EX-10.1
2
kl04075_ex10-1.htm
EXHIBIT 10.1
OPERATING AGREEMENT
Exhibit
10.1
OPERATING
AGREEMENT
OF
INSTRIDE
VENTURES, LLC
THIS
OPERATING AGREEMENT (this
“Agreement”) of InStride Ventures, LLC, a limited liability company organized
pursuant to the
Delaware Limited Liability Company Act (the “Company”), is
entered into by and among Xxxxxx Xxxxxxx Ventures LLC, a
Delaware limited
liability company (“Xxxxxx Xxxxxxx Ventures”), In Stride, L.L.C., a
Delaware
limited liability company doing business in New Jersey as In Stride Shoes,
L.L.C. (“In Stride”), Xxxx Xxxx, an individual (“Rice”), and Xxxx Xxxxxxx, an
individual (“Xxxxxxx”) (individually a “Member” or collectively the
“Members”).
SECTION
1. FORMATION;
DEFINITIONS.
1.1. Formation.
The
Members have caused this limited liability company to be formed under the
Delaware Limited Liability Company Act, 6
Delaware Code § 18-101 et
seq., as
amended from time to time (the “Act”). The Members have caused a certificate of
formation to be filed in accordance with the Act (the “Certificate of
Formation”).
1.2. Name.
The
name of the Company is “InStride Ventures, LLC” and all of the Company business
shall be conducted under that name or such other names that comply with
applicable law as the Manager may select from time to time.
1.3. Registered
Office; Registered Agent.
The
registered agent of the Company shall be The Corporation Trust Company and
the
registered office of the Company shall be located at Corporation Trust Center,
0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000, or at such other location (which
need not be a place of business of the Company) as the Manager may designate
from time to time.
1.4. Principal
Office; Other Offices.
The
initial principal office of the Company shall be located at c/o Xxxxxx Xxxxxxx
Ventures LLC, 000 Xxxxx Xxxxxx-Xxxxx Xxxxxxxxx, 0xx
Xxxxx,
Xxxxxx-Xxxxx, Xxxxxxxxxxxx 00000. The Company may change its principal office
or
have such other offices as the Manager may designate from time to
time.
1.5. Purposes.
The
purposes of the Company are (a) to enter into a binding agreement (the “ShopKo
Agreement”) with ShopKo Stores, Inc. (“ShopKo”) which would give the Company the
rights to supply Shopko with Medicare reimburseable therapeutic footwear that
includes athletic, casual and post-operative shoes and accessories, including
shoe inserts, that meet the medical needs of individuals with specific footwear
problems such as those related to diabetes (the “Footwear”), (b) to initially
enter into a short-term joint venture to supply, and use celebrity marketing
to
market, the Footwear at fifteen (15) ShopKo stores for a period beginning
shortly after the execution of this Agreement and ending on August 1, 2007
(the
“Test Period”) as a test (the “ShopKo Test”) to determine whether the Footwear
sells well enough during the
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Test
Period to provide business justification for Xxxxxx Xxxxxxx Ventures to elect
to
continue the joint venture with respect to the Footwear following the expiration
of the Test Period, (c) to continue to supply and market the Footwear to ShopKo
and/or other retail outlets or through other channels of distribution beyond
the
expiration of the Test Period if Xxxxxx Xxxxxxx Ventures decides, in its sole
discretion, that the Company should do so, and (d) to engage in any and all
activities related or incident to the purposes described in (a) through (c)
of
this Section 1.5.
1.6. Term.
The
Company commenced its existence upon the filing of the Certificate of Formation
with the Secretary of State of the State of
Delaware. The Company shall continue
in perpetual existence unless and until the Company is dissolved in accordance
with Section 8 hereof.
1.7. No
State Law Partnership.
The
Members intend that the Company shall not be a partnership (including, without
limitation, a limited partnership) or joint venture, and that no Member shall
be
a partner or joint venturer of any other Member, for any purposes other than
federal, state and local tax purposes, and the provisions of this Agreement
shall not be construed otherwise.
1.8. Definitions.
As used
in this Agreement, the following terms have the following meanings, unless
the
context otherwise requires:
(a) “Accounting
Period”
means
the following fiscal periods: the initial Accounting Period commenced on the
date on which the Certificate of Formation was filed with the
Delaware Secretary
of State. Each subsequent Accounting Period shall commence immediately after
the
close of the preceding Accounting Period. Each Accounting Period shall close
at
the earlier of the close of business on the last day of a Fiscal Year of the
Company or on the date of the Company’s dissolution. In addition, the Manager
may, in its sole discretion, close the applicable Accounting Period of the
Company upon: (1) the acceptance of a Capital Contribution from a new or
existing Member, other than a Capital Contribution which is pro rata among
all
existing Members; or (2) the effective date of the withdrawal of a
Member.
(b) “Act”
has the
meaning set forth in Section 1.1 hereof.
(c) “Adjusted
Capital Account”
means,
with respect to any Member, the balance, if any, in such Member’s Capital
Account as of the end of the relevant Accounting Period, after giving effect
to
the following adjustments:
(1) Credit
to
such Capital Account any amounts which such Member is obligated to restore
or is
deemed to be obligated to restore pursuant to the next to the last sentences
of
Section 1.704-2(g)(1) and Section 1.704-2(i)(5) of the Regulations.
(2) Debit
to
such Capital Account the items described in Section 1.704-1(b)(2)(ii)(d)(4),
Section 1.704-1(b)(2)(ii)(d)(5) and Section 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
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(d) “Adjusted
Capital Account Deficit”
means,
with respect to any Member, the deficit balance, if any, in such Member’s
Capital Account as of the end of the relevant Accounting Period, after giving
effect to the following adjustments:
(1) Credit
to
such Capital Account any amounts which such Member is obligated to restore
or is
deemed to be obligated to restore pursuant to the next to the last sentences
of
Section 1.704-2(g)(1) and Section 1.704-2(i)(5) of the Regulations.
(2) Debit
to
such Capital Account the items described in Section 1.704-1(b)(2)(ii)(d)(4),
Section 1.704-1(b)(2)(ii)(d)(5) and Section 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
The
foregoing definition of Adjusted Capital Account Deficit is intended to comply
with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and
shall
be interpreted consistently therewith.
(e) “Affiliate”
shall
mean with respect to any Person, any other Person controlling, controlled by
or
under common control with such specified persons. The term “control”, with
respect to any Person, means possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or a general partnership
interest or limited liability company interest, by contract or
otherwise.
(f) “Agreement”
means
this
operating agreement, as it may be amended and/or restated from time to
time.
(g) “Capital
Account”
means,
with respect to any Member, the Member’s Capital Contribution, increased or
decreased as provided in this Agreement.
(h) “Capital
Account Balance”
of any
Member shall mean the balance in that Member’s Capital Account at the time of
determination, whether positive or negative, as determined in accordance with
the terms of this Agreement.
(i) “Capital
Contribution”
means,
with respect to any Member, the amount of money and the initial Gross Asset
Value of any property other than money contributed to the Company by that
Member.
(j) “Capital
Transaction”
means
any sale or other disposition of all or a portion of the Property in a single
transaction or in a series of related transactions, other than a sale or
disposition in the ordinary course of the Company’s business.
(k) “Code”
means
the Internal Revenue Code of 1986, as amended from time to time. A reference
to
a specific section of the Code refers not only to that specific section but
any
corresponding provisions of any federal tax statute enacted after the date
of
this Agreement, as such specific section or corresponding provisions are in
effect on the date of application of this Agreement containing such
reference.
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(l) “Company”
means
InStride Ventures, LLC, a
Delaware limited liability company.
(m) “Company
Minimum Gain”
shall
have the meaning set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the
Regulations.
(n) “Depreciation”
means,
for each Accounting Period, an amount equal to the depreciation, amortization,
or other cost recovery deduction allowable with respect to an asset for such
year or other period, except that if the Gross Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of
such
year or other period, Depreciation shall be an amount which bears the same
ratio
to such beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other period
bears to such beginning adjusted tax basis.
(o) “Distributable
Cash”
means,
with respect to any fiscal period, the excess of all cash receipts of the
Company from any source whatsoever, including normal operations, sales of
assets, proceeds of borrowings, Capital Contributions of the Members, proceeds
from a Capital Transaction, and any and all other sources over the sum of the
following amounts:
(1) cash
disbursements for accounting and bookkeeping services, costs of sales of Company
assets, management fees and expenses, insurance, legal and accounting expenses,
and any and all other items customarily considered to be “ operating
expenses”;
(2) payments
of interest, principal and premium, and points and other costs of borrowing
under any indebtedness of the Company (other
than payments made with respect to Member Loans);
(3) payments
made to purchase Company assets; and
(4) amounts
set aside as Reserves.
(p) “Fiscal
Year”
means
the calendar year; but, upon the organization of the Company, Fiscal Year means
the period from the first day of the term of the Company to the next following
December 31, and upon dissolution of the Company, shall mean the period from
the
end of the last preceding Fiscal Year to the date of such
dissolution.
(q) “Footwear”
has the
meaning set forth in Section 1.5 hereof.
(r) “Gross
Asset Value”
means,
with respect to any asset, the asset’s adjusted basis for federal income tax
purposes, except as follows:
(1) The
initial Gross Asset Value of any asset contributed by a Member to the Company
shall be the gross fair market value of such asset, as determined by the
contributing Member and the Company;
(2) The
Gross
Asset Values of all Company assets shall be adjusted to equal their respective
gross fair market values in connection with (and to be effective immediately
prior to) the following events: (i) the acquisition of any additional Membership
Interest in the Company by any new or existing Member in exchange for more
than
a de minimis
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Capital
Contribution; (ii) the acquisition of any additional Membership Interest in
the
Company (other than a de minimis Membership Interest) as consideration for
the
provision of services to or for the benefit of the Company by an existing Member
acting in a Member capacity, or by a new Member acting in a Member capacity
or
in anticipation of becoming a Member; (iii) the distribution by the Company
to a
Member of more than a de minimis amount of Company property other than money,
unless all Members receive simultaneous distributions of undivided interests
in
the distributed property in proportion to their interests in the Company; and
(iv) the liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that an adjustment pursuant to clauses
(i), (ii) and (iii) above shall be made only if such adjustment is necessary
or
appropriate to reflect the relative economic interests of the Members in the
Company;
(3) If
the
Gross Asset Value of an asset has been determined or adjusted pursuant to
Section l.8(r)(1) or 1.8(r)(2) hereof, such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses; and
(4) The
Gross
Asset Values of Company assets shall be increased (or decreased) to reflect
any
adjustments to the adjusted basis of such assets pursuant to Code Section 734(b)
or Code Section 743(b), but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not
be
adjusted pursuant to this subsection to the extent that an adjustment pursuant
to subsection 1.8(r)(2) above is made in connection with a transaction that
would otherwise result in an adjustment pursuant to this
subsection.
(s) “Initial
Xxxxxx Xxxxxxx Ventures Loan”
has
the
meaning set forth in Section 3.1(b)(2) hereof.
(t) “Initial
In Stride Loan”
has
the
meaning set forth in Section 3.1(b)(1) hereof.
(u) “Manager”
means
Xxxxxx Xxxxxxx Ventures and any other Person or Persons hereafter designated
as
a Manager pursuant to the Act or the terms of this Agreement.
(v) “Member
Loan”
has the
meaning set forth in Section 3.2(a) hereof.
(w) “Members”
means
Xxxxxx Xxxxxxx Ventures, In Stride, Rice, Xxxxxxx and any other Person or
Persons hereafter admitted to the Company as a Member as provided in this
Agreement, but does not include any Person who has ceased to be a Member of
the
Company. The Members of the Company are listed on Schedule
A
attached
hereto, and the Company shall keep a current list of all Members and their
Capital Contributions.
(x) “Member
Nonrecourse Debt”
has the
meaning set forth in Section 1.704-2(b)(4) of the Regulations.
(y) “Member
Nonrecourse Debt Minimum Gain”
means
an
amount, with respect to each Member Nonrecourse Debt, equal to the Company
Minimum Gain that would
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result
if
such Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Section 1.704-2(i)(3) of the Regulations.
(z) “Member
Nonrecourse Deductions”
has
the
meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the
Regulations. The amount of Member Nonrecourse Deductions with respect to a
Member Nonrecourse Debt for any Accounting Period shall be determined in
accordance with Section 1.704-2(i)(2) of the Regulations.
(aa) “Membership
Interest”
shall
mean the interest of a Member in the Company, including without limitation,
rights to distributions (liquidating or otherwise), allocations, information
and
voting rights. The initial percentage Membership Interests of the Members in
the
Company are set forth on Schedule
A
attached
hereto.
(bb) “Nonrecourse
Deductions”
has the
meaning set forth in Section 1.704-2(b)(1) of the Regulations. The amount of
Nonrecourse Deductions for an Accounting Period shall be determined in
accordance with Section 1.704-2(c) of the Regulations.
(cc) “Nonrecourse
Liability”
has the
meaning set forth in Sections 1.704-2(b)(3) and 1.752-1(a)(2) of the
Regulations.
(dd) “Person”
means an
individual, corporation, association, partnership, joint venture, limited
liability company, estate, trust, or any other legal entity.
(ee) “Profits”
and “Losses”
means
the Company’s taxable income or taxable loss, as the case may be, for each
Accounting Period, as determined under Section 703(a) of the Code and
Regulations Section 1.703-1, but with the following adjustments: (1) any
tax-exempt income, as described in Section 705(a)(1)(B) of the Code, realized
by
the Company during such Accounting Period shall be taken into account as if
it
were taxable income in computing such taxable income or taxable loss; (2) any
expenditures of the Company described in Section 705(a)(2)(B) of the Code for
such Accounting Period, including any items treated under Regulations Section
1.704-1(b)(2)(iv)(i) as items described in Section 705(a)(2)(B) of the Code,
shall be taken into account as if they were deductible items in computing such
taxable income or taxable loss; (3) any items of income recognized by the
Company during such Accounting Period that are required to be allocated to
the
Members under Section 9.2(a) hereof shall be excluded from such taxable income
or taxable loss; (4) gain or loss resulting from any disposition of Company
property with respect to which gain or loss is recognized for federal income
tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value; and (5) in lieu of the depreciation,
amortization, and other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account Depreciation
for
such Accounting Period, computed in accordance with Section 1.8(n) hereof.
If
the Company’s taxable income or taxable loss for such Accounting Period, as
adjusted in the manner provided in Clauses (1) through (5) above, is a positive
amount, such amount shall be the Company’s Profits for such Accounting Period;
and if negative, such amount shall be the Company’s Losses for such Accounting
Period.
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(ff) “Property”
shall
mean, at any time, all property, whether real or personal, interests, assets
or
rights owned or held by or on behalf of the Company at such time.
(gg) “Regulations”
means
the income tax regulations, including temporary regulations, promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
(hh) “Reserve”
or
“Reserves”
means
amounts set aside and deemed sufficient by the Manager, as of the date of
determination, for working capital and to pay taxes, insurance, debt service,
or
other costs and expenses, incident to the operation of the Company, and for
advancing the purposes of the Company set forth in Section 1.5
hereof.
(ii) “ShopKo
Test”
has the
meaning set forth in Section 1.5 hereof.
(jj) “Test
Period”
has
the
meaning set forth in Section 1.5 hereof.
(kk) “Transfer”
shall
mean, any disposition (including, without limitation, gifts, sales, assignments,
pledges, encumbrances, bequests, and all other inter vivos or testamentary
dispositions) whether voluntary, involuntary or whether pursuant to court order
or by operation of law.
SECTION
2. MEMBERS;
MANAGER.
2.1. Members.
The
Members of the Company (and their Membership Interest in the Company) are listed
on Schedule
A
hereto,
each of whom has executed this Agreement as of the date hereof and is hereby
admitted to the Company as a Member.
2.2. Additional
Members.
No
Person
shall be admitted to the Company as an additional or substitute Member without
the prior written consent of the Manager or as otherwise provided
herein.
2.3. Liability
to Third Parties.
No
Member shall be liable for the debts, obligations or liabilities of the Company,
including under a judgment, decree or order of a court, except to the extent
required under the Act with respect to amounts distributed to the Member at
a
time when the Company was insolvent or was rendered insolvent by virtue of
such
distribution.
2.4. Manager.
The
number of Managers of the Company shall be one (1). Xxxxxx Xxxxxxx Ventures
is
hereby designated to serve as the Manager of the Company. The Manager may resign
at any time upon prior written notice to the Company. In the event of a vacancy
in the position of Manager by reason of resignation, liquidation, dissolution
or
bankruptcy, a successor shall be appointed by a majority-in-interest of the
Members.
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SECTION
3. CAPITAL
CONTRIBUTIONS; LOANS; ACQUISITION OF FOOTWEAR; CAPITAL
ACCOUNTS.
3.1. Initial
Capital Contributions; Initial Loans and Acquisition of Footwear During the
Test
Period.
(a) The
Members shall, promptly after the execution of this Agreement, make the initial
Capital Contributions set forth on Schedule
A attached hereto
to
the Company in exchange for their Membership Interests. In addition, In Stride
shall execute the license agreement attached hereto as Exhibit
A,
but
shall not receive any Capital Account credit for its execution of such license
agreement.
(b) During
the Test Period:
(1) In
Stride
shall supply to the Company all of the Footwear required, as determined by
the
Manager, to undertake the ShopKo Test. In addition, In Stride shall pay all
costs of training and Company operational overhead required (as determined
by
the Manager) during the Test Period to undertake the ShopKo Test. The sum of
(a)
In Stride’s documented direct cost of the Footwear supplied to the Company
pursuant to this Section 3.1(b)(1), and (b) the aggregate amount of documented
costs of training and Company operational overhead paid by In Stride pursuant
to
this Section 3.1(b)(1), shall constitute a loan by In Stride to the Company
(the
“Initial In Stride Loan”) which shall not bear interest and the principal of
which shall be repaid out of Distributable Cash pursuant to Sections 4.2(a)
and
4.3(a) hereof; provided, however, that (i) the documentation corresponding
to
any such costs shall be provided to the Manager within thirty (30) days after
such costs are incurred, and (ii) any individual expenditure (or commitment
to
make an individual expenditure) in excess of ten thousand dollars ($10,000)
shall require the approval of the Manager and the vote of those Members owning,
in the aggregate, at least sixty percent (60%) of the Membership Interests,
before such expenditure or commitment is incurred. Notwithstanding clause (ii)
of this Section 3.1(b)(1), (I) the Manager shall have the ability to propose
a
budget to the Members, and if the proposed budget is approved by at least sixty
percent (60%) of the Membership Interests, then the Member vote referred to
in
clause (ii) shall not be required unless the expenditure or commitment at issue
would result in the approved budgeted expenses being exceeded by more than
ten
thousand dollars ($10,000), and (II) regardless of whether or not a budget
has
been approved, if the Company’s gross revenue for any Fiscal Year exceeds two
million dollars ($2,000,000), then the Member vote referred to in clause (ii)
shall not be required for the remainder of that Fiscal Year and for all future
Fiscal Years.
(2) Xxxxxx
Xxxxxxx Ventures shall either advance to the Company, in cash, or pay directly,
all costs of marketing the Footwear during the Test Period, as such costs are
determined by the Manager. The aggregate amount of cash advanced to the Company
by Xxxxxx Xxxxxxx Ventures pursuant to this Section 3.1(b)(2), and documented
costs paid directly by Xxxxxx Xxxxxxx Ventures pursuant to this Section
3.1(b)(2), shall constitute a loan by Xxxxxx Xxxxxxx Ventures to the Company
(the “Initial Xxxxxx Xxxxxxx Ventures Loan”) which shall
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not
bear
interest and the principal of which shall be repaid out of Distributable Cash
pursuant to Sections 4.2(a) and 4.3(a) hereof; provided, however, that (i)
the
documentation corresponding to any such costs shall be provided to the Manager
within thirty (30) days after such costs are incurred, and (ii) any individual
expenditure (or commitment to make an individual expenditure) in excess of
ten
thousand dollars ($10,000) shall require the approval of the Manager and the
vote of those Members owning, in the aggregate, at least sixty percent (60%)
of
the Membership Interests, before such expenditure or commitment is incurred.
Notwithstanding clause (ii) of this Section 3.1(b)(2), (I) the Manager shall
have the ability to propose a budget to the Members, and if the proposed budget
is approved by at least sixty percent (60%) of the Membership Interests, then
the Member vote referred to in clause (ii) shall not be required unless the
expenditure or commitment at issue would result in the approved budgeted
expenses being exceeded by more than ten thousand dollars ($10,000), and (II)
regardless of whether or not a budget has been approved, if the Company’s gross
revenue for any Fiscal Year exceeds two million dollars ($2,000,000), then
the
Member vote referred to in clause (ii) shall not be required for the remainder
of that Fiscal Year and for all future Fiscal Years.
3.2. Additional
Capital Needs and Acquisition of Footwear After the Test Period.
(a) If,
after
the expiration of the Test Period, the Manager determines, in its sole
discretion, that additional capital is needed for Company business, then the
Manager may raise such additional capital through borrowing or issuing
additional equity in the Company, as the Manager in its sole discretion deems
advisable. The Manager may secure third party financing from an institutional
lender (without offering warrants or other equity participation). Additionally,
the Manager may secure loans from its Members (“Member Loans”) with each Member
being offered the right to participate in such loans based on its percentage
Membership Interest, and with contributing Members having the right (but not
the
obligation) to contribute non-participating Members’ share of these Member
Loans. Any such Member Loan made by a Member to the Company shall bear interest
at the Prime Rate as published in The Wall Street Journal on the date the Member
Loan is made plus 500 basis points, and the interest and principal of such
Member Loan shall be repaid out of Distributable Cash as provided in Sections
4.2 and 4.3 hereof. With respect to a proposed issuance of equity to raise
capital for Company purposes, the Manager shall value the new equity based
on a
good faith determination of the fair market value of the Company at the time
of
the issuance of such equity, and the issuance of such equity shall be subject
to
the preemptive rights of the Members set forth in Section 6.2 hereof.
Notwithstanding
the foregoing and the provisions of Section 6.2 hereof, with respect to the
first two hundred fifty thousand dollars ($250,000) of capital raised from
the
Members pursuant to this Section 3.2(a), each such contributing Member shall
acquire an additional one percent (1%) equity interest in the Company for each
twenty-five thousand dollars ($25,000) of capital contributed by such Member
(and with respect to any increment of capital contributed by such Member which
is less than twenty-five thousand dollars ($25,000), such Member shall acquire
a
corresponding fraction of the one percent (1%) additional equity interest)
and
the Membership Interests of the non-contributing Members shall be diluted
proportionately.
(b) After
the
expiration of the Test Period, In Stride shall sell to the Company, at In
Stride’s direct cost and without allocable overhead, all of the Footwear
required, as
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10
determined
by the Manager, to conduct the business of the Company. Payment for such
Footwear shall be due from the Company to In Stride no later than the date
of
the shipment of such Footwear from the Orient.
(c) After
the
expiration of the Test Period, Xxxxxx Xxxxxxx Ventures shall sell to the
Company, at Xxxxxx Xxxxxxx Ventures’ direct cost and without allocable overhead,
all of the marketing materials required, as determined by the Manager, to
conduct the business of the Company. Payment for such marketing materials shall
be due from the Company to Xxxxxx Xxxxxxx Ventures immediately upon the
Company’s receipt of such materials. The parties agree that marketing materials
shall not include personal appearances by Xxxxxx Xxxxxxx, and that the terms
and
conditions of any such appearances shall be as negotiated and agreed upon
between Xxxxxx Xxxxxxx and the Company.
3.3. Time
When Capital Contribution to be Returned.
No time
is agreed upon as to when the Capital Contributions of the Members are to be
returned. The Members shall not have the right to demand return of their Capital
Contributions nor shall the Members have the right to demand and receive
property other than cash in return for their Capital Contributions.
3.4. Capital
Accounts.
An
Adjusted Capital Account shall be maintained for each Member.
(a) To
each
such account there shall be credited:
(1) the
amount of money contributed to the capital of the Company by such
Member;
(2) the
fair
market value of any property other than money contributed to the Company by
such
Member net of the liabilities securing such contributed property that the
Company is considered to assume or take subject to pursuant to Section 752
of
the Code; and
(3) Profits
and items of income and gain allocated to the Member; and
(b) From
each
such account there shall be debited:
(1) the
amount of money distributed to the Member by the Company;
(2) the
fair
market value of all property distributed to such Member by the Company net
of
the liabilities securing such distributed property that such Member is
considered to assume or take subject to pursuant to Section 752 of the Code;
and
(3) Losses
and items of loss and deduction allocated to the Member.
(c) In
addition to the foregoing adjustments, each Member’s Adjusted Capital Account
shall be maintained consistently with and reflect all adjustments described
in
Regulations Section 1.704-1(b)(2)(iv).
(d) If
ownership of any Membership Interest in the Company is assigned in accordance
with the terms of this Agreement, the assignee shall succeed to the Capital
Account of the assignor to the extent it relates to the assigned Membership
Interest.
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(e) In
determining the amount of any liability for purposes of subsections 3.4(a)
and
(b) above, there shall be taken into account Code Section 752(c) and any other
applicable provisions of the Code and Regulations.
(f) To
each
Member’s Capital Account, there shall be debited or credited, as the case may
be, adjustments which are necessary to reflect a revaluation of Company assets
to reflect the Gross Asset Value of all Company assets, as required by
Regulations Section 1.704-1(b)(2)(iv)(f) and Section 1.8(r).
The
foregoing provisions and the other provisions of this Agreement relating to
the
maintenance of Capital Accounts are intended to comply with Section 704 of
the
Code and Regulation Section 1.704-1(b) and shall be interpreted and applied
in a
manner consistent with such provisions. The Company shall make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of Company capital reflected on the
Company’s balance sheet as computed for book purposes in accordance with Section
1.704-1(b)(2)(iv)(q) of the Regulations.
SECTION
4. DISTRIBUTIONS;
ALLOCATION OF PROFITS AND LOSSES.
4.1. Distributions.
Subject
to maintaining the Company in a sound financial and cash position (which,
without limiting the generality of the foregoing, shall include the provision
for losses affecting the cash position of the Company and the payment or
provision for payment, when due, of obligations of the Company) and establishing
such Reserves as are determined by the Manager, in its sole discretion, to
be
reasonably required, the Manager shall distribute funds of the Company as
provided herein.
4.2. Distributions
of Distributable Cash from Operations.
If the
Manager decides in its discretion to distribute cash flow, then distributions
of
Distributable Cash arising from operations, other than Capital Transactions,
to
the extent available, shall be made to the Members in the following order of
priority:
(a) first,
to
In Stride and Xxxxxx Xxxxxxx Ventures, the amount required to provide them
with
the outstanding principal balance of the Initial In Stride Loan and the Initial
Xxxxxx Xxxxxxx Ventures Loan, respectively, pro rata in accordance with the
respective amounts of the outstanding principal balances of the Initial In
Stride Loan and the Initial Xxxxxx Xxxxxxx Ventures Loan;
(b) second,
to each Member who has made a Member Loan, the amount, if any, required to
provide such Member with any current and accumulated interest on his or its
Member Loan, pro rata in accordance with the respective amounts of current
and
accumulated interest of all Member Loans;
(c) third,
to
each
Member who has made a Member Loan, the amount, if any, required to provide
such
Member with the outstanding principal balance of his or its Member
12
Loan,
pro
rata in accordance with the respective amounts of the outstanding principal
balances of all Member Loans; and
(d) thereafter,
to the Members pro rata in accordance with their Membership
Interests.
Notwithstanding
the foregoing provisions of this Section 4.2, after making the distributions
provided for in subsections (a) and (b) of this Section 4.2, and prior to making
the distributions provided for in subsections (c) and (d) of this Section 4.2,
the Company shall, to the extent available, distribute the Tax Distribution
Amount (as defined in Section 4.5 hereof) to the Members.
4.3. Distributions
of Distributable Cash Arising from Capital Transactions and Upon
Liquidation.
If the
Manager decides in its discretion to distribute cash flow, then Distributable
Cash arising out of a Capital Transaction and net proceeds upon liquidation
of
the Company, to the extent available, shall be made to the Members in the
following order of priority:
(a) first,
to
In Stride and Xxxxxx Xxxxxxx Ventures, the amount required to provide them
with
the outstanding principal balance of the Initial In Stride Loan and the Initial
Xxxxxx Xxxxxxx Ventures Loan, respectively, pro rata in accordance with the
respective amounts of the outstanding principal balances of the Initial In
Stride Loan and the Initial Xxxxxx Xxxxxxx Ventures Loan;
(b) second,
to each Member who has made a Member Loan, the amount, if any, required to
provide such Member with any current and accumulated interest on his or its
Member Loan, pro rata in accordance with the respective amounts of current
and
accumulated interest of all Member Loans;
(c) third,
to
each
Member who has made a Member Loan, the amount, if any, required to provide
such
Member with the outstanding principal balance of his or its Member Loan, pro
rata in accordance with the respective amounts of the outstanding principal
balances of all Member Loans;
(d) fourth,
to all Members with positive Adjusted Capital Account Balances in proportion
to,
and to the extent of, such positive balances; and
(e) thereafter,
to the Members pro rata in accordance with their Membership
Interests.
Notwithstanding
the foregoing provisions of this Section 4.3, after making the distributions
provided for in subsections (a) and (b) of this Section 4.3, and prior to making
the distributions provided for in subsections (c), (d) and (e) of this Section
4.3, the Company shall, to the extent available, distribute the Tax Distribution
Amount (as defined in Section 4.5 hereof) to the Members.
13
4.4. Tax
Withholding.
The
Members acknowledge and agree that the Company shall withhold for the payment
of
any foreign, state, federal and/or local taxes which may arise as a result
of
being a Member of the Company to the extent required by law.
4.5. Time
of Distributions.
Except
as otherwise provided herein, distributions may be made from the Company to
the
Members at such times as the Manager in its discretion may determine;
PROVIDED,
HOWEVER,
that
the Company shall endeavor to distribute to each Member in cash, if available,
no less than the “Tax Distribution Amount” within ten (10) days following the
end of each quarter. For purposes of this Agreement, the “Tax Distribution
Amount” for each Member for each quarter shall be an amount equal to (a) the
aggregate taxable income taxed to such Member for federal income tax purposes
for such quarter as a result of allocations of Profits and Losses under Section
4.6 multiplied by (b) the sum, expressed as a percentage, of (1) the highest
marginal federal individual income tax rate in effect for that quarter plus
(2)
the highest marginal New Jersey individual income tax rate in effect for that
quarter.
4.6. Profits
and Losses.
(a) Subject
to the special allocations set forth in Section 9 hereof, the Profits of the
Company shall be determined each year in accordance with the accounting methods
followed for federal income tax purposes and allocated as follows:
(1) first,
to
each Member with an Adjusted Capital Account Deficit pro rata to such Adjusted
Capital Account Deficits to the extent of the amounts necessary to eliminate
such Adjusted Capital Account Deficits;
(2) second,
to each Member to the extent such Member was previously allocated Losses, in
proportion to the amount of such Losses;
and
(3) thereafter,
any remaining Profits shall be allocated to the Members pro rata in accordance
with their percentage Membership Interests.
(b) Subject
to the special allocations set forth in Section 9 hereof, the Losses of the
Company shall be determined each year in accordance with the accounting methods
followed for federal income tax purposes and allocated as follows:
(1) first,
to
the extent the Adjusted Capital Account Balance of any Member exceeds zero
(0),
to each such Member in proportion to and to the extent of the amounts necessary
to cause their respective Adjusted Capital Account Balances to equal zero (0);
(2) second,
to In Stride, Xxxxxx Xxxxxxx Ventures and each Member who has made a Member
Loan, in proportion to and to the extent of the respective amounts of the
outstanding principal balances of the Initial In Stride Loan, the Initial Xxxxxx
Xxxxxxx Ventures Loan and Member Loans; and
(3) thereafter,
any remaining Losses shall be allocated to the Members pro rata in accordance
with their percentage Membership Interests.
14
SECTION
5. MANAGEMENT;
LIABILITY OF PARTIES; INDEMNIFICATION; PURCHASE OPTION; LICENSE
AGREEMENT
5.1. Management
by Manager.
Subject
to Section 5.2 hereof, the Manager shall be responsible for the operation of
the
Company’s business in the ordinary course, and shall have the authority to do
all things without the approval or consent of the Members that it determines
in
its sole discretion to be in furtherance of the purposes of the Company. Without
limiting the generality of the foregoing, the Manager shall have the authority
to:
(a) arrange
for the collection and deposit of all cash receipts of the Company;
(b) establish,
maintain, and draw upon checking and other accounts in the name of the Company,
in such bank or banks as the Manager may, from time to time,
select;
(c) execute
notifications, statements, reports, returns and other filings that are necessary
or desirable to be filed with any state or federal securities
commission;
(d) except
as
provided in Section 7.3 hereof, make any tax elections available to the Company
under the Code or the Regulations thereunder, to designate a tax matters partner
of the Company, and to execute, acknowledge and deliver any and all instruments
desirable to effectuate the foregoing;
(e) employ
accountants, attorneys, consultants and other persons, firms, corporations
or
entities on such terms and for such compensation as it shall
determine;
(f) arrange
for the payment of all liabilities of the Company;
(g) arrange
for the timely filing of all federal and state tax returns of the
Company;
(h) borrow
money on behalf of the Company on such terms as the Manager may determine,
provided, however, that, during the Test Period, any such borrowing in excess
of
ten thousand dollars ($10,000) shall be a Major Decision pursuant to Section
5.2(a)(4) hereof and shall accordingly be subject to the Member voting
requirement described in Section 5.2(a);
(i) hypothecate,
encumber, and/or grant security interests in assets of the Company, provided,
however, that, during the Test Period, any such hypothecation, encumbrance,
and/or grant of security interests in assets of the Company having a fair market
value in excess of ten thousand dollars ($10,000) shall be a Major Decision
pursuant to Section 5.2(a)(5) hereof and shall accordingly be subject to the
Member voting requirement described in Section 5.2(a); and
(j) make,
enter into, deliver and perform all contracts, agreements or undertakings,
pay
all costs and expenses and perform all acts deemed appropriate by the Manager
to
carry out the Company’s purposes.
15
5.2. Major
Decisions; Manager Election to Outsource Day-to-Day Activities to In
Stride.
(a) Notwithstanding
anything in this Agreement to the contrary, the Manager shall not take any
of
the following actions or enter into any agreement which would result in any
of
the following actions (any such action a “Major Decision”), without the vote of
those Members owning, in the aggregate, at least sixty percent (60%) of the
Membership Interests:
(1) change
the nature of the Company’s business or enter into a new line of
business;
(2) engage
in
any transactions with a Member, any Affiliate of a Member, or any family member
of a Member or family member of an owner of a Member or its Affiliates;
(3) sell
or
dispose of all or substantially all of the Company’s assets other than on an
arms-length basis;
(4) during
the Test Period, borrow money on behalf of the Company in excess of ten thousand
dollars ($10,000);
(5) during
the Test Period, hypothecate, encumber, and/or grant security interests in
assets of the Company having a fair market value in excess of ten thousand
dollars ($10,000); and
(6) enter
into any agreement for a personal appearance fee for Xxxxxx Xxxxxxx in excess
of
ten thousand dollars ($10,000).
(b) In
Stride
agrees that, at the election of the Manager which may be made by the Manager
at
any time upon notice to In Stride, In Stride shall handle, on an independent
contractor basis, the day-to-day administration of the Company’s business,
including,
but not limited to, billing, receivables, inventory control, warehousing,
shipping, sales management, training of ShopKo’s (or other customer of the
Company) pharmacists and technicians, maintenance of a customer service staff
dedicated to answering all of ShopKo’s (or other customer of the Company)
pharmacy requests and questions about the Footwear and Medicare program with
respect to the Footwear, and interfacing with ShopKo (or other customer of
the
Company) corporate in connection with issues relating to the ShopKo Agreement
(or agreement with such other customer) and delivery of goods and services
thereunder. In consideration for the foregoing services, the Company shall
pay
In Stride a service fee in accordance with the following schedule (for purposes
of this Section 5.2(b), a “unit” is defined as “a pair of shoes with inserts”):
(i)
with
respect to any calendar month in which total sales of units for such calendar
month are not greater than three hundred (300) units, the service fee shall
be
thirty dollars ($30.00) per unit sold during such calendar month, and (ii)
with
respect to any calendar month in which total sales of units for such calendar
month are greater than three hundred (300) units, the service fee shall be
thirty dollars ($30.00) per unit for the first three hundred (300) units sold
during such calendar month plus twenty-two dollars and fifty cents ($22.50)
per
unit for each unit sold during such calendar month in excess of three hundred
(300) units. The
16
amount
of
the service fee set forth herein shall be in addition to (and not included
in)
the actual cost of the shoe and shoe inserts.
5.3. Authority
to Bind the Company.
The
Manager or its designee shall have the right to bind the Company and to execute
documents on the Company’s behalf. In addition to the specific rights and powers
herein granted to the Manager, the Manager shall, subject to the limitations
set
forth in this Agreement, possess and enjoy and exercise all of the other rights
and powers of Managers under the Act or granted by the law of any other
jurisdiction in which the Company may do business. In addition, no Member other
than the Manager may bind the Company and execute documents on the Company’s
behalf without the prior written approval of the Manager.
5.4. Appointment
of Officers. The
Manager may, from time to time in its sole discretion, by resolution, appoint
such officers of the Company as it shall deem advisable.
5.5. Liability
of Parties.
(a) No
Member, Manager or Affiliate of such Persons (a “Covered Person”) shall be
liable to the Company or any other Covered Person for any loss, damage or claim
incurred by reason of any act or omission performed or omitted by such Covered
Person in good faith on behalf of the Company and in a manner reasonably
believed to be within the scope of authority conferred on such Covered Person
by
this Agreement, except that a Covered Person shall be liable for any such loss,
damage or claim incurred by reason of such Covered Person’s gross negligence or
willful misconduct.
(b) A
Covered
Person shall be fully protected in relying in good faith upon the records of
the
Company and upon such information, opinions, reports, or statements presented
to
the Company by any Person as to matters the Covered Person reasonably believes
are within such Person’s professional or expert competence and who has been
selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount of
the
assets, liabilities, Profits, Losses or Distributable Cash or any other facts
pertinent to the existence and amount of assets from which distributions to
Members might properly be paid.
(c) To
the
extent that, at law or in equity, a Covered Person has duties (including
fiduciary duties) and liabilities relating thereto to the Company or to any
Member, a Covered Person acting under this Agreement shall not be liable to
the
Company or to any Member for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of a Covered Person otherwise existing at law or
in
equity, are agreed by the parties hereto to replace such other duties and
liabilities of such Covered Person.
(d) Unless
otherwise expressly provided herein, (1) whenever a conflict of interest exists
or arises between Covered Persons, or (2) whenever this Agreement or any other
agreement contemplated herein or therein provides that a Covered Person shall
act in a manner that is, or provides terms that are, fair and reasonable to
the
Company or act in any manner that is, or provides terms that are, fair and
reasonable to the Company or any Member, the Covered
17
Person
shall resolve such conflicts of interest, take such action or provide such
terms, considering in each case the relative interest of each party (including
his, her or its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
principles. In the absence of bad faith by the Covered Person, the resolution,
action or term so made, taken or provided by the Covered Person shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or of any duty or obligation of the Covered Person at law or in equity or
otherwise.
(e) Whenever
in this Agreement a Covered Person is permitted or required to make a decision
(1) in his, her or its “discretion” or under a grant of similar authority or
latitude, the Covered Person shall be entitled to consider such interests and
factors as he or it desires, including his or its own interests, and shall
have
no duty or obligation to give any consideration to any interest of or factors
affecting the Company or any other Persons, or (2) in his or its “good faith” or
under another express standard, the Covered Person shall act under such express
standard and shall not be subject to any other or different standard imposed
by
this Agreement or other applicable law.
5.6. Indemnification
of Covered Persons.
(a) To
the
fullest extent permitted by applicable law, a Covered Person shall be entitled
to indemnification from the Company for any loss, damage or claim incurred
by
such Covered Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of authority conferred on such
Covered Person by this Agreement, except that no Covered Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred
by
such Covered Person by reason of gross negligence or willful misconduct with
respect to such acts or omissions, PROVIDED,
HOWEVER,
that
any indemnity under this Section 5.6(a) shall be provided out of and to the
extent of Company assets only, and no Member shall have any personal liability
on account thereof.
(b) To
the
fullest extent permitted by applicable law, reasonable expenses (including
legal
fees) incurred by a Covered Person in defending any claim, demand, action,
suit
or proceeding shall, from time to time, be advanced by the Company prior to
the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Company of an undertaking by or on behalf of the Covered Person to repay
such amount if it shall be determined that the Covered Person is not entitled
to
be indemnified as authorized in Section 5.6(a) hereof.
(c) The
Company may, but is not required to, purchase and maintain insurance, to the
extent and in such amounts as the Manager shall deem reasonable, on behalf
of
Covered Persons and such other Persons as the Manager shall determine, against
any liability that may be asserted against or expenses that may be incurred
by
any such Person in connection with the activities of the Company or such
indemnities, regardless of whether the Company would have the power or
obligation to indemnify such Person against such liability under the provisions
of this Agreement. The Company may enter into indemnity contracts with Covered
Persons and such other Persons as the Manager shall determine and adopt written
procedures
18
pursuant
to which arrangements are made for the advancement of expenses and the funding
of obligations under Section 5.6(b) hereof and containing such other procedures
regarding indemnification as are appropriate.
5.7. Competition.
(a) While
a
Member owns a Membership Interest in the Company and for a period of two (2)
years after such Member ceases to own a Membership Interest in the Company
for
any reason, including without limitation dissolution of the Company, such Member
and such Member’s Affiliates shall not directly or indirectly engage in any
activities, perform any services or conduct any businesses which are competitive
with the Company’s business or any part of the Company’s business or engage in
activities or services performed by, or sell products sold by, the Company.
Except for businesses competitive with the Company as aforesaid,
any
Member
or Manager may engage in or possess an interest in other business ventures
of
every type and description, independently or with others, and neither the
Company nor any of the Members shall have any right by virtue of this Agreement
in or to any such independent ventures or to the income or profits derived
therefrom. The fact that a Member or Manager or an organization or other entity
which is related, directly or indirectly, is employed by or is directly or
indirectly interested in or is connected with any person, firm, organization
or
entity engaged in or employed by the Company, to render or perform a service,
or
from whom or which the Company may buy property of any sort, kind and
description, shall not prohibit the Company from executing any agreement with
or
employing such person, organization, firm, corporation, or entity, or from
otherwise dealing with him or it, in any manner whatsoever, so long as such
dealing is on an arm’s length basis, and neither the Company nor any of the
Members, as such, shall have any rights in or to any income or profits derived
by it or the related party.
(b) Notwithstanding
Section 5.7(a) hereof or any other provision of this Agreement, In Stride shall
retain a limited right to sell and distribute Footwear solely as provided in
the
Exclusive Trademark License Agreement attached hereto as Exhibit
A;
provided, however, that such license agreement shall terminate upon a
dissolution of the Company or upon Xxxxxx Xxxxxxx Ventures’ material breach of
this Agreement if such material breach is not cured within thirty (30) days
after Xxxxxx Xxxxxxx Ventures receives written notice from In Stride of such
material breach.
5.8. Company’s
Option to Purchase Assets of In Stride.
(a) For
a
period of two (2) years after the date of this Agreement, the Company shall
have
the option to purchase the assets of In Stride (other than its Membership
Interest in the Company). In the event such option is exercised, (i) the Company
shall purchase all of In Stride’s undamaged inventory that is salable in the
ordinary course of business at a purchase price equal to In Stride’s cost,
including but not limited to acquisition cost, freight, warehousing and
allocable overhead, and (ii) the Company shall purchase the assets of In Stride
other than the inventory at a purchase price equal to five (5) times the EBITDA
of In Stride for the twelve-month period ending on the date the option is
exercised (such EBITDA being determined without regard to any extraordinary
income or expenses of In Stride during said twelve-month period, including,
but
not limited to, income derived and expenses incurred in
19
connection
with In Stride’s fulfillment of its obligations to supply goods to the Company
hereunder) (the “EBITDA Calculation”). Notwithstanding the foregoing, if the
amount determined pursuant to the EBITDA Calculation is less than one million
dollars ($1,000,000), then the amount determined pursuant to the EBITDA
Calculation shall be increased by one-half (1/2) of the difference between
one
million dollars ($1,000,000) and the amount determined pursuant to the EBITDA
Calculation. The foregoing option shall be exercisable by written notice from
the Manager to In Stride within two (2) years after the date of this Agreement,
and in the event of exercise, the Company and In Stride shall enter into a
purchase and sale agreement to be negotiated in good faith and which shall
provide for cash payment in full at closing and contain standard
representations, warranties, and indemnities.
(b) If
the
Company exercises the option provided for in Section 5.8(a) hereof, then the
Company and Xxx Xxxxxxxxxx Xx. (“Xxxxxxxxxx”) shall enter into an employment
agreement to be negotiated in good faith with respect to Xxxxxxxxxx’x employment
with the Company and which shall provide for the term, title and compensation
set forth in this Section 5.8(b). The term of such employment agreement shall
be
three (3) years, and shall provide for the Company’s employment of Xxxxxxxxxx as
its President. Such employment agreement shall require Xxxxxxxxxx to dedicate
a
substantial amount of his time to his services as President of the Company
and
shall provide for Xxxxxxxxxx to receive, during such three-year term, (i) an
annual base compensation of one hundred fifty thousand dollars ($150,000),
(ii)
with respect to each year that the gross revenue of the Company is greater
than
five million dollars ($5,000,000) and less than twenty million dollars
($20,000,000), a bonus (in addition to the base compensation set forth in clause
(i) of this Section 5.8(b)) in the amount of fifty thousand dollars ($50,000),
and (iii) with respect to each year that the gross revenue of the Company is
equal to or greater than twenty million dollars ($20,000,000), a bonus (in
addition to the base compensation set forth in clause (i) of this Section
5.8(b)) in the amount of one hundred thousand dollars ($100,000).
(c) If
the
Company exercises the option provided for in Section 5.8(a) hereof, then the
Company and Xxxxxx Xxxxxxxx (“Xxxxxxxx”) shall enter into an employment
agreement to be negotiated in good faith with respect to Xxxxxxxx’x employment
with the Company and which shall provide for the term, title and compensation
set forth in this Section 5.8(c). The term of such employment agreement shall
be
three (3) years, and shall provide for the Company’s employment of Xxxxxxxx as
its Vice President of Pharmacies. Such employment agreement shall require
Xxxxxxxx to dedicate a substantial amount of his time to his services as Vice
President of Pharmacies of the Company and shall provide for Xxxxxxxx to
receive, during such three-year term, (i) an annual base compensation of
seventy-five thousand dollars ($75,000), (ii) with respect to each year that
the
gross revenue of the Company is greater than five million dollars ($5,000,000)
and less than twenty million dollars ($20,000,000), a bonus (in addition to
the
base compensation set forth in clause (i) of this Section 5.8(c)) in the amount
of twenty-five thousand dollars ($25,000), and (iii) with respect to each year
that the gross revenue of the Company is equal to or greater than twenty million
dollars ($20,000,000), a bonus (in addition to the base compensation set forth
in clause (i) of this Section 5.8(c)) in the amount of fifty thousand dollars
($50,000).
20
(d) In
Stride
agrees that it shall not engage in any sale or other disposition of its assets
outside the ordinary course of business prior to the expiration of the period
during which the Company may exercise its option pursuant to Section 5.8(a)
hereof or engage in any other transaction or activity that would adversely
affect or interfere with the Company’s option.
5.9. License
Agreement with Xxxxxx Xxxxxxx Ventures.
Xxxxxx
Xxxxxxx Ventures and the Company shall enter into the license agreement attached
hereto as Exhibit
B.
SECTION
6. TRANSFERABILITY
OF MEMBERSHIP INTERESTS.
6.1. Restrictions
on Transfer.
(a) Except
as
specifically provided in this Agreement, no Member shall Transfer, directly
or
indirectly (including, without limitation, through a Transfer of a membership
interest, beneficial interest in a trust, partnership interest or shares in
an
entity that is a Member), all or any portion of his or its Membership Interest
in the Company.
(b) Subject
to Section 6.3 hereof, and notwithstanding the limitations of Section
6.1(c)(5)(c)(i) and (ii) hereof, a Member may Transfer all or any portion of
his
or its Membership Interest in the Company to any transferee (“Approved
Transferee”) with the prior written consent of the Manager, which may be granted
or withheld in its sole and absolute discretion.
(c) Permitted
Transferees.
(1) Subject
to Section 6.3 hereof, upon his death, each individual Member, if any (or
individual owner of a Member) shall have, and at all times retain the right
to
Transfer all or any portion of his Membership Interest (or interest in a Member)
outright or in trust to or for the benefit of his spouse or descendants, or
to
any entity which is wholly owned by such Member, such Member’s spouse or
descendants, the foregoing trusts, or any combination of the foregoing. Subject
to Section 6.3 hereof, each corporate Member, each limited partnership Member
and each limited liability company Member, if any, shall have the right to
Transfer all or any part of its Membership Interest to any owner of such Member,
to such owner’s spouse, descendants and/or a trust or trusts for the benefit of
the foregoing, or to any entity which is wholly owned by such owner, such
owner’s spouse or descendants, the foregoing trusts, or any combination of the
foregoing.
(2) Subject
to Section 6.3 hereof, if a Membership Interest is held in trust, the holders
of
such Membership Interest shall have the right to Transfer such Membership
Interest to successor trustees and/or to the beneficiaries of such trust in
accordance with the terms thereof.
(3) The
Person or Persons receiving a Membership Interest pursuant to the terms of
this
subsection (c) shall be referred to hereinafter individually as such Member’s
“Permitted Transferee” and collectively as his, her or its “Permitted
Transferees.”
21
(4) Any
Permitted Transferee shall receive and hold the Membership Interest so
Transferred subject to the terms and conditions of this Agreement as though
a
party hereto, and no Transfer of any Membership Interest shall be made to such
Approved Transferee or Permitted Transferee unless he shall so acknowledge
in
writing to be bound by all of the terms and conditions of this Agreement. Upon
the satisfaction of the above and complying with Section 6.3 hereof, the
Approved Transferee or Permitted Transferee shall be admitted to the Company
as
a Member.
(5) A
Permitted Transferee shall not Transfer all or any portion of his or its
Membership Interest in the Company unless such a Transfer is made (a) subject
to
the provisions of this Section 6.1, (b) subject to the provisions of Section
6.3
hereof, and (c):
(i) to
the
Member from whom he, she or it obtained the Membership Interest; or
(ii) to
another Permitted Transferee of the Member from whom he, she or it obtained
the
Membership Interest.
(d) Following
any Transfer of a Member’s entire Membership Interest, the Member shall have no
further rights as a Member of the Company.
6.2. Preemptive
Rights.
(a) If,
following the expiration of the Test Period, the Company authorizes the issuance
or sale of any equity in the Company to any Person (including any Member) (the
"Offeree"), the Company shall first offer to sell to each Member a pro-rata
portion (based on the Membership Interest held by such Member at such time)
of
such equity. The Members shall be entitled to purchase such equity at the same
price as such equity is to be offered to the Offeree. The Members will take
all
necessary or desirable actions in connection with the consummation of the
purchase transactions contemplated by this Section 6.2(a) as requested by the
Company, including the execution of all agreements, documents and instruments
in
connection therewith in the form presented by the Company, and so long as such
agreements, documents and instruments do not require such Members to make more
burdensome representations, warranties, covenants or indemnities than those
required of the Offeree in the agreements, documents or instruments in
connection with such transaction. If any Member elects not to purchase any
such
equity, or not to purchase all of such Member’s pro-rata portion, each other
Member who has elected to purchase all of such Member’s pro-rata portion (a
"Fully Participating Member") shall be entitled to purchase an additional
portion of such equity. If more than one Fully Participating Member desires
to
purchase such equity in excess of the portion allocated to such Member pursuant
to the first sentence of this Section 6.2(a), then each such Fully Participating
Member shall be entitled to purchase up to all of such available equity. If
there is an oversubscription in respect of such remaining equity, the
oversubscribed amount shall be fully allocated among the Fully Participating
Members pro rata based on such Fully Participating Members’ percentage
Membership Interest. Notwithstanding the foregoing or anything contained to
the
contrary herein, no Member shall be entitled to purchase equity pursuant to
this
Section 6.2(a) in the event such Member is in breach of, or has not complied
with all of such Member’s obligations under this Agreement or other agreements
to which such Member and the Company are a party.
22
(b) In
order
to exercise its purchase rights hereunder, a Member must, within forty-five
(45)
days after receipt of written notice from the Company describing the equity
being offered, the purchase price thereof, the payment terms and such Member’s
percentage allotment, deliver a written notice to the Company describing its
election hereunder (which election shall be absolute and unconditional). The
forty-five (45) day time frame described herein shall apply both in the case
of
an initial written notice from the Company to the Members with respect to an
offering of equity and in the case of any subsequent written notice from the
Company to the Fully Participating Members with respect to an additional portion
of such equity available for purchase as a result of another Member electing
not
to purchase all of its pro-rata portion.
(c) Upon
the
expiration of the offering period described above, the Company shall be entitled
to sell such equity to the Offeree which the Members have not elected to
purchase during the 180 days following such expiration at no less than the
purchase price stated in the notice provided under Section 6.2(b)
hereunder. Any equity proposed to be offered or sold by the Company to the
Offeree after such 180-day period, or at a price not complying with the
immediate preceding sentence, must be reoffered to the Members pursuant to
the
terms of this Section 6.2 prior to any sale to the Offeree.
6.3. Conditions
to Transfer.
A
Transfer of a Membership Interest in the Company shall be effective only upon
satisfaction of the following conditions:
(a) The
Membership Interest with respect to which the transferee is admitted was
acquired either in exchange for a Capital Contribution pursuant to Section
3.1
or 3.2(a) or by means of a Transfer permitted under subsection 6.1
hereof;
(b) The
transferee executes such documents and instruments as the Company may reasonably
request as necessary or appropriate to confirm such transferee as a Member
in
the Company and such transferee’s agreement to be bound by the terms and
conditions hereof;
(c) The
transferee furnishes copies of all instruments effecting the Transfer and such
other certificates, instruments and documents as the Company may
require;
(d) At
the
request of the Manager, the transferee provides the Company with an opinion
of
counsel stating:
(1) that
such
Transfer may be effected without registration of the Membership Interest under
the Securities Act of 1933, as amended;
(2) that
such
Transfer does not cause the violation of any state or federal securities law
(including any investment suitability standards);
(3) that
such
Transfer will not result in a termination of the Company pursuant to Section
708(b)(1)(B) of the Code;
(4) that
such
Transfer will not cause the Company or any entity in which the Company invests
to be subject to any state or federal registration requirements;
and
(5) such
other matters as the Manager may reasonably request.
23
(e) The
transferee provides the Manager with a fully-executed and acknowledged written
instrument of Transfer setting forth the intention of the transferor that the
transferee become a Member in his or its place and stead;
(f) The
transferee and the transferor execute and acknowledge such other instruments
as
the Manager may deem necessary or desirable to effect such admission, including
the written acceptance and adoption by the transferee of the provisions of
this
Agreement (including the power of attorney contained in Section 10.9 hereof)
and
the assumption by the transferee of all obligations of the transferor under
this
Agreement; and
(g) The
transferee has paid all reasonable expenses incurred by the Company (including
any legal and accounting fees) in connection with such Transfer, including,
but
not limited to, the cost of the preparation, filing and publishing of any
amendment to the Company’s certificate of formation or any other amendments or
filings.
6.4. Prohibited
Transfers.
Any
purported Transfer that is not permitted under this Section shall be null and
void and of no effect whatsoever.
SECTION
7. BOOKS
AND RECORDS; ACCOUNTING AND TAX ELECTIONS
7.1. Maintenance
of Records.
The
Company shall maintain true and correct books and records, in which shall be
entered all transactions of the Company, and shall maintain all other records
necessary, convenient or incidental to recording the Company’s business and
affairs, which shall be sufficient to record the allocation of Profits and
Losses and distributions as provided for herein. All decisions as to accounting
principles, accounting methods and other accounting matters shall be made by
the
Manager. Each Member or his or its authorized representative may, as often
as
quarterly and to the extent required by § 18-305 of the Act, examine the books
and records of the Company during normal business hours upon reasonable notice
for a proper purpose reasonably related to the Member’s Membership Interest in
the Company.
7.2. Reports
to Members.
As soon
as practicable after the end of each fiscal quarter, the Company (a) shall
cause
to be prepared and sent to each Member a balance sheet and a statement of income
for the Company which may, but need not, be audited by a certified public
accountant, and (b) shall cause to be prepared and sent to each Member a report
setting forth in sufficient detail all such information and data with respect
to
the Company for such fiscal quarter as shall enable each Member to prepare
his
or its income tax returns in accordance with the laws, rules and regulations
then prevailing. The Company shall also cause to be prepared and filed all
tax
returns required of the Company. All balance sheets, statements, reports and
tax
returns required to be prepared by the Company pursuant to this Section 7.2
shall be prepared at the expense of the Company.
24
7.3. Tax
Election; Determinations Not Provided for in Agreement.
The
Manager shall be empowered to make or revoke any elections now or hereafter
required or permitted to be made by the Code or any state or local tax law,
and
to decide in a fair and equitable manner any accounting procedures and other
matters arising with respect to the Company or under this Agreement which are
not expressly provided for in this Agreement. Notwithstanding the foregoing,
neither the Company nor any Manager or Member shall make an election for the
Company to be excluded from taxation as a partnership under the Code or any
state or local law, and no provision of this Agreement (including Section 1.7)
shall be construed to sanction or approve any such election.
7.4. Tax
Matters Partner.
Xxxxxx
Xxxxxxx Ventures is hereby designated to be the “tax matters partner” of the
Company pursuant to the requirements of the Code and shall have the authority
to
exercise all functions provided for in the Code, or in the Regulations,
including, to the extent permitted by such Regulations, the authority to
delegate the function of “tax matters partner” to any other person. Xxxxxx
Xxxxxxx Ventures shall be reimbursed for all reasonable expenses incurred as
a
result of its duties as “tax matters partner”.
SECTION
8. DISSOLUTION
AND LIQUIDATION; TERMINATION AND WITHDRAWAL.
8.1. Dissolution.
The
Company shall dissolve and its affairs shall be wound up at any time upon the
decision of the Manager.
8.2. Liquidation.
(a) Upon
a
dissolution of the Company requiring the winding-up of its affairs, the Manager
shall wind up its affairs. The assets of the Company shall be sold within a
reasonable period of time to the extent necessary to pay or provide for the
payment of all debts and liabilities of the Company, and may be sold to the
extent deemed practicable and prudent by the Manager.
(b) The
net
assets of the Company remaining after satisfaction of all such debts and
liabilities and the creation of any reserves under subsection 8.2(d), shall
be
distributed to the Members in accordance with their positive Capital Account
Balances as of the date of such distribution, after giving effect to all
contributions, distributions and allocations for all periods, including the
period during which such liquidation occurs. Any property distributed in kind
in
the liquidation shall be valued at fair market value.
(c) Distributions
to Members pursuant to this Section 8 shall be made by the later of (i) the
end
of the taxable year of the liquidation, or (ii) ninety (90) days after the
date
of such liquidation in accordance with Regulations Section
1.704-1(b)(2)(ii)(b).
(d) The
Manager may withhold from distribution under this Section 8.2 such reserves
which are required by applicable law and such other reserves for subsequent
computation adjustments and for contingencies, including contingent liabilities
relating to pending or anticipated litigation or to Internal Revenue Service
examinations. Any amount held
25
as
a
reserve shall reduce the amount payable under this Section 8.2 and shall be
held
in a segregated interest-bearing account (which may be commingled with similar
accounts). The unused portion of any reserve shall be distributed with interest
thereon pursuant to this Section 8.2 after the Manager shall have determined
that the need therefore shall have ceased.
8.3. Deficit
Capital Accounts.
If a
Member has a deficit balance in his or its Capital Account after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year in which the liquidation occurs, such deficit shall not
be
considered a debt owed by such Member to the Company and such Member shall
not
be obligated to contribute such amount to the Company to bring the Capital
Account Balance of such Member’s Capital Account to zero (0).
8.4. Restrictions
on Withdrawal.
Except
as otherwise expressly permitted in this Agreement, without the consent of
the
Manager, which may be withheld in its absolute discretion, a Member does not
have the right to withdraw from the Company as a Member or terminate his or
its
Membership Interest.
SECTION
9. ALLOCATION
RULES.
9.1. Special
Allocations.
(a) Minimum
Gain Chargeback.
Notwithstanding any other provision of Section 4 or this Section 9, except
to
the extent that Section 1.704-2(f) of the Regulations (or any other applicable
authority) provides an exception to the operation of the minimum gain chargeback
requirement of the Regulations, if there is a net decrease in Minimum Gain
during any Accounting Period, each Member shall be specially allocated items
of
income and gain for such Accounting Period in an amount equal to such Member’s
share of the net decrease in the Company’s Minimum Gain (within the meaning of
Regulations Section 1.704-2(g)(2)), determined in accordance with Regulations
Section 1.704-2(g). In the event that the minimum gain chargeback requirement
imposed by this subsection and Regulations Section 1.704-2(f) exceeds the
Company’s income and gains for the Accounting Period, the excess shall be
treated as a minimum gain chargeback requirement, and shall be specially
allocated under this subsection, in the immediately succeeding Accounting
Periods until fully charged back. Allocations pursuant to this subsection shall
be made in proportion to the respective amounts required to be allocated to
each
Member pursuant hereto. The items to be allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j) of the Regulations. This
subsection 9.1(a) is intended to comply with the minimum gain chargeback
requirement in the Regulations and shall be interpreted consistently
therewith.
(b) Member
Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of Section 4 or this Section 9, except
to
the extent that Section 1.704-2(i)(4) of the Regulations (or any other
applicable authority) provides an exception to the operation of the partner
nonrecourse debt minimum gain chargeback requirement of the Regulations, if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable
to
a Member
26
Nonrecourse
Debt during any Accounting Period, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), as of the
beginning of that Accounting Period, shall be specially allocated items of
income and gain for such Accounting Period (and, if necessary, succeeding
Accounting Periods) in an amount equal to such Member’s share of the net
decrease in Member Nonrecourse Debt Minimum Gain. A Member’s share of the net
decrease in Member Nonrecourse Debt Minimum Gain shall be determined in a manner
consistent with the provisions of Regulations Sections 1.704-2(j)(2) and
1.704-2(i)(4). Allocations pursuant to this subsection shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant to this subsection and Section 1.704-2(i)(4) of the Regulations. The
items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and (j)(2) of the Regulations.
This
subsection 9.1(b) is intended to comply with the partner nonrecourse debt
minimum gain chargeback requirement in the Regulations and shall be interpreted
consistently therewith.
(c) Qualified
Income Offset.
If any
Member unexpectedly receives any adjustments, allocations or distributions
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6), items
of income and gain (consisting of a pro rata portion of each item of income,
including gross income and gain) shall be specially allocated to that Member
in
an amount and manner sufficient to eliminate any Adjusted Capital Account
Deficit created by such adjustments, allocations or distributions as quickly
as
possible; PROVIDED,
HOWEVER,
that an
allocation pursuant to this subsection shall be made only if and to the extent
that such Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Article have been tentatively made as if this
subsection were not a part of this Agreement.
(d) Gross
Income Allocation.
If any
Member has a deficit Capital Account at the end of any Accounting Period that
is
in excess of the sum of the amount such Member is obligated to restore, or
the
amount such Member is deemed obligated to restore pursuant to the next to last
sentences of Section 1.704-2(g)(1) and Section 1.704-2(i)(5) of the Regulations,
the Member shall be specially allocated items of income and gain in the amount
of such excess as quickly as possible; PROVIDED,
HOWEVER,
that an
alloca-tion pursuant to this subsection shall be made only if and to the extent
that such Member would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Article have been tentatively
made as if this subsection and the qualified income offset provision set forth
in the preceding subsection were not a part of this Agreement.
(e) Code
Section 754 Adjustments.
To the
extent an adjustment to the adjusted tax basis of any asset of the Company
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant
to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or (4), to be taken into account
in
determining Capital Accounts as a result of a distribution to a Member in
complete liquidation of its interest in the Company, the amount of such
adjustment to the Capital Accounts of the Members shall be treated as an item
of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be
27
specially
allocated to the Members in accordance with their interests in the Company
in
the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member
to whom such distribu-tion was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(f) Nonrecourse
Deductions.
Nonrecourse Deductions for any Accounting Period shall be specially allocated
to
the Members, in accordance with the Members’ Membership Interests in the Company
for the applicable Accounting Period.
(g) Member
Nonrecourse Deductions.
Any
Member Nonrecourse Deductions for any Accounting Period shall be specially
allocated to the Member who bears the economic risk of loss with respect to
the
Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i).
(h) Corrective
Allocations.
The
allocations set forth in the preceding subsections of this Section 9.1 (the
“Regulatory Allocations”) are intended to comply with certain requirements of
the Regulations. It is the intent of the Members that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of income, gain, loss
or
deduction pursuant this subsection 9.1(h). Therefore, notwithstanding any other
provision of Section 4 or this Section 9 (other than the Regulatory
Allocations), the Manager shall make such offsetting special allocations of
income, gain, loss or deduction in whatever manner they determine appropriate
so
that, after such offsetting allocations are made, each Member’s Capital Account
Balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of this
Agreement and all items were allocated pursuant to Section 4. In making any
allocation under this subsection, the Manager shall take into account future
Regulatory Allocations under subsection 9.1(a) and (b) that, although not yet
made, are likely to offset other Regulatory Allocations previously made under
subsections 9.1(f) and 9.1(g).
9.2. Code
Section 704(c).
(a) In
accordance with Code Section 704(c) and the Regulations thereunder, income,
gain, loss and deduction with respect to any property contributed to the capital
of the Company, solely for tax purposes, shall be allocated among the Members
so
as to take account of any variation between the adjusted basis of such property
to the Company for Federal income tax purposes and its initial Gross Asset
Value.
(b) If
the
Gross Asset Value of any asset of the Company is revalued pursuant to Section
1.8(r)(2), 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 Gross Asset Value
in
the same manner as under Code Section 704(c) and the Regulations
thereunder.
(c) Any
elections or other decisions relating to allocations made under this Section
9
shall be made in any manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 9.2 are solely for
income tax purposes and shall not affect, or in any way be taken into account
in
computing, any Person’s Capital Account or share of Profits, Losses, other items
or distributions pursuant to any provision of this Agreement.
28
(d) The
provisions of this Section 9.2 are intended to comply with Code Section 704(c)
and the Regulations promulgated thereunder. The Members shall make any
modifications to this Agreement as may be required to comply with Section 704(c)
and the Regulations thereunder.
9.3. Other
Allocation Rules.
(a) Except
as
otherwise provided in this Agreement, items of income, gain, loss, deduction
and
credit shall be allocated among the Members for income tax purposes in a manner
consistent with the allocations made for “book purposes” under Section 4 and
this Section 9. Specifically, items of taxable income or loss corresponding
to
items which have been specially allocated pursuant to Section 9.1 shall be
allocated for tax purposes in the same manner as those items are allocated
for
book purposes. Taxable income or loss for any Accounting Period which is not
allocated pursuant to the preceding sentence and which is not otherwise
allocated pursuant to Section 4 or this Section 9 shall be allocated among
the
Members for tax purposes in the same proportion that Profit or Loss has been
allocated for that Accounting Period under Section 4.
(b) For
purposes of determining the Profits, Losses or any other items allocable to
any
Accounting Period, Profits, Losses and any such other items shall be determined
on a daily, monthly or other basis, as determined by the Manager using any
permissible method under Code Section 706 and the Regulations
thereunder.
(c) Except
as
otherwise provided in this Agreement, all items of income, gain, loss, deduction
and any other allocations not otherwise provided for shall be divided among
the
Members in the same proportions as they share Profits or Losses, as the case
may
be, for the applicable Accounting Period.
(d) Notwithstanding
the other provisions of Section 4 or this Section 9, the Manager is authorized
to make any adjustment in the allocation of Profits or Losses provided for
in
such Sections if the Manager considers in good faith that the adjustment is
necessary and equitable to correct errors in allocations caused by errors in
unaudited financial information or to correct inequities which may arise under
this Agreement, including those which may result from there being multiple
Accounting Periods during a single Fiscal Year or during the term of this
Agreement rather than a single Accounting Period.
(e) Solely
for purposes of determining each Member’s share of “excess nonrecourse
liabilities” of the Company, as such term is defined in Regulations Section
1.752-3(a)(3), each Member’s Membership Interest in Profits for any Accounting
Period shall be that Member’s Membership Interest in the Company for that
Accounting Period.
(f) To
the
extent permitted by Section 1.704-2(h)(3) of the Regulations, the Company shall
endeavor to treat distributions as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt only to the extent that
such
distributions would not cause or increase an Adjusted Capital Account Deficit
for any Member.
(g) To
the
extent an adjustment to the adjusted tax basis of any asset of the Company
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant
to
29
Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or (4), to be taken into account in determining
Capital Accounts as a result of a distribution to a Member in complete
liquidation of its interest in the Company, the amount of such adjustment to
the
Capital Accounts of the Members shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases the basis of the asset) and such gain or loss shall be specially
allocated to the members in accordance with their interests in the Company
in
the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Member
to whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
SECTION
10. GENERAL
PROVISIONS.
10.1. Notices.
Except
as expressly provided in this Agreement, all notices, consents, waivers,
requests or other instruments or communications given pursuant to this Agreement
shall be in writing, signed by the party giving the same, and shall be delivered
by hand or sent by registered or certified United States mail, return receipt
requested, postage prepaid, or by a recognized overnight delivery service,
addressed, in the case of the Company, to the Company at its principal place
of
business, and to any of the Members at the address set forth in the Company’s
books and records. Any Member may, by notice to the Company and each other
Member, specify any other address for the receipt of such notices, instruments
or communications. Except as expressly provided in this Agreement, any notice,
instrument or other communication shall be deemed properly given only when
received, or upon refusal of receipt, by the Person to whom it is sent. The
addresses of the Members are currently as follows:
Xxxxxx
Xxxxxxx ventures LLC
In
Stride
L.L.C.
000
Xxxxx
Xxxxxx-Xxxxx Xxxxxxxxx
00
Xxxxxxxx Xxxxx
0xx
Xxxxx Xxxxxxxxxxxx,
XX
00000
Xxxxxx-Xxxxx,
XX 00000
Attn:
Xxx
Xxxxxxxxxx
Attn:
Xxxxxxx
Xxxxxxxx
Xxxx
Xxxx Xxxx
Xxxxxxx
c/o
Northern
Group 0000
Xxxxxxxx Xxxxxx, Xxxxx
X
000
Xxxxxxx
Xxxxx, Xxxxx 000
Xxxxxxx
Xxxx, XX
00000
Xxxxx
Xxx, XX
00000
10.2. Interpretation.
(a) Section
and subsection headings are not to be considered part of this Agreement, are
included solely for convenience of reference and are not intended to be full
or
accurate descriptions of the contents thereof.
30
(b) Use
of
the terms “herein”, “hereunder”, “hereof” and like terms shall be deemed to
refer to this entire Agreement and not merely to the particular provision in
which the term is contained, unless the context clearly indicates
otherwise.
(c) Use
of
the word “including” or a like term shall be construed to mean “including but
not limited to”.
(d) Exhibits
and schedules to this Agreement are an integral part of this
Agreement.
(e) Words
importing a particular gender shall include every other gender and words
importing the singular shall include the plural and vice-versa, unless the
context clearly indicates otherwise.
(f) Any
reference to a provision of the Code, Regulations or the Act shall be construed
to be a reference to any successor provision thereof.
10.3. Independent
Counsel.
The
Members recognize that the law firm of Xxxxx, Danzig, Scherer, Xxxxxx &
Xxxxxxxx LLP has represented Xxxxxx Xxxxxxx Ventures with respect to the
preparation and execution of this Agreement and that THE OTHER MEMBERS HAVE
BEEN
ADVISED TO RETAIN INDEPENDENT COUNSEL for advice regarding their rights and
obligations under this Agreement. Each Member other than Xxxxxx Xxxxxxx Ventures
represents that it has sought and obtained independent legal counsel or hereby
waives the right to obtain such legal counsel.
10.4. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of
Delaware, excluding any conflict-of-laws rule or principle that might
refer the governance, construction or interpretation of this Agreement to the
laws of another State.
10.5. Binding
Agreement.
This
Agreement shall be binding upon and inure to the benefit of the Members and
their respective heirs, executors, administrators, personal representatives
and
successors.
10.6. Severability.
Each
term and provision of this Agreement is intended to be severable. If any term
or
provision of this Agreement is determined by a court of competent jurisdiction
to be unenforceable for any reason whatsoever that term or provision shall
be
ineffectual and void and the validity of the remainder of this Agreement shall
not be adversely affected thereby.
10.7. Entire
Agreement.
This
Agreement (including the exhibits and schedules hereto) supersedes any and
all
other understandings and agreements, either oral or in writing, between the
Members with respect to the Membership Interests and constitute the sole and
only agreement between the Members with respect to the Membership
Interests.
10.8. Further
Action.
Each
Member and the Manager shall execute and deliver all papers, documents and
instruments and perform all acts that are necessary or appropriate to implement
the terms of this Agreement and the intent of the Members.
31
10.9. Power
of Attorney.
Each
Member hereby irrevocably constitutes and appoints (a) the Manager, (b) each
person who shall after the date of this Agreement become a Manager, and (c)
any
substitute that the Manager may appoint to act in its place (who need not be
a
Member) as his true and lawful representative and attorney-in-fact, with full
power and authority in his name, place and xxxxx, to make, execute, acknowledge,
deliver, swear to, record, file and publish with respect to the Company (i)
any
and all instruments, documents and certificates (including the Certificate
of
Formation, any amendments thereto and a certificate of cancellation) which,
from
time to time, may be required by the laws of the United States of America,
the
State of
Delaware or any other state in which the Company shall determine to
do
business or any political subdivision or agency thereof, and to take any other
action which the Manager may deem necessary or appropriate, in his sole
discretion, to execute, implement and continue or terminate the valid and
subsisting existence and business operations of the Company and (ii) any
amendments to and restatements of the Certificate of Formation as such
amendments and restatements are contemplated hereunder, or any other instrument
relating to any such amendments. The foregoing grant of authority is a special
power of attorney coupled with an interest, shall be irrevocable and shall
continue in full force and effect notwithstanding the subsequent death,
disability, insanity or incapacity (or, in the case of a Member that is a
corporation, limited liability company, association, partnership, joint venture
or trust, the subsequent merger, dissolution or other termination of the
existence) of such Member. The special power of attorney may be exercised on
behalf of a Member by a facsimile signature of the Manager (or substitute for
the Manager). The special power of attorney shall survive the Transfer by the
Member of the whole or any portion of his Membership Interest, except that
in a
case in which the transferee of the whole Membership Interest of a Member shall
have furnished a power of attorney and shall have been approved by the Manager
for admission to the Company as a substituted Member, this power of attorney
shall survive the Transfer for the sole purpose of enabling the Manager (or
substitute for a Manager) to execute, acknowledge and file any instrument
necessary to effect the substitution and shall thereafter
terminate.
10.10. Amendment
or Modification.
This
Agreement (including the exhibits and schedules hereto) may be amended or
modified from time to time only by the unanimous written consent of the Members;
provided, however, that the Manager may amend or modify this Agreement
(including the exhibits and schedules hereto) without the consent of any of
the
Members to reflect the issuance of any additional equity in the Company pursuant
to the provisions of this Agreement.
10.11. Counterparts.
This
Agreement may be signed in counterparts, each of which shall be considered
an
original and together they shall constitute one instrument.
(Signature
page follows)
32
IN
WITNESS WHEREOF,
the
Members have executed and adopted this Agreement effective as of April
20,
2007.
WITNESS:
XXXXXX
XXXXXXX VENTURES LLC
______________________________
By:_______________________________________
Name:
Title:
IN
STRIDE
L.L.C.
_______________________________ By:_____________________________________
Name:
Title
___________________________________
_______________________________
XXXX
XXXX
_______________________________
________________________________________
XXXX
XXXXXXX
33
SCHEDULE
A
MEMBERS;
MEMBERSHIP INTERSTS; INITIAL CAPITAL CONTRIBUTIONS
| Member | | |
MembershipInterest
| | | | | |
Initial
Capital Contributions
| |
|
Xxxxxx
Xxxxxxx Ventures LLC
| | |
50.1
%
|
|
|
| | $ | 501 | |
|
In
Stride L.L.C.
| | |
47.9
%
|
| |
| |
$
|
479
| |
|
Xxxx
Xxxx
| | |
1.0
%
|
|
|
| | $ | 10 | |
|
Xxxx
Xxxxxxx
| | |
1.0
%
|
|
|
| | $ | 10 | |
34
EXHIBIT
A
LICENSE
AGREEMENT BETWEEN THE COMPANY AND IN STRIDE
35
EXHIBIT
B
LICENSE
AGREEMENT BETWEEN THE COMPANY
AND
XXXXXX XXXXXXX VENTURES
36
