Exhibit 6.2
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OPERATING AGREEMENT
OF
BIOSCIENCE, L.L.C.
THIS OPERATING AGREEMENT of BIOSCIENCE, L.L.C., made as of the 25th
day of February, 2000, by and between NUCYCLE THERAPY, INC., a New Jersey
corporation having offices at 0 Xxxx Xxxx Xxxxx, Xxxxx X, Xxxxxxxx Xxxxxxxx, Xxx
Xxxxxx 00000 ("NUCYCLE"), and MANHATTAN DRUG COMPANY, INC., a New York
corporation having offices at 000 Xxxx Xxxxxx, Xxxxxxxx 15, X.X. Xxx 000,
Xxxxxxxx, Xxx Xxxxxx 00000 (hereinafter referred to as "MANHATTAN")
(collectively referred to as the "Members" and individually as a "Member") (the
"Agreement").
W I T N E S S E T H:
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WHEREAS, the Members desire to form a limited liability company named
BIOSCIENCE, L.L.C. (the "LLC"), and to cause a Certificate of formation (the
"Certificate") to be filed in the office of the Secretary of the State of New
Jersey establishing the LLC; and
Whereas, MANHATTAN is in the business of developing vitamins and
nutritional supplements; and
Whereas, NUCYCLE is in the business of developing and producing
nutritionally important materials derived from
hydropanically grown plants for utilization in nutritional supplements; and
WHEREAS, in light of the objective of maintaining control of the
business within the Members, the Members believe it to be in the best interests
of the LLC to place certain restrictions on a Member's ability to transfer its
Interest; and
WHEREAS, the Members have agreed as to the operation of the LLC and
wish to set forth the terms and conditions thereof in this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows;
ARTICLE I
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DEFINITIONS
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"Additional Capital Contribution" has the meaning assigned to such
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term in Section 7.4(b).
"Additional Capital Contribution Priority Return" shall mean, with
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respect to any Member making an Additional Capital Contribution after the date
hereof, an amount calculated at a rate per annum equal to the Base Rate on such
Member's Unreturned Additional Capital Contribution for such Fiscal Year. For
income tax purposes, the Additional Capital Contribution Priority Return shall
neither be an expense of the LLC nor
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regarded as a "guaranteed payment" within the meaning of Code Section 707(c).
"Appraised Value" shall mean the average value for the LLC determined
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by three independent appraisers licensed to appraise businesses, who are
experienced in valuing closely-held business operations. One appraiser shall be
selected by each Member, and the third appraiser shall be selected by the two
appraisers chosen as aforesaid.
"Base Rate" shall mean a rate of interest equal to one (1) percentage
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point above the fluctuating annual rate of interest announced publicly by
Citibank, N.A., in its New York City office, as its base rate, as the same may
change from time to time.
"Business" shall mean the development and worldwide marketing of
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vitamins and nutritional products.
"Capital Account" of a Member shall mean the capital account of that
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Member determined from the inception of the LLC in accordance with the rules set
forth in Section 1.704-1(b)(2) of the Treasury Regulations.
"Capital Items" means the net cash proceeds, if any, realized by the
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LLC from borrowings by the LLC secured by a mortgage, deed of trust or other
lien or security interest on, or a sale or other disposition by the LLC of, all
or substantially all of the LLC's assets in a transaction treated
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as a Capital Transaction for Federal income tax purposes, after deducting all
expenses related to such borrowing, sale or other disposition and any repayment
of existing indebtedness from the proceeds thereof.
"Capital Transaction" means a transaction resulting in Capital Items.
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"Code" shall mean the Internal Revenue Code of 1986, as amended (or
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any corresponding provision or provisions of succeeding law).
"Contribution(s)" or "Capital Contribution(s)" shall mean the cash or
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other property contributed or to be contributed by the Members pursuant to
Article VII hereof.
"Contributing Member" shall have the meaning given to such term in
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Section 7.5 hereof.
"Fiscal Year" shall mean the period ending on December 31, 2000, and
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each successive twelve-month period thereafter during the term hereof.
"Interest" shall mean as to a Member that percentage set forth
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opposite the Member's name on Exhibit A attached hereto.
"LLC" shall have the meaning given to such term in the Preliminary
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Statement.
"Member Loan" shall have the meaning given to such term in Sections
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7.4(a) and 7.5(a) hereof.
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"Members" shall mean at any time the persons or entities owning
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Interests in the LLC or, with respect to any transfer of all or any portion of
an Interest pursuant to Article X, the transferor of such Interest, unless and
until the transferee thereof is admitted as a Member to the extent of the
Interest transferred pursuant to Section 10.2. The current Members are the
Persons listed on Schedule A.
"Net Cash Flow" for any period shall mean (i) the cash receipts of the
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LLC derived from the sale of the Products of the LLC or otherwise (but excluding
all Capital Contributions) in excess of operating expenses (including interest
on indebtedness of the LLC, taxes and the like, but excluding those expenses
paid for from Capital Contributions), less (ii) all payments made in
amortization of indebtedness of the LLC (including Member Loans) when made from
sources other than reserves previously deducted in determining Net Cash Flow,
borrowings, or Capital Contributions, and less (iii) such amounts as the Members
may require to maintain reasonable cash reserves and working capital, and less
(iv) amounts reinvested in the Business by the Members.
"Net Income" and "Net Losses" shall mean, for each Fiscal Year of the
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LLC or other period, an amount equal to the LLC's taxable income or loss for
such Fiscal Year or other period, determined in accordance with Code Section
703(a) (for
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this purpose, all items of income, gain, loss or deduction required to be
separately stated pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(a) Any income of the LLC that is exempt from Federal income tax and
not otherwise taken into account in computing Net Income or Net Losses shall be
added to such taxable income or loss;
(b) Any expenditures of the LLC described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Net Income or Net Losses shall be subtracted from such
taxable income or loss; and
(c) Any items which are specially allocated pursuant to Section 8.5
hereof shall not be taken into account in computing Net Income or Net Losses.
"Non-Contributing Member" shall have the meaning given such Term in
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Section 7.5 hereof.
"Person" shall mean any individual, partnership, corporation, trust,
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limited liability company or other entity.
"Tax Matters Partner" shall have the meaning given to such term in
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Section 11.5 hereof.
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"Term" shall have the meaning given to such term in Article IV hereof.
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"Tradename" shall mean the name selected by the Members for retail
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sales of vitamins and nutritional products.
"Transfer" shall mean any disposition of an Interest in the LLC by a
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Member (including, without limitation, gifts, sales, assignments, pledges and
encumbrances), whether voluntary or involuntary, or whether pursuant to court
order or by operation of law. Any transfer of an interest, direct or indirect,
in a Member or in any entity constituting such Member shall be deemed to be a
Transfer of an Interest in the LLC by such Member.
"Treasury Regulation(s)" means the regulations promulgated under the
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Code, as such Treasury Regulations may be amended from time to time (it being
understood that all references to specific sections of the Treasury Regulations
shall be deemed also to refer to any corresponding provisions of succeeding
Treasury Regulations).
"Unreturned Additional Capital Contribution" shall mean, with respect
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to any Member the amount of such Member's Additional Capital Contributions, and
thereafter (a) increased on an annual basis by the difference between the
Additional Capital Contribution Priority Return and the amount distributed
pursuant to Sections 8.1(a)(i) and 8.2(a) hereof in such Fiscal
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Year, if any, and (b) decreased by amounts distributed under Sections 8.1(a)(ii)
and 8.2(b) hereof.
ARTICLE II
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CONTINUATION, NAME, PRINCIPAL PLACE OF BUSINESS,
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REGISTERED OFFICE, REGISTERED AGENT
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2.1 FORMATION. The LLC has been formed and continues under the
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Limited Liability Company Act of the State of New Jersey, to carry on the
business purposes provided for herein.
2.2 NAME. The name of the LLC is BIOSCIENCE, L.L.C.
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2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
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business of the LLC shall be maintained at the offices of 000 Xxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxxxx 00000. The LLC may relocate its office or have such
additional offices as the Members may determine.
2.4 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of
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the LLC for purposes of service of process shall be 000 Xxxx Xxxxxx, Xxxxxxxx,
Xxx Xxxxxx 00000 and its registered agent at such address shall be Xxxx
Xxxxxxxx.
ARTICLE III
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PURPOSES OF LLC
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The LLC may conduct and be involved in any lawful business, activity
or investment. Without limiting the generality of the foregoing, the LLC
specifically may acquire,
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own, hold, improve, develop, transfer, dispose of, pledge, mortgage, deal in,
and loan or borrow money upon, alone or in conjunction with others, real and
personal property, tangible and intangible, of every kind, character and
description, or any interest therein, and all kinds and forms of securities,
shares of capital stock, scrip, bonds, debentures, coupons, mortgages, notes,
bills of exchange, acceptances, assignments, patents, licenses, accounts, fees,
evidences of indebtedness, obligations, trust certificates, interim receipts,
warrants, and certificates issued or created by or being claims against any
corporation, association, partnership, limited liability company, syndicate,
entity, or person, or governmental, municipal or public subdivision, district,
authority or agency, and do all things necessary and proper in connection
therewith, and conduct and be involved in any other business necessary and
relating to the foregoing.
ARTICLE IV
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TERM
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The LLC shall have perpetual existence (the "Term") unless sooner
terminated as hereinafter provided or by operation of law.
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ARTICLE V
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MEMBERS
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5.1 LIABILITY. The Members shall not be bound by, or be personally
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liable for, the losses, expenses, liabilities or obligations of the LLC.
5.2 STATUS OF LLC INTEREST. The Interests in the LLC owned by the
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Members are fully paid and nonassessable.
5.3 RIGHTS OF COMPETITION. Subject to the provisions of that
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Confidentiality Agreement entered into between the Members on the date hereof,
and except as hereinafter set forth below and in paragraph 9.2(d) hereof, each
Member shall be free to engage in, conduct or participate in any business
activity whatsoever, without liability to the Members or the LLC, even if such
business or activity competes, directly or indirectly, with the business of the
LLC; and any such activity shall not be deemed to be a business opportunity of
the LLC nor shall any of the Members of the LLC be deemed to have any interest
therein or rights to profits or other revenues therefrom. Notwithstanding
anything hereinabove to the contrary, neither Member shall compete with the LLC
or with any other Member in any business activity involving specific
formulations of vitamins or nutritional supplements owned by the LLC.
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ARTICLE VI
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MANAGEMENT
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6.1 MANAGEMENT DECISIONS. (a) All Members may participate in
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decisions affecting the day-to-day operations of the LLC. The day-to-day
decisions of the LLC shall be made by Members owning a majority in Interests of
LLC.
(b) The Members agree to create a separate electronic commerce web
site business to be owned by the LLC that will conduct business under a trade
name agreed to by all Members.
(c) The Members shall link their electronic commerce sites and
information sites.
6.2 DUTIES. (a) The Members will consult with respect to
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establishment of product lines, tradenames, marketing and distribution
strategies.
(b) NUCYCLE will create a new information site to provide content and
direct electronic visitors to electronic commerce sites.
(c) MANHATTAN will market and sell for the account of the LLC the
jointly developed products to retail outlets and other branded resellers.
(d) MANHATTAN shall provide fulfillment services at the expense of
the LLC for its separate electronic commerce site, if any.
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(e) MANHATTAN will list LLC products for sale on any electronic
commerce site maintained by MANHATTAN or any of its affiliates.
ARTICLE VII
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MEMBERS' CAPITAL CONTRIBUTIONS; WITHDRAWALS;
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ADDITIONAL CAPITAL CONTRIBUTIONS
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7.1 CAPITAL ACCOUNTS. The LLC shall maintain a cash Method Capital
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Account for each of the Members.
7.2 CAPITAL CONTRIBUTIONS AND INTERESTS OF MEMBERS. (a) On the date
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hereof, the Members have contributed to the capital of the LLC the funds set
forth on attached Exhibit A (hereinafter referred to as an "Initial Capital
Contribution"). In addition, the Members shall contribute, at no cost to the
LLC, the following to the LLC:
(i) NUCYCLE shall supervise the development of an electronic
commerce web site owned by the LLC for retail sales of vitamins and nutritional
products on the internet using the Tradename.
(ii) MANHATTAN shall develop the labels on behalf of the LLC for the
products sold under the Tradename.
(iii) MANHATTAN and NUCYCLE shall jointly develop the formulations
of vitamins and nutritional products using chemicals derived from botanical
sources, and all such formulations shall be owned by the LLC.
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(b) Notwithstanding the foregoing to the contrary, NUCYCLE shall be
obligated to fund all third party costs and expenditures for the development of
the electronic commerce web site for the LLC, which expenditures shall be
treated as Additional Capital Contributions under Section 7.4 hereof.
7.3 WITHDRAWALS AND DISTRIBUTIONS OF CAPITAL. A Member shall not be
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entitled to withdraw any part of its Capital Account or to receive any
distributions from the LLC except as specifically provided herein, and no
interest shall be paid on the outstanding balance of a Member's Capital Account.
7.4 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) Prior to requiring an
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Additional Capital Contribution from the Members, the Members shall make a good
faith effort to obtain the required funds from a third party lender on
commercially reasonable terms and conditions. If unable to obtain third party
financing, the Members may arrange for a loan to the LLC from any Member, upon
such terms and conditions as lending Member and Members owning a majority in
Interests may agree (a "Member Loan").
(b) If Members owning a majority in Interests determine that any
additional capital is required by the LLC, and the date required, the Members
shall each be responsible for a portion of such additional capital contribution
in the ratio of their respective Interests in the LLC (each an "Additional
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Capital Contribution"). A Member may refuse to make such Additional Capital
Contributions. In addition to the foregoing, the Members anticipate making
expenditures on behalf of the LLC. Such expenditures must be approved by
Members owning a majority in Interests. Such expenditures will be deemed
Additional Capital Contributions at the end of each calendar month, and the
Members shall make such Additional Capital Contributions as may be necessary by
the end of the following calendar month to equalize their deemed Additional
Capital Contributions. Except as provided in this Section 7.4, the Members
shall have no further obligations to make Additional Capital Contributions to
the LLC.
7.5 FAILURE TO CONTRIBUTE. If any Member (the "Non-Contributing
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Member") fails to make any Additional Capital Contribution when due, the other
Members (each a "Contributing Member") shall have the right, but not the
obligation, to advance directly to the LLC the additional capital required from
the Non-Contributing Member as a loan to the Non-Contributing Member (the
"Member Loan"). Member Loans due to a Non-Contributing Member hereunder shall
be repaid from all distributions (whether from Net Cash Flow or Capital Items)
which the Non-Contributing Member would be entitled to receive but for this
provision. (Such repayments shall first be applied to unpaid and accrued
interest and then to the principal of such
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Member Loan). It is understood, however, that if the Member Loan is not repaid
from such distributions, the Non-Contributing Member shall be obligated to repay
all unpaid principal of and accrued interest on such Member Loan upon
dissolution of the LLC but only to the extent of such Non-Contributing Member's
share of liquidation proceeds under Section 9.2. A Non-Contributing Member shall
have no personal liability for the repayment of a Member Loan hereunder. All
allocations relating to the distributions from the LLC paid to the maker of the
Member Loan as a result of this Section 7.5 shall be allocated to the Non-
Contributing Member.
7.6 LOANS BY MEMBERS. Member Loans to the LLC shall not be
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considered contributions to the capital of the LLC and shall not increase the
Capital Account of the lending Member, and the repayment of such loans shall not
be deemed withdrawals from the capital of the LLC. Member Loans shall bear
interest at the greater of (x) the Base Rate or (y) any interest paid by the
Member on loans incurred by the Member to acquire capital to, in turn, loan to
the LLC. Member Loans shall include all expenses attributable to such
borrowings.
7.7 NO RESTORATION OF NEGATIVE CAPITAL ACCOUNTS. The Members shall
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not be obligated to restore any negative balances in their Capital Accounts on
liquidation of the LLC or at any other time.
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ARTICLE VIII
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DISTRIBUTIONS OF NET CASH FLOW; ALLOCATION OF
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NET INCOME AND NET LOSSES; SPECIAL ALLOCATIONS
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8.1 DISTRIBUTION OF NET CASH FLOW. (a) Net Cash Flow shall be
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distributed to the Members on not less than an annual basis, in the following
manner:
(i) First, to each Member who has made an Additional Capital
Contribution, the amount, if any, equal to such member's Additional Capital
Contribution Priority Return, pro rata, in accordance with the respective
amounts of all Additional Capital Contribution Priority Returns of all Members,
provided that the distribution under this paragraph shall not exceed fifty (50%)
percent of the Net Cash Flow in any Fiscal Year;
(ii) Second, to each Member who has made an Additional Capital
Contribution, the amount, if any, required to provide such Member with his
Unreturned Additional Capital Contribution, pro rata, in accordance with the
respective amounts of all Unreturned Additional Capital Contributions of all
Members, provided that the distribution under this paragraph shall not exceed
the difference of fifty (50%) percent of the Net Cash Flow in any Fiscal Year,
reduced by the amount distributed pursuant to the immediately preceding
paragraph (i);
(iii) Third, to the Members in proportion to their respective
Interests in the LLC.
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(b) The amounts distributable pursuant to this Section 8.1 are to be
determined on a Fiscal Year basis and amounts distributed more frequently are
for convenience only and are not controlling as to the total amounts to be
distributed to a Member for the applicable Fiscal Year of the LLC. In the event
any Member receives any distributions under this Section 8.1 which are in excess
of the amount to which such Member would be entitled if distributions had been
made annually, then an amount equal to such excess distribution shall be repaid
to the LLC by the Member who received such excess distribution promptly after
the amount of such excess distribution becomes known, and shall then be
redistributed to the Members entitled to receive such excess amount. Without
limiting any other rights which the other Members may have, if a Member does not
repay an excess distribution as above provided, future distributions to that
Member shall be reduced until an amount equal to the excess distribution,
together with interest at a rate per annum equal at all times to the Base Rate,
shall have been so withheld.
8.2 DISTRIBUTION OF CAPITAL ITEMS. Capital Items shall be
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distributed to the Members in the discretion of the Members, in the following
manner:
(a) First, to each Member who has made an Additional Capital
Contribution, the amount, if any equal to such Member's Additional Capital
Contribution Priority Return, pro rata, in
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accordance with the respective amounts of all Additional Capital Contribution
Priority Returns of all Members, reduced by prior distributions of Net Cash Flow
for such Fiscal Year under Section 8.1(a)(ii) hereof;
(b) Second, to each Member who has made an Additional Capital
Contribution, the amount, if any, required to provide such member with his
Unreturned Additional Capital Contribution, pro rata, in accordance with the
respective amounts of all Unreturned Additional Capital Contributions of all
Members;
(c) Third, to the Members in proportion to their Interests in the
LLC.
8.3. ALLOCATION OF NET INCOME. Except as set forth in Section
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8.6 hereof, Net Income shall be allocated to the Members in the following
manner:
(a) First, to each Member who has made an Additional Capital
Contribution in an amount, if any, equal to the aggregate of distributions made
to such Member(s) pursuant to Sections 8.1(a)(i) and 8.2(a) hereof for such
Fiscal Year, and to the extent allocations were insufficient for any prior
Fiscal Year, to such Member(s) for all prior Fiscal Years.
(b) Second, the balance, if any, to the Members in accordance with
their Interests.
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8.4 ALLOCATION OF NET LOSSES. Except as set forth in Section
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8.5 hereof, Net Losses shall be allocated to the Members in accordance with
their Interests in the LLC.
8.5 SPECIAL ALLOCATIONS
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(a) Negative Capital Accounts. If the allocation of any Net Loss of
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the LLC for any Fiscal Year of the LLC pursuant to Section 8.4 would cause a
Member to further decrease a negative Capital Account balance (determined after
making appropriate adjustments to reflect (A) all distributions, allocations,
and contributions made during such Fiscal Year of the LLC and (B) reasonably
expected allocations of loss and deduction and reasonably expected adjustments
and distributions within the meaning of Treasury Regulation Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6)) which exceeds such Member's share of the LLC's
Minimum Gain at the end of such Fiscal Year of the LLC, then the portion of such
Net Loss that would have such result shall instead be specially allocated to the
other Members to the extent of such other Members' positive Capital Account
balances, if any (determined before such special allocation but after all
adjustments to such other Members' Capital Accounts for such Fiscal Year of the
LLC and after adjustment for any reasonably expected adjustments, allocations
and distributions described above).
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(b) Qualified Income Offset. In the event that any Member
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unexpectedly receives any adjustments, allocations or distributions described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes or
increases a deficit in such Member's Capital Account (in excess of any amount of
such deficit that the Member may be obligated to restore in accordance with this
Agreement and any amendments hereto and determined after making appropriate
adjustments to reflect all distributions, allocations, and contributions made
during such Fiscal Year) as of the end of such Year of the LLC to which such
allocation, distribution or adjustment relates, then such Member shall be
allocated, prior to any other allocation required by this Article VIII (other
than Section 8.5(a)), income and gain in the amount and proportions necessary to
eliminate, to the extent required by the Treasury Regulations under Code Section
704, such excess deficit as quickly as possible, provided that an allocation
pursuant to this Section 8.5(b) shall be made only if and to the extent that
such Member would have a deficit in its Capital Account after all other
allocations provided for in this Section 8.5 have been made tentatively as if
this Section 8.5(b) were not in this Agreement.
(c) Gross Income Allocation. In the event any Member has a deficit
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Capital Account at the end of any Year of the LLC
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which is in excess of the sum of (i) the amount such Member is obligated to
restore pursuant to any portion of this Agreement, and (ii) the amount such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each
such Member shall be specially allocated items of LLC income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 8.5(c) 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 VIII have been made as if Section
8.5(b) hereof and this Section 8.5(c) were not in this Agreement.
(d) (i) LLC Minimum Gain Chargeback. Except as otherwise provided
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in Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Section 8.5, if there is a net decrease in LLC Minimum Gain during a Year
of the LLC, each Member shall be specially allocated, before any other
allocation under this Section 8.5, items of LLC income and gain for such Year of
the LLC (and, if necessary, subsequent years) in proportion to and to the extent
of an amount equal to such Member's share of the net decrease in LLC Minimum
Gain determined in accordance with Regulation Section 1.704-2(g)(2). This
Section 8.5(d)(i) is intended to comply with, and shall be
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interpreted consistently with, the "minimum gain chargeback" provisions of
Regulation Section 1.704-2(f).
(ii) Member Minimum Gain Chargeback. Except as otherwise provided in
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Treasury Regulation Section 1.704-2(i)(4), notwithstanding any other provision
of this Article VIII, if there is a net decrease in Member Nonrecourse Debt
Minimum Gain attributable to a Member during any Fiscal Year of the LLC, each
Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt, determined in accordance with Treasury
Regulation Section 1.704-2(i)(5), shall be specially allocated items of LLC
income and gain for such Fiscal Year of the LLC (and, if necessary, subsequent
Fiscal Years of the LLC) in an amount equal to such Member's share of the net
decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be determined in
accordance with Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2).
This Section 8.6(d)(ii) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith.
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(e) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal
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Year of the LLC shall be specially allocated among the Members in proportion to
their Interests in the LLC.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions
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for any Fiscal Year of the LLC 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
Treasury Regulation Section 1.704-2(i)(1).
(g) Code Section 754 Adjustment. To the extent an adjustment to the
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adjusted tax basis of any LLC asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as the result of a distribution to
a Member in complete liquidation of his, her or its Interest in the LLC, the
amount of such adjustment to the Capital Accounts 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 specially
allocated to the Members in accordance with their Interests in the LLC in the
event Treasury Regulation Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the
Members to whom such
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distribution was made in the event Treasury Regulation Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(h) Targeting Allocations. The allocations set forth in this Article
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VIII are intended to comply with certain requirements of the Code and
regulations thereunder, as well as produce final Capital Account balances that
are at levels ("Target Final Balances") which would permit liquidating
distributions to be made in accordance with Section 9.2 hereof (relating to
distribution upon liquidation). To the extent that the allocation provisions of
this Agreement would not produce the Target Final Balances, the Members are
hereby authorized (in the year of liquidation, or if necessary and permissible
under the Code, in immediately preceding years) to amend such provisions by
allocating items of gross income, gain, income, or deduction in a manner
necessary to produce such Target Final Balances.
(i) Code Section 704(c). The LLC's ordinary income and losses and
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capital gains and losses as determined for Federal income tax purposes (and each
item of income, gain, loss or deduction entering into the computation thereof)
shall be allocated to the Members in the same proportion as the corresponding
"book" items are allocated pursuant to this Article VIII. Notwithstanding the
foregoing sentence, Federal income tax items relating to "Section 704(c)
Property" shall be
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allocated among the Members in accordance with Code Section 704(c) to take into
account the difference between the fair market value and the tax basis of such
Section 704(c) Property as of the date of its contribution to the LLC or such
other date as may be determined in accordance with Code Section 704(c). Items
described in this Section 8.5(i) shall neither be credited nor charged to the
Member's Capital Accounts to the extent already reflected therein. For purposes
of this Agreement, the Members shall elect under Treasury Regulation Section
1.704-3(b)(1) to use the "traditional method" to cure book and tax disparities
in Capital Accounts.
(j) "Nonrecourse Deductions" in any Fiscal Year shall mean an amount
of LLC deductions (other than Member Nonrecourse Deductions) that are
characterized as "nonrecourse deductions" under Section 1.704-2(b) of the
Treasury Regulations.
(k) "LLC Minimum Gain" shall have the meaning scribed to the term
"partnership minimum gain" in Regulations Section 1.704-2(d)(1).
(l) "Member Nonrecourse Debt" shall have the meaning ascribed to the
term "partner nonrecourse debt" in Regulations Section 1.704-2(b)(4).
(m) "Member Nonrecourse Debt Minimum Gain" shall have the meaning
ascribed to the term "partner nonrecourse debt minimum gain" in Regulations
Section 1.704-2(i)(2).
25
(n) "Member Nonrecourse Deductions" shall mean any and all items of
loss, deduction or expenditure (described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Regulations Section 1.704-2(i)(2),
are attributable to Member Nonrecourse Debt.
(o) Definitions. All capitalized terms used in this Section 8.5, if
-----------
not otherwise defined, shall have the meaning set forth in the applicable
Treasury Regulations.
ARTICLE IX
----------
DISSOLUTION AND LIQUIDATION; ALLOCATION OF
------------------------------------------
LIQUIDATION GAIN
----------------
9.1 TERMINATION. (a) The LLC shall terminate and be dissolved upon
-----------
the occurrence of any of the following:
(i) The election of any Member to terminate the LLC.
(ii) Upon the sale of all or substantially all of the assets
of the LLC and the termination of the business of the LLC.
(iii) The entry of a decree of judicial dissolution.
(b) Dissolution of the LLC shall be effective on the day on which the
event occurs giving rise to the dissolution,
26
but the LLC shall not terminate until the assets of the LLC shall have been
distributed as provided herein.
9.2 (a) DISTRIBUTION ON LIQUIDATION. Upon the termination and
---------------------------
dissolution of the LLC, the assets of the LLC shall be liquidated as promptly as
possible, but in an orderly and business-like manner, and the proceeds thereof
shall be applied to and distributed in the following priority:
(i) First, to the creditors of the LLC (other than secured
creditors whose obligations are assumed or otherwise transferred on the sale or
distribution of LLC assets and other than Members).
(ii) Second, to the Members in repayment of outstanding
loans, if any, made by them to the LLC.
(iii) Third, to the Members in accordance with Section
8.2(a) hereof as if such proceeds constituted Capital Items.
(iv) Fourth, the balance shall be payable to the Members to the
extent of the then balances in their respective Capital Accounts.
(b) Subject to paragraph (d) below, the Members may choose to
distribute one or more of the LLC's assets in kind rather than liquidating all
or part of the LLC assets.
(c) Immediately prior to such distribution, Capital Accounts shall be
adjusted in accordance with Section 1.704-
27
1(b)(2)(iv)(f) of the Treasury Regulations to reflect unrealized appreciation or
unrealized depreciation in the event that property is distributed to a Member
pursuant to Section 9.2(b) hereof.
(d) On liquidation of the LLC each Member shall have equal access to
and right to use the mailing list of the LLC.
ARTICLE X
---------
TRANSFERABILITY OF LLC INTERESTS, THIRD PARTY OFFERS
-----------------------------------------------------
10.1 TRANSFERS. The Transfer of any Interest in the LLC shall,
---------
except as otherwise permitted herein, be null and void.
10.2 TRANSFEREE'S RIGHTS. (a) Notwithstanding anything herein to
-------------------
the contrary, subject to paragraph (c) of this Section 10.2, any Member may
Transfer its Interest in the LLC with the prior written unanimous consent of the
Members owning not less than two-thirds of the Interests in the LLC (including
the transferring Member).
(b) Any transferee of an Interest in the LLC pursuant to a Transfer
hereunder shall receive and hold the Interest in the LLC so transferred subject
to the terms and conditions of this Agreement as though a party hereto, and no
Transfer of the whole or any portion of such LLC Interest shall be made to such
transferee (by conveyance, operation of law or otherwise), and such transferee
shall not become a substituted Member in the
28
LLC, unless and until he executes and delivers to the other Members a
counterpart of this Agreement, and such other instruments and documents as the
Members reasonably deem necessary or desirable, evidencing such transferee's
agreement to be bound by all of the terms and conditions of this Agreement.
10.3 EXPENSES OF TRANSFER; INDEMNIFICATION. All costs and
-------------------------------------
expenses incurred by the LLC in connection with any Transfer of a Member's
Interest pursuant to this Article, including any filing and recording costs and
the fees and disbursements of counsel for the LLC, shall be paid by the
transferring Member or such Member's transferee. In addition, the transferring
Member or such transferee shall indemnify the other Members and the LLC against
any losses, claims, damages or liabilities to which such Members or the LLC may
become subject arising out of or based upon any false representation or warranty
made by, or breach or failure to comply with any covenant or agreement of, such
transferring Member or such transferee in connection with such Transfer.
10.4 CODE SECTION 708 LIMITATION. If a technical termination of
---------------------------
the LLC for partnership tax purposes under Code Section 708 would result in
recapture, loss, reduction or deferral of a material amount of deductions or
credits of the LLC or any Member under the Code, then no sale, exchange,
29
transfer or assignment of a Member's Interest in the LLC may be made if the
Interests sought to be sold, exchanged, transferred or assigned, when added to
the total of all other Interests sold, exchanged, transferred or assigned,
within the period of twelve (12) consecutive months prior thereto, would result
in any such termination.
10.5 THIRD PARTY OFFERS. If at any time after the date hereof
------------------
any Member receives a bona fide offer for the purchase of all (but not less than
all) of the LLC's assets, then such Member shall notify the other Members in
writing of the receipt of the offer.
10.6 RIGHTS OF WITHDRAWAL. (a) If at any time after December
--------------------
31st, 2002, either Member wishes to withdraw as a Member from the LLC (the
"Withdrawing Member"), the Withdrawing Member shall give notice to the other
Member, as the remaining Member, of the Withdrawing Member's intention to
withdraw from the LLC and in such notice shall set forth its assumed fair market
value (net of all authorized contractual obligations of the LLC and of any
costs) for the LLC assets. Under the terms herein set forth, the Withdrawing
Member must sell the LLC Interest owned by it to the remaining Member for a
purchase price equal to the distribution the Withdrawing Member would have
received had the LLC sold all of its assets to a third party for such assumed
fair market value, had paid off all of its debts, and had
30
distributed the assets in liquidation of the LLC. The purchase price to be paid
shall be paid in cash. The remaining Member shall, within thirty (30) days after
receiving notice from the Withdrawing Member, be obligated to elect either to
purchase the Interest of the Withdrawing Member at the purchase price set forth
in the notice, or to sell to the Withdrawing Member the Interest owned by the
remaining Member, for cash in an amount equal to the product of: (a) the entire
Interest owned by the remaining Member; multiplied by (b)
____________________________/1/ of the assumed fair market value of all LLC
assets set forth in the notice. If the remaining Member fails to give notice to
the Withdrawing Member of its intention to either purchase or sell by the
expiration date, such failure shall be deemed to be notice of its election to
sell the LLC Interest of the remaining Member to the Withdrawing Member at the
price determined as set forth above. The closing of the purchase shall occur
ninety (90) days after the expiration of the thirty (30) day period. Any closing
hereunder shall be at the principal place of business of the LLC unless
otherwise agreed to in writing by all of the Members. The purchase price payable
at closing shall be adjusted for any debts existing between the Members.
_____________________
/1/ Pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, the
confidential material has been omitted and filed separately with the Securities
and Exchange Commission.
31
(b) Upon the withdrawal of MANHATTAN under the terms of this Xxxxxxx
00.0, XXXXXXXXX agrees to continue to perform under the terms and conditions of
the Manufacturing, Warehousing and Order Fulfillment Agreement by and between it
and the LLC, except that the prices charged by MANHATTAN thereunder shall be its
normal prices charged to third parties for the quantities involved.
(c) Upon the withdrawal of NUCYCLE under the terms of this Section
10.6, NUCYCLE agrees to continue to perform under the terms and conditions of
the Production Agreement by and between it and the LLC, except that the prices
charged by NUCYCLE thereunder shall be its normal prices charged to third
parties for the quantities involved.
ARTICLE XI
----------
BOOKS AND RECORDS
-----------------
11.1 BOOKS AND RECORDS. The Members shall maintain full and
-----------------
accurate books of the LLC, showing all receipts and expenditures, assets and
liabilities, profits and losses, and all other records necessary for recording
the LLC's business and affairs, including those sufficient to record the
allocation and distributions provided herein. All LLC financial statements shall
be accurate in all material respects, shall fairly present the financial
position of the LLC and the results of its operations, and shall be prepared in
accordance with generally
32
accepted accounting principles, subject in the case of quarterly statements to
year-end adjustments. The Members shall elect the accounting method to be used
by the LLC. Such books and records shall be open for the inspection and
examination of the Members or by their duly authorized representatives upon
reasonable notice and during normal business hours.
11.2 REPORTS. (a) The Members shall cause the LLC to prepare
-------
annually such necessary information to be furnished to the Members for use in
preparing their respective income tax returns. Not later than March 15 of each
year, the Members shall prepare and furnish to the Members the annual financial
statements for the LLC for such prior Fiscal Year accurately reflecting the
financial condition of the LLC and the results of the LLC's operations and
containing, without limiting the foregoing, balance sheets, statements of
changes in Members' capital, profit and loss statements (including each Member's
allocable shares of the Net Income and Net Losses (and items thereof) of the
LLC), and statements of changes in financial position, all of which are to be
verified by the accountants for the LLC.
(b) Each year a majority in Interests of the Members may cause the
following to be performed: (i) an examination to be made, at the expense of the
LLC, by an independent certified accountant selected by the Members as the
auditors for the LLC,
33
covering the financial position of the LLC, and the results of its operations
and the changes in its financial position for such Fiscal Year, and all matters
customarily included in such examinations; (ii) the prompt delivery to the
Members, of a copy of the report of such examination, stating that such
examination has been performed in accordance with generally accepted auditing
standards, together with the following financial statements with respect to the
LLC, attested to by such accountants as being prepared in accordance with
generally accepted accounting principles; and (iii) a balance sheet, an income
statement and statements of changes in financial position and the Capital
Account balances of the Members as of the end of and for such Fiscal Year. The
annual financial statements sent to the Members shall be accompanied by a status
report on the LLC's operations for the Fiscal Year covered thereby.
(c) After the end of each Fiscal Year, the Members shall use their
best efforts to cause the LLC's independent accountants to prepare and transmit
to each Member, as promptly as practicable, a Federal income tax Schedule K-1
and such other tax information as may be reasonably necessary to enable such
Member to prepare its Federal, state and local income tax returns relating to
such Fiscal Year.
11.3 BANK ACCOUNTS. All funds of the LLC shall be deposited in its
-------------
name in such checking and savings accounts or
34
time certificates as shall be designated by the Members. Withdrawals therefrom
shall be made upon signature of the Members.
11.4 ACCOUNTING DECISIONS. All decisions as to accounting
--------------------
matters shall be made by the Members.
11.5 TAX MATTERS PARTNER. MANHATTAN shall be the "Tax Matters
-------------------
Partner" of the LLC as described in Code Section 6231(a)(7). MANHATTAN shall be
solely responsible for handling the administrative and/or judicial proceedings
involving the Internal Revenue Service or any government authority relating to
any return of the LLC. MANHATTAN shall provide prompt notice to the Members of
any communication to or from a Federal, state or local authority regarding any
return of the LLC.
ARTICLE XII
-----------
INDEMNIFICATION
---------------
The LLC shall indemnify the Members against any loss or threat of loss
as a result of any claim or legal proceedings related to the performance or non-
performance of any act concerning the business or activities of the LLC in good
faith within what it reasonably believed to be the scope of its authority and
for a purpose for which it reasonably believed to be in the best interests of
the LLC. Further, a Member shall not be liable, responsible or accountable in
damages or otherwise to the other Members or the LLC for any acts performed
35
by it under this Agreement or by law, except for any acts of fraud, gross
negligence or willful misconduct.
ARTICLE XIII
------------
AMENDMENTS
----------
This Agreement may not be amended without the prior written consent of
all the Members.
ARTICLE XIV
-----------
MISCELLANEOUS
-------------
14.1 FEDERAL INCOME TAX ELECTIONS. All elections required or
----------------------------
permitted to be made by the LLC under the Code (including any election under
Code Section 754) shall be made by the Members in such manner as will be most
advantageous to the LLC.
14.2 MEETINGS Meetings of the LLC may be called by the Members.
--------
14.3 NOTICES. All notices under this Agreement shall be in
-------
writing, duly signed by the party giving such notice, and transmitted by
certified mail or by a reputable overnight courier to such Member at the address
set forth in Exhibit A attached hereto or at such other address which such
Member may hereafter designate in writing. Copies of all notices delivered to
the Members shall be delivered to:
Drinker Xxxxxx & Xxxxxxx, a Pennsylvania LLP
000 Xxxxxx Xxxxx
Xxxxxxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx, Esq.
36
and
Xxxxxxx XxXxxx, Esq.
C/o NuCycle Therapy, Inc.
0 Xxxx Xxxx Xxxxx, Xxxxx 0x
Xxxxxxxx Xxxxxxxx, Xxx Xxxxxx 00000
14.4 CAPTIONS. Section titles or captions contained in this
--------
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit, extend or describe the scope of this Agreement or the
intent of any provision hereof.
14.5 IDENTIFICATION. Whenever the singular number is used in
--------------
this Agreement and when required by the context, the same shall include the
plural, and the masculine gender shall include the feminine and neuter genders.
14.6 COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts and all of such counterparts shall for all purposes constitute
one agreement binding on the parties hereto, notwithstanding that all parties
are not signatory to the same counterpart.
14.7 APPLICABLE LAW. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New Jersey. Any dispute
hereunder shall be resolved by the Courts of the State of New Jersey.
14.8 MEMBER'S QUALIFICATION. Anything in this Agreement to the
----------------------
contrary notwithstanding, no Member, or any assignee
37
of the interest thereof, shall be a person or entity prohibited by law from
becoming such. Any assignment of any Interest in the LLC to any person or entity
not meeting such standard shall be void and ineffectual and shall not bind the
LLC.
14.9 BINDING AGREEMENT. Except as herein otherwise provided to
-----------------
the contrary, this Agreement shall be binding upon and inure to the benefit of
the parties hereto, their personal representatives, successors and assigns.
14.10 MERGER. This Agreement contains the entire agreement
------
between the Members and supersedes all prior and contemporaneous negotiations,
understandings and agreements, written or oral, between the Members.
IN WITNESS WHEREOF, the parties hereto, have affixed their hands and
seals the day and year first above written.
MEMBERS:
ATTEST: MANHATTAN DRUG COMPANY, INC.,
a New York Corporation
/s/ /s/ Xxxx Xxxxxxxx
--------------------------- ---------------------------------
by: Xxxx Xxxxxxxx, Vice President
ATTEST: NUCYCLE THERAPY, INC.
a New Jersey Corporation
/s/ /s/ Xxxx Xxxxxx
--------------------------- ---------------------------------
by: Xxxx Xxxxxx, President
38
EXHIBIT A
---------
Member, Name and Address Capital Accounts Interest
------------------------------ ---------------- ---------
Manhattan Drug Company, Inc. $500.00 50%
000 Xxxx Xxxxxx
Xxxxxxxx, XX 00000
NuCycle Therapy, Inc. $500.00 50%
0 Xxxx Xxxx Xxxxx, Xxxxx X
Xxxxxxxx Xxxxxxxx, XX
00000
