Trustee, unless the notice specifies a future time for the resignation’s effectiveness. If the resignation is effective at a future time, then the successor Trustee may be elected to take office when the resignation becomes effective.
6. Place of Meetings; Meetings by Telephone. Regular meetings of the Trustees may be held at any place that has been designated from time to time by the Trustees. Special meetings of the Trustees will be held at any place that has been designated in the notice of the meeting. Despite anything to the contrary in this Section 4.6, a regular or special meeting of the Trustees may be held at any place consented to in writing by all the Trustees, either before or after the meeting. If consents are given, they will be filed with the minutes of the meeting. Any meeting, regular or special, may be held by conference telephone or similar communications equipment, as long as all Trustees participating in the meeting can hear one another, and all such Trustees will be deemed to be present in person at such meeting.
7. Annual Meeting. The Trustees will hold a regular meeting in January of each year, for the purpose of determining the Actual Payment (as later defined) and for transacting other business. Notice of the annual meeting will be given in the manner set forth in Section 4.9 of this Agreement.
8. Other Regular Meetings. Other regular meetings of the Trustees will be held at such times as are fixed by the Trustees. Such regular meetings may be held without notice.
9. Special Meetings.
A. Any two (2) Trustees may call a special meeting of the Trustees at any time and for any purpose.
B. Written notice of the date, time, and place of the special meeting will be delivered personally to each Trustee or communicated to each Trustee by telephone, facsimile, e-mail, express mail service, first-class mail, or by other means of written communication, with charges prepaid, addressed to the Trustee at his address as it appears upon the Supporting Organization’s records or if it is not so shown on such records or is not readily ascertainable, then at the place at which meetings of the Trustees regularly are held. If the notice is mailed, then it will be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. If the notice is delivered personally or by telephone, facsimile, or e-mail, then it will be so delivered at least 48 hours prior to the time of the holding of the meeting. The notice need not specify the meeting’s purpose.
C. Notice of a meeting need not be given to any Trustee who signs a waiver of notice, a consent to holding the meeting, an approval of the minutes of the meeting, whether before or after the meeting, or who attends the meeting without protesting, prior to the meeting or at its commencement, the lack of notice to such Trustee. The waiver of notice or consent need not specify the meeting’s purpose.
10. Action at a Meeting: Quorum and Required Vote. Presence of a majority of the Trustees then in office or three (3) Trustees, whichever is greater, at a meeting of the Trustees constitutes a quorum for the transaction of business, except as otherwise provided in this Agreement. Every act done or decision made by a majority of the Trustees present at a meeting duly held at which a quorum is present will be regarded as the act of the Trustees, unless a greater number, or the same number after disqualifying one or more Trustees from voting, is required by the Trust Agreement, this Agreement, or by law. Trustees may not vote by proxy. A meeting at which a quorum initially is present, including an adjourned meeting, may continue to transact business in spite of the withdrawal of Trustees, if any action taken is approved by at least a disinterested majority of the required quorum for such meeting, or such greater number as required by the Trust Agreement, this Agreement or by law. The approval of 2/3 of the authorized number of the Trustees is required for any of the following: (A) adopting or revoking a plan of merger or consolidation; or (B) voting on the Supporting Organization’s voluntary dissolution, bankruptcy or other reorganization, or on the sale, lease, or exchange of all or substantially all of the Supporting Organization’s property and assets, including the Fund, otherwise than in the usual and regular course of its business.
11. Adjourned Meeting and Notice. A majority of the Trustees present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, then notice of any adjournment to another time or place will be given prior to the time of the adjourned meeting to the Trustees who were not present at the time of the adjournment. The notice may be waived in the manner provided for in Section 4.9 of this Agreement.
12. Action Without a Meeting. Any action either required or permitted to be taken by the Trustees may be taken without a meeting, if all Trustees either individually or collectively consent in writing to such action. Action by written consent will have the same effect as the unanimous vote of the Trustees.
ARTICLE 5. COMMITTEES
1. Committees. The Trustees, by resolution adopted by a majority of the Trustees then in office, provided that a quorum is present, may designate one or more committees, each of which will consist of two (2) or more Trustees and also may include members who are not Trustees, to serve at the pleasure of the Trustees. The Trustees may designate one or more alternate members of any committee, who may replace any absent member at any committee meeting. The appointment of members or alternate members of a committee requires a majority vote of the Trustees then in office, provided that a quorum is present. Any committee that includes voting members who are not Trustees may not be delegated the authority or power of the Trustees. Any committee whose voting members consist only of Trustees, to the extent of the powers specifically delegated in the Trustees’ resolution or in this Agreement, may have all or a portion of the authority of the Trustees.
2. Meetings and Actions of Committees. Meetings and actions of all committees will be governed by, and held and taken in accordance with, Article 4 of this Agreement, concerning meetings and actions of Trustees, with such changes in the context of those provisions as are necessary to substitute the committee and its members for the Trustees, except that the time for regular meetings of committees may be determined either by resolution of the Trustees or by resolution of the committee. Special meetings of committees also may be called by resolution of the Trustees. Notice of special meetings of committees also will be given to any and all alternate members, who have the right to attend all committee meetings. Minutes will be kept of each meeting of any committee and will be filed with the Trustee’s records. The Trustees may adopt rules not inconsistent with this Agreement for the government of any committee.
ARTICLE 6. BENEFACTORS
1. In General. A “Benefactor” is an Alcor Member who has donated to the Fund. If an entity donates to the Trust, it can name one individual Alcor Member as its designated Benefactor. An entity cannot designate more than one individual as its designated Benefactor, and Alcor cannot itself designate a Benefactor.
2. The List. The Supporting Organization’s Board of Trustees will maintain a “List” of living Benefactors, which may be truncated at the Board’s discretion, but in no case will the List be less than six (6) entries. Benefactors will be ranked on the List based on the total value of their donations (or by the total value of the entity’s donations who designated the Benefactor). At least once per year, the Board of Trustees will notify all Benefactors on the List that they are on the List.
3. Powers. Notwithstanding anything in this Agreement to the contrary, the Trustees may not amend this Agreement without the approval of the Benefactors on the List, in accordance with Article 7 of this Agreement.
A. When there is a Board Approved Modification (as defined below), the Board of Trustees will determine who is on the List based only on donations made more than six months prior to the date when the proposed modification became a Board Approved Modification.
B. After the Board of Trustees determines the List, the Trustees will notify, in writing, the Benefactors on the List that there has been a Board Approved Modification. This written notice must be sent out within 30 days after the proposed modification became a Board Approved Modification. The notice will include a full draft of the Board Approved Modification, as well as notice that the Benefactor has 60 days from the date the proposed modification became a Board Approved Modification to vote on the Board Approved Modification.
C. Notice of the Board Approved Modification will be given in the same manner as set forth in Section 4.9 of this Agreement. Unless otherwise prohibited by the Board of Trustees, the Benefactors can submit their vote via email to the Board of Trustees.
D. At any time, but no later than immediately after the 60-day period has expired, the Board of Trustees will tally all votes received by the Benefactors to determine whether the Board Approved Modification has been approved pursuant to the requirements in Article 7 of this Agreement.
4. Liability. Any Benefactor will not be considered a Trustee or a fiduciary under this Agreement and will not be charged with any fiduciary responsibilities as a result of the Benefactor’s powers under this Agreement.
ARTICLE 7. AMENDMENTS
For one (1) year after the Effective Date, the vote of a majority of the Trustees then in office, present at a meeting duly held at which a quorum is present, is required to amend this Agreement. After this one (1) year period expires on December ____, 2018, to adopt, to amend, or to repeal this Agreement will require the following approvals:
1. Supporting Organization Trustees. The vote of 80% or more of the Trustees then in office, who have been in office for at least six (6) months.
2. Alcor Board of Directors. The vote of 80% or more of the Alcor Board of Directors then in office, who have been in office for at least six (6) months.
3. Benefactors. Upon approval by the Supporting Organization’s Board of Trustees and the Alcor Board of Directors, the proposed amendment will be considered a “Board Approved Modification,” which must be submitted to and approved by 2/3 or more of the Benefactors who voted on the Board Approved Modification (in accordance with the procedures described in Article 6).
ARTICLE 8. ARBITRATION
1. Disputes. Members of Alcor agree that they shall attempt to resolve in good faith any dispute which arises in connection with this Agreement by negotiation. As used herein, “Dispute” shall include any claim, controversy or disagreement arising out of this Agreement or the breach, termination or validity thereof involving any of the Members of Alcor.
2. Arbitration. If, where indicated in this Agreement, the Members of Alcor cannot resolve any Dispute through negotiation, upon written notice to the Trustees by at least three Members of Alcor, the Dispute will be submitted to arbitration. If the parties elect to proceed to arbitration, all claims, demands, disputes, controversies, differences, and/or misunderstandings arising out of or relating to this Agreement, or the failure or refusal to perform the whole or any part hereof, shall be settled by arbitration administered by the American Arbitration Association.
3. Procedures. All proceedings before the arbitrator shall be held in the Commonwealth of Virginia, unless the parties mutually agree otherwise. The award rendered by the arbitrator shall be final and judgment may be entered in accordance with applicable law and in any court having jurisdiction thereof. The parties to the proceeding shall have reasonable rights of discovery in accordance with the federal rules of civil procedure. The arbitrator may allocate the costs and expenses of the arbitration, including the arbitrator’s fees, legal fees and costs, in connection with such arbitration among the parties as the arbitrator determines in its reasonable discretion.
ARTICLE 9. CONSTRUCTION AND DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions contained in the Trust Agreement, as may be amended from time to time will govern the construction of this Agreement. The masculine gender includes the feminine and the neuter, the singular number includes the plural and the plural number includes the singular. The term “person” includes an entity as well as a natural person. If any competent court of law later deems any portion of this Agreement invalid or inoperative, then so far as is reasonable and possible (1) the remainder of this Agreement will be considered valid and operative; and (2) effect will be given to the intent manifested by the portion deemed invalid or inoperative.
ARTICLE 10. MISCELLANEOUS
This Agreement constitutes the final, entire, and exclusive agreement among the parties, and no representations, inducements, or agreements, oral or otherwise, not contained herein will have any force or effect. The language used in this Agreement is deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. The party substantially prevailing in any judicial proceeding between the parties hereto will be awarded its costs and expenses, including reasonable attorneys’ fees. Time is of the essence hereunder. The exchange of copies of this Agreement and of signature pages by facsimile or electronic (i.e., PDF) transmission will constitute effective execution and delivery of this Agreement and may be used instead of the original Agreement for all purposes. This Agreement is effective only when signed by all signatories, and will be binding upon and inure to the benefit of the parties hereto, their personal representatives, heirs, successors, and permitted assigns.
FUND DISTRIBUTION POLICY
1. Definitions. For purposes of Exhibit A of this Agreement, the following definitions apply:
“Actual Payout” (or “AP”) equals the total amount to be paid to Alcor by the Fund.
“Long-term Payout Limit” (or “LPL”) equals the sum of a series of hypothetical Actual Payouts if all such payouts equaled exactly two percent (2%) of the Fund’s Net Worth as of December 31.
“Net Worth” means the fair market value of the Fund’s assets, less any outstanding liabilities.
“Total Annual Payouts” (or “TAP”) equals the total of all Actual Payouts previously paid by the Fund.
2. Implementation. Beginning in 2016, the Trustees implemented the Policy, which is designed to regulate the maximum amount of distributions made to Alcor. The goal is to average a two percent (2%) payout per year over the long run, while simultaneously avoiding major fluctuations in the year-to-year payout caused by volatility in the markets. In general, the Fund’s Actual Payout to Alcor may decrease or increase by ten percent (10%) from the previous year’s payout if the Fund’s Net Worth decreases or increases significantly, or it may stay the same if the Fund’s Net Worth is roughly the same as the previous year; provided, however, the Policy is designed so that the Fund’s Actual Payout may rise by more than ten percent (10%) in certain situations where there has been very heavy growth.
- A. In any given year [X], the Fund’s Actual Payout to Alcor, AP[X], is calculated as follows:
- (1) Calculate the Fund’s Net Worth in year X (assets less liabilities as of December 31 on year X).
- (2) Calculate the LPL[X] = (LPL[X-1] + 2% of Fund’s year X Net Worth).
- (3) Calculate the AP[X] based on LPL[X], AP[X-1], and TAP[X-1]:
- (a) If (LPL[X] – TAP[X-1]) < 0.9 x AP[X-1], then: AP[X] = 0.9 x AP[X-1].
- (b) If (LPL[X] – TAP[X-1]) â‰¥ 0.9 x AP[X-1] and â‰¤ 1.1 x AP[X-1], then: AP[X] = LPL[X]-TAP[X-1].
- (c) If (LPL[X] – TAP[X-1]) > 1.1 x AP [X-1], then: AP[X] = 1.1 x AP[X-1] + ((LPL[X]-TAP[X-1]) – 1.1 x AP[X-1])/20.
- (d) For example, in 2016, LPL = $186,896.33, AP = $87,883.30, and TAP = $87,883.30. Thus, AP is calculated under subsection (c): 1.1 x 87,883.30 + (($186,893.30-$87,883.30) – 1.1 x 87,883.30)/20 = $96,788.70.
- (e) The AP of $96,788.70 will be transferred to Alcor as a one-time distribution in early 2017.
- B. Examples:
- (1) Assume that at the end of year 1, the Fund has a Net Worth of $5 million and zero liabilities. The Policy’s year 1 calculations are as follows:
- (a) The Fund’s year 1 Net Worth is $5 million.
- (b) Calculate LPL = 2% x year 1 Net Worth: 2% x $5,000,000 = $100,000.
- (c) There are no prior years to calculate AP[X-1] and TAP[X-1]. Thus: AP = $100,000.
- (d) The $100,000 is paid to Alcor in a lump sum payment in early year 2.
- (e) Note, also, that for future years TAP = $100,000.
- (2) Assume that at the end of year 2, the Fund now has a Net Worth of $10 million and zero liabilities. The Policy’s year 2 calculations are as follows:
- (a) The Fund’s year 2 Net Worth is $10 million.
- (b) Calculate LPL = 2% x year 2 Net Worth + LPL: $200,000 + $100,000 = $300,000.
- (c) This year saw substantial appreciation. Thus, because LPL – TAP > 1.1 x AP, Section 2(A)(3)(c) applies when calculating AP: 1.1 x $100,000+ (($300,000-$100,000) – 1.1 x $100,000)/20 = $114,500.
- (d) $114,500 is paid to Alcor in a lump sum payment in early year 3. Â
- (e) For future calculations, TAP = AP + AP = $214,500.
- (3) Assume that at the end of year 3, the Fund now has a Net Worth of $9 million and zero liabilities. The Policy’s year 3 calculations are as follows:
- (a) The Fund’s year 3 Net Worth is $9 million.
- (b) Calculate LPL = 2% x year 3 Net Worth + LPL: $180,000 + $300,000 = $480,000.
- (c) Note that the Fund’s Net Worth declined this year. However, because year 2’s appreciation was so steep, the Total Annual Payouts are still well under the LPL. Therefore, because LPL – TAP > 1.1 x AP, Section 2(A)(3)(c) applies again: 1.1 x $114,500+ (($480,000-$214,500) – 1.1 x $114,500)/20 = $132,927.50.
- (d) $132,927.50 is paid to Alcor in a lump sum payment in early year 4. Â
- (e) For future calculations, TAP = TAP + AP = $347,427.50.
- (f) Note that it’s possible for the AP to increase even when the Fund’s Net Worth decreases. Likewise, it’s also possible that the AP will decrease when the Fund’s Net Worth increases. This is a natural result of the Policy’s core principle: minor adjustments to major changes in the Fund’s value, a necessary feature for reducing Alcor’s exposure to market volatility.