1
Exhibit 10.3
LIMITED LIABILITY COMPANY AGREEMENT
OF
XXXXXXX SIERRA L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
EFFECTIVE AS OF OCTOBER 31, 1995
2
CONTENTS
ARTICLE I. ORGANIZATION OF COMPANY................................................................ 1
1.1 Name.................................................................................. 1
1.2 Certificate of Formation.............................................................. 1
1.3 Term.................................................................................. 1
1.4 Principal Place of Business........................................................... 1
1.5 Registered Office and Registered Agent................................................ 1
1.6 Purpose and Nature of Business........................................................ 2
1.7 Defects as to Formalities............................................................. 2
1.8 No Partnership Intended for Nontax Purposes........................................... 2
1.9 Liability of Members to Third Parties; Reliance by Third-Party Creditors.............. 2
1.9.1 Liability of Members....................................................... 2
1.9.2 Reliance by Third Parties.................................................. 2
1.10 Defined Terms......................................................................... 3
ARTICLE II. CAPITAL STRUCTURE..................................................................... 3
2.1 Initial Capital Contributions......................................................... 3
2.2 Additional Contribution Commitment.................................................... 3
2.3 Default in Monetary Obligations....................................................... 4
2.4 Management Services................................................................... 4
2.5 Additional Members.................................................................... 4
2.6 Company Capital....................................................................... 4
2.7 Maintenance of Capital Accounts....................................................... 5
ARTICLE III. MANAGEMENT............................................................................ 6
3.1 Board of Members...................................................................... 6
3.1.1 Initial Board of Members................................................... 6
3.1.2 Term....................................................................... 6
3.1.3 Appointment; Removal....................................................... 6
3.1.4 Appointment of the Manager................................................. 6
3.1.5 Authority to Act........................................................... 6
3.1.6 Action by Board of Members................................................. 7
3.2 Unanimous Consent Requirement......................................................... 8
3.3 Manager/Officer....................................................................... 9
3.3.1 Appointment; Removal....................................................... 10
3.3.2 Term....................................................................... 10
3.4 Rights of Members..................................................................... 10
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3.5 Other Business of Members............................................................. 10
ARTICLE IV. COMPANY'S DEALINGS WITH MEMBERS OR AFFILIATES......................................... 10
4.1 Right of Company to Deal With Members or Affiliates................................... 10
4.2 License of Xxxxxxx Content and Related Technology..................................... 11
4.2.1 Grant...................................................................... 11
4.2.2 License to Xxxxxxx Trademarks.............................................. 11
4.2.3 Exclusivity................................................................ 11
4.2.4 Xxxxxxx Infringement Indemnity............................................. 11
4.2.5 Text Upgrades.............................................................. 12
4.2.6 Nontransferability of Licenses............................................. 12
4.3 License of Sierra Multimedia Components............................................... 12
4.3.1 Grant...................................................................... 12
4.3.2 License to Sierra Trademarks............................................... 12
4.3.3 Exclusivity................................................................ 13
4.3.4 Sierra Infringement Indemnity.............................................. 14
4.3.5 Nontransferability of Licenses............................................. 14
4.4 Production of Product................................................................. 14
4.4.1 Review for Factual Accuracy................................................ 14
4.4.2 Suppliers.................................................................. 14
4.5 Distribution Rights to the Members.................................................... 15
4.5.1 Distribution Rights Granted to Xxxxxxx..................................... 15
4.5.2 Distribution Rights Granted to Sierra...................................... 15
4.5.3 Rights Reserved to the Company............................................. 15
4.5.4 Compensation to the Company................................................ 15
4.5.5 Third-Party Royalties...................................................... 16
4.5.6 Company Trademark License.................................................. 16
4.5.7 Company Infringement Indemnity............................................. 16
4.5.8 Cross-Marketing............................................................ 17
4.5.9 Customer Lists............................................................. 17
4.6 Development........................................................................... 17
4.6.1 Development Plan........................................................... 17
4.6.2 Enabling Technology........................................................ 17
4.6.3 Sierra's Development Responsibilities...................................... 18
4.6.4 Xxxxxxx'x Development Responsibilities..................................... 18
4.6.5 Cost of Services; Reimbursement............................................ 18
4.7 Customer Service, Licensing Fees...................................................... 18
4.7.1 Support.................................................................... 18
4.7.2 Platform License Fees...................................................... 19
4.8 OEM, On-Line Service and Similar Transactions......................................... 19
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ARTICLE V. ALLOCATION OF PROFITS AND LOSSES...................................................... 19
5.1 Allocation of Profits................................................................. 19
5.2 Allocation of Losses.................................................................. 19
5.3 Other Allocation Rules................................................................ 19
5.3.1 Conventions................................................................ 19
5.3.2 Section 704(e)............................................................. 19
5.4 Intent of Allocations................................................................. 20
ARTICLE VI. CASH DISTRIBUTIONS.................................................................... 20
6.1 General............................................................................... 20
6.2 Distributions......................................................................... 20
ARTICLE VII. TRANSFERS; ADMISSIONS; WITHDRAWAL..................................................... 20
7.1 No Transfer of Economic or Management Rights.......................................... 20
7.2 Admission of Substitute Members....................................................... 21
7.3 Obligations of Substitute Member...................................................... 21
7.4 Additional Members.................................................................... 22
7.5 No Right to Withdrawal................................................................ 22
ARTICLE VIII.DISSOLUTION OF COMPANY................................................................ 22
8.1 Events Causing Dissolution............................................................ 22
8.2 Liquidation........................................................................... 23
8.3 Enabling Technology................................................................... 24
8.4 Rights to Xxxxxxx Content............................................................. 24
8.5 Rights to Sierra Multimedia Components................................................ 24
8.6 Company Technology.................................................................... 25
8.7 Continuation of Use................................................................... 25
8.8 Use of Other Member's Name............................................................ 25
8.9 Deficit Capital Accounts.............................................................. 25
ARTICLE IX. BOOKS, RECORDS AND ACCOUNTING......................................................... 26
9.1 Books and Records..................................................................... 26
9.2 Fiscal Year........................................................................... 26
9.3 Bank Accounts......................................................................... 26
9.4 Annual Budget......................................................................... 27
9.4.1 Annual Budget Planning..................................................... 27
9.4.2 Review of Annual Performance............................................... 27
9.5 Annual Business Plan.................................................................. 27
ARTICLE X. INDEMNIFICATION....................................................................... 28
10.1 Indemnification....................................................................... 28
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10.2 Advance Payment....................................................................... 28
10.3 Nonexclusivity of Rights.............................................................. 28
10.4 Insurance............................................................................. 28
10.5 Indemnification of Others............................................................. 29
ARTICLE XI. AMENDMENT............................................................................. 29
ARTICLE XII. MISCELLANEOUS......................................................................... 29
12.1 Confidentiality....................................................................... 29
12.2 Press Releases........................................................................ 30
12.3 Application of Delaware Law........................................................... 30
12.4 Construction.......................................................................... 30
12.5 Counterparts.......................................................................... 30
12.6 Execution of Additional Instruments................................................... 30
12.7 Headings.............................................................................. 30
12.8 Heirs, Successors and Assigns......................................................... 31
12.9 Rights and Remedies Cumulative........................................................ 31
12.10 Severability.......................................................................... 31
12.11 Waivers............................................................................... 31
12.12 Notices............................................................................... 31
12.13 Attorneys' Fees....................................................................... 33
EXHIBIT A ................................................................................... 34
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LIMITED LIABILITY COMPANY AGREEMENT
OF
XXXXXXX SIERRA L.L.C.
This Limited Liability Company Agreement is effective as of October 31,
1995 (the "Effective Date"), and is entered into by the undersigned for the
purpose of forming Xxxxxxx Sierra L.L.C. (the "Company").
ARTICLE I. ORGANIZATION OF COMPANY
1.1 NAME
The name of the Company is Xxxxxxx Sierra L.L.C.
1.2 CERTIFICATE OF FORMATION
The Members shall ensure that the Certificate is duly and properly filed.
1.3 TERM
The Company shall commence as of the Effective Date of this Agreement and
shall continue until December 31, 2040 unless earlier terminated and dissolved
as provided in Section 8.1 herein.
1.4 PRINCIPAL PLACE OF BUSINESS
The principal office of the Company shall be located at such place or
places inside or without the State of Washington as the Board of Members may
designate from time to time. The principal office of the Company shall initially
be 0000 - 000xx Xxxxx X.X., Xxxxx 000, Xxxxxxxx, Xxxxxxxxxx 00000.
1.5 REGISTERED OFFICE AND REGISTERED AGENT
The name of the initial registered agent of the Company and the address of
its registered office are as follows:
Lawco of Washington, Inc.
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
The Board of Members may change the registered office and the registered agent
from time to time by filing an amendment to the Certificate.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 1
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1.6 PURPOSE AND NATURE OF BUSINESS
The purpose of the Company shall be to develop, produce, publish,
distribute and license the Product and to undertake any and all other acts and
things necessary, proper or advisable to effectuate and carry out any such
purpose and operate its business.
1.7 DEFECTS AS TO FORMALITIES
A failure to observe any formalities or requirements of this Agreement,
the Certificate or the Act shall not be grounds for imposing personal liability
on the Members for liabilities of the Company.
1.8 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES
The Members have formed the Company under the Act, and expressly do not
intend to form a partnership under either the Delaware Uniform Partnership Act
or the Delaware Uniform Limited Partnership Act or a corporation under the
Delaware Business Corporation Act. The MemberS do not intend to be partners to
one another, or partners as to any third party. To the extent any Member, by
word or action, represents to another Person that any other Member is a partner
or that the Company is a partnership, the Member making such wrongful
representation shall be liable to any other Member who incurs personal liability
by reason of such wrongful representation.
1.9 LIABILITY OF MEMBERS TO THIRD PARTIES; RELIANCE BY THIRD-PARTY CREDITORS
1.9.1 LIABILITY OF MEMBERS
Except as otherwise provided in the Act or in this Agreement, no Member
shall be personally liable for any debt obligation or liability of the Company,
whether arising in contract or otherwise, solely by reason of being a Member of
the Company.
1.9.2 RELIANCE BY THIRD PARTIES
This Agreement is entered into between the Members for the exclusive
benefit of the Company, its Members, and their successors and assigns. The
Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person. Except and only to the extent provided by
applicable statute, no such creditor or third party shall have any rights under
the Agreement or any agreement between the Company and any Member with respect
to any contribution or otherwise.
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1.10 DEFINED TERMS
The definitions of certain terms used in this Agreement are set forth in
Exhibit A attached hereto.
ARTICLE II. CAPITAL STRUCTURE
2.1 INITIAL CAPITAL CONTRIBUTIONS
As their respective initial Capital Contributions and in exchange for
1,000 Units each, Sierra and Xxxxxxx shall contribute the following cash and
property to the Company:
(a) Sierra shall contribute to the Company One Million Dollars
($1,000,000) cash. The agreed-upon value of Sierra's initial Capital
Contribution is One Million Dollars ($1,000,000).
(b) Xxxxxxx shall contribute to the Company a license to the Xxxxxxx
Content as described in Section 4.2 below. The agreed upon value of Xxxxxxx'x
initial Capital Contribution is One Million Dollars ($1,000,000).
Sierra and Xxxxxxx will make such Capital Contributions upon the Board's
approval of the first Annual Budget and Annual Business Plan. Within thirty (30)
days after the Effective Date, the Manager will submit a proposed budget and
business plan to the Board for approval in accordance with Sections 9.4 and 9.5.
The Board will approve a budget and business plan within sixty (60) days after
the Effective Date.
2.2 ADDITIONAL CONTRIBUTION COMMITMENT
(a) In addition to the initial Capital Contributions, the Members shall
make additional Capital Contributions (the "Mandatory Additional Capital
Contribution") pro rata in accordance with their respective number of Units (i)
in such amounts up to an aggregate of One Hundred Thousand Dollars ($100,000)
each as shall be requested by the Manager as provided in Section 3.3 and (ii) in
such amounts as required pursuant to the Annual Budget and Development Plan not
to exceed Six Hundred Thousand Dollars ($600,000) each.
(b) Unless all Members agree otherwise, the Members shall make the
Mandatory Additional Capital Contributions within twenty (20) business days
after (i) the Manager submits the request or (ii) the dates set forth in the
Annual Budget and Development Plan.
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2.3 DEFAULT IN MONETARY OBLIGATIONS
In the event of any default by a Member in the performance of its monetary
obligations under Section 2.2 of this Agreement, the other Member(s) may demand
in writing that such default be cured. If the defaulting Member shall fail to
cure the default within ten (10) days after receipt of such demand, the other
Member(s) may increase its ownership interest in the Company by making the
defaulting Member's payment to the Company. The rights of the advancing
Member(s) set forth in this Section 2.3 are in addition to, and not in lieu of,
any other rights or remedies afforded under this Agreement, by law or otherwise
on account of the default.
2.4 MANAGEMENT SERVICES
Each Member shall contribute management and accounting support to the
Company as may be reflected from time to time in the Annual Budget at such
party's direct and indirect costs.
2.5 ADDITIONAL MEMBERS
The Board of Members, by unanimous decision, shall have the sole right to
admit additional Members upon such terms and conditions, at such time or times,
and for such Capital Contributions as a unanimous Board of Members shall in its
sole discretion determine.
2.6 COMPANY CAPITAL
(a) No Member shall be paid interest on any Capital Contribution.
(b) No Member shall have the right to withdraw, or receive any return of,
its Capital Contribution, except as may be specifically provided herein. No
Member shall have priority over any other Member, either as to the return of its
Capital Contribution or as to profits, losses or distributions, except as
otherwise specifically provided herein.
(c) Under circumstances requiring a return of any Capital Contribution,
no Member shall have the right to receive property, other than cash, except as
may be specifically provided herein.
(d) A creditor who makes a nonrecourse loan to the Company will not have
or acquire at any time as a result of making such a loan any direct or indirect
interest in the profits, capital or property of the Company other than as a
secured creditor.
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2.7 MAINTENANCE OF CAPITAL ACCOUNTS
The Company shall establish and maintain Capital Accounts with respect to
each Member in accordance with the following:
(a) Each Member's Capital Account shall be increased by such Member's
Capital Contributions, such Member's distributive share of Profits and the
amount of any Company liabilities assumed by such Member or which are secured by
any property distributed to such Member.
(b) Each Member's Capital Account shall be decreased by the amount of
cash and the gross fair market value of any Company property (other than cash)
distributed to such Member pursuant to any provision of this Agreement, such
Member's distributive share of Losses and the amount of any liabilities of such
Member assumed by the Company or which are secured by any property contributed
by such Member to the Company.
(c) In the event of a transfer of all or a portion of a Member's Economic
Rights in the Company in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor.
(d) The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Board of Members determines
that it is prudent to modify the manner in which the Capital Accounts, or any
adjustments thereto, are computed in order to comply with such Regulations, the
Board of Members may make such modification, provided that it is not likely to
have a material effect on the amounts distributed to any Member pursuant to
Section 8.2 hereof upon the dissolution of the Company. The Board of Members
also 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 Regulations Section 1.704-1(b)(2)(iv)(q), and make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b). Other
than as specifically required under this Article II, no Member shall have any
deficit restoration obligation or obligation to make any additional Capital
Contribution.
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ARTICLE III. MANAGEMENT
3.1 BOARD OF MEMBERS
The Board of Members shall have the sole right to manage the business of
the Company and shall have all powers and rights necessary, appropriate or
advisable to effectuate and carry out the purposes and business of the Company.
Each Member shall have the right to appoint two (2) Representatives to the
Board.
3.1.1 INITIAL BOARD OF MEMBERS
The initial Board of Members shall be composed of two (2) Sierra
Representatives and two (2) Xxxxxxx Representatives. In the event that either
Sierra or Xxxxxxx obtains ownership of a majority of the outstanding Units, then
during the time that one Member owns a majority of the outstanding Units (i) the
Board of Members shall be increased to five (5) Representatives and (ii) the
Member owning a majority of the outstanding Units shall be entitled to appoint
the fifth Representative.
3.1.2 TERM
Each Representative shall hold office for a term expiring on his or her
death, incapacitation, resignation or removal from office.
3.1.3 APPOINTMENT; REMOVAL
A Representative may be removed with or without cause upon notice from the
Member who appointed such Representative. The Member who appointed such removed
Representative shall be entitled to appoint a replacement Representative. Each
Member shall vote its Units to cause the removal and replacement of a
Representative originally appointed by the other Member as requested by that
other Member. If a Member ceases to be a Member for any reason, that Member's
Representatives shall automatically be removed as Representatives.
3.1.4 APPOINTMENT OF THE MANAGER
The Board of Members shall appoint the Manager on such terms and to
perform such functions as described in this Agreement and as the Board of
Members shall determine in its sole discretion.
3.1.5 AUTHORITY TO ACT
The Board of Members may appoint, employ or otherwise contract with such
persons or entities for the transaction of the business of the Company or the
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performance of services for or on behalf of the Company as it shall determine in
its sole discretion. The Board of Members may delegate to any Manager, officer,
person or entity such authority to act on behalf of the Company as the Board of
Members may from time to time deem appropriate in its sole discretion. Upon
authorization by the Board of Members, any Manager, officer of the Company, or
any other person specifically authorized by the Board of Members may execute any
contract or other agreement or document on behalf of the Company and may execute
and file on behalf of the Company with the Secretary of State of the State of
Delaware the Certificate and any amendment thereto.
3.1.6 ACTION BY BOARD OF MEMBERS
(a) Regular meetings of the Board of Members shall be held at such times
as shall be determined by the Board of Members, but not less frequently then
semi-annually, for the purpose of the transaction of such business as may come
before the Board of Members.
(b) Special meetings of the Board of Members may be called by any Member
for any purpose or purposes.
(c) The place of any meeting shall alternate between the principal office
of the Company in Seattle, Washington, and the office of Xxxxxxx in New York
City.
(d) Except as otherwise provided in this Agreement, written notice
stating the place, day and hour of the meeting of the Board of Members and the
purpose or purposes for which the meeting is called shall be delivered not less
than five (5) days nor more than sixty (60) days before the date of the meeting.
(e) If all of the Representatives meet at any time and place, either
within or outside Washington, and consent to a holding of a meeting at such time
and place, such meeting shall be valid without call or notice, and at such
meeting lawful action may be taken.
(f) A majority of the Representatives shall constitute a quorum at any
meeting of the Board of Members.
(g) If a quorum is present, all matters shall be determined by a vote of
a majority of the Representatives present in person or by proxy, except as
otherwise provided in this Agreement. Unless otherwise expressly provided herein
and required under applicable law, Representatives or the Member who appointed
such Representatives who have an interest in the outcome of any particular
matter upon which the Representatives vote or consent may vote or consent upon
any such matter
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and their vote or consent, as the case shall be, shall be counted in the
determination of whether the requisite matter was approved by the Board of
Members; provided that such Representative has fully disclosed the nature of
such Representative's interest in the matter prior to such vote or consent, or,
if not disclosed, the other Representatives waive such requirement.
(h) Any action required or permitted to be taken by the Board of Members
at a meeting may be taken without a meeting if a majority or all (as required
under Section 3.2) of the Board of Members shall individually or collectively
consent in writing to such action.
(i) The Representatives may participate in any meeting of the Board of
Members by use of any means of communication by which all Representatives
participating may simultaneously hear each other.
(j) The Board of Members may adopt such other procedures governing
meetings and the conduct of business as well as meetings of Representatives and
any procedures to be used in connection with voting by Representatives (which
voting may be by written consent of the percentage necessary to take such
action) as it deems appropriate.
(k) A Representative shall be entitled to vote by proxy at all meetings
of the Board of Members.
(l) If the Board of Members is unable to take action on a material item
required or permitted to be taken by the Board of Members (i.e., because the
Board of Members is deadlocked on the item), then either Member may notify the
other Members that the Board of Members has reached a deadlock ("Initial
Deadlock Notice"). If the Board of Members is unable to either (i) take action
on the item within thirty (30) days after the Initial Deadlock Notice or (ii)
agree to withdraw the item from consideration by the Board of Members within
thirty (30) days after the Initial Deadlock Notice, then, upon written notice by
either Member ("Final Deadlock Notice"), the Company shall dissolve under
Section 8.
3.2 UNANIMOUS CONSENT REQUIREMENT
The Board of Members shall not have the authority to do any of the
following actions without the approval of all the Representatives at any duly
called meeting:
(a) Form or acquire an interest in a partnership, corporation or other
legal entity;
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(b) Cancel, redeem or purchase any outstanding Units, other than as
contemplated by this Agreement;
(c) Merge or consolidate with any other legal entity;
(d) Except as contemplated in the applicable Annual Budget, pledge,
mortgage or otherwise encumber any of the Company's assets;
(e) Call for Capital Contributions in excess of the Mandatory Additional
Capital Contributions;
(f) Guarantee the obligation of any debtor;
(g) Approve the Annual Budget and any revisions thereto;
(h) Adopt or revise the Company's Annual Business Plan;
(i) Sell all or substantially all the assets of the Company; or
(j) Enter into agreements, contracts or arrangements between any Member
or Representative and the Company.
3.3 MANAGER/OFFICER
The Manager shall manage the day-to-day business and affairs of the
Company and implement the policies, decisions, guidelines, Annual Business
Plans, Annual Budgets and other acts of the Board; provided, however, the
Manager shall not have the authority to do or take any of the actions described
in Section 3.2 without the advance written approval of the Board. The Manager
shall have the authority to take actions and make decisions on behalf of the
Company in compliance with the policies, decisions, guidelines, Annual Business
Plans, Annual Budgets and other acts of the Board and as expressly allocated to
such Manager as provided in this Agreement. In addition, the Manager, acting
alone, shall have the authority, in his or her reasonable discretion, to enter
into contracts, reallocate Annual Budget amounts, or take other reasonable
action in the ordinary course of business (including emergencies) on behalf of
the Company in each case involving amounts up to Thirty Thousand Dollars
($30,000) (subject to an aggregate annual maximum amount of Sixty Thousand
Dollars ($60,000)) even though such contract or action was not contemplated or
authorized in the applicable Annual Business Plan or Annual Budget or by the
Board. The Manager, acting alone, shall also have the right to require each
Member to make Mandatory Additional Capital Contributions in the above
situations in amounts not greater than an aggregate of One Hundred Thousand
Dollars ($100,000) per Member. The Manager shall be designated as the Company's
President.
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3.3.1 APPOINTMENT; REMOVAL
During the Initial Development Phase, the Manager shall be Xxxx Xxxxxxxx.
Prior to the Operations Phase, Sierra and Xxxxxxx shall jointly select and
appoint a Manager for the Operations Phase (which may be Xxxx Xxxxxxxx or
another individual). During the Operations Phase, Sierra and Xxxxxxx shall
jointly review and evaluate the Manager no less often than annually. The Manager
may be removed with or without cause by the Board. If the Manager is an employee
of a Member, the Company will reimburse such Member at Cost for actual time
spent working as the Manager as included in the Annual Budget.
3.3.2 TERM
The Manager shall hold office for a term expiring on his or her death,
resignation or removal from office or such shorter term specified by applicable
laws.
3.4 RIGHTS OF MEMBERS
Except as otherwise set forth in this Agreement, no Member shall have any
right or power to take part in the management or control of the Company or its
business affairs or to act for or bind the Company in any way.
3.5 OTHER BUSINESS OF MEMBERS
Except as otherwise may be required by the Act or expressly limited by
this Agreement, the Members may engage in business ventures and activities of
any nature and description, independently or with others whether or not in
competition with the business of the Company, and neither the Company nor any of
the MEMBERS shall have any rights in and to such independent ventures and
activities or the income or profits derived therefrom by reason of membership in
the Company.
ARTICLE IV.
COMPANY'S DEALINGS WITH MEMBERS OR AFFILIATES
4.1 RIGHT OF COMPANY TO DEAL WITH MEMBERS OR AFFILIATES
The Company may, upon the unanimous approval of the Board, enter into
agreements, contracts or arrangements with one or more of the Members pursuant
to which that Member provides goods, technologies or services (including without
limitation the contributions identified in Section 2.4) to the Company in
connection with the Company's activities. The terms of such agreements,
contracts or arrangements shall be those mutually agreed upon by the Company and
that Member and shall be embodied in a written agreement. Prior to the Company
entering into an
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agreement, contract or arrangement, with a Member, any other Member can request
the Company to obtain competitive bids for such.
4.2 LICENSE OF XXXXXXX CONTENT AND RELATED TECHNOLOGY
4.2.1 XXXXX
Xxxxxxx hereby grants to the Company a worldwide, royalty-free,
irrevocable, nontransferable right and license to adapt, convert, display,
perform, distribute, localize, make, port, use, sell and translate the Xxxxxxx
Content for use in, and sale of, the Product.
4.2.2 LICENSE TO XXXXXXX TRADEMARKS
Xxxxxxx hereby grants to the Company and Sierra a worldwide, royalty-free,
irrevocable, nontransferable license (with right to sublicense with the prior
approval of Xxxxxxx) to use the Xxxxxxx Trademarks in connection with the
promotion, marketing and sale of the Product. Xxxxxxx will have the right to
review and approve the form of use of the Xxxxxxx Trademarks prior to
distribution of the Product or any promotional material with respect thereto.
4.2.3 EXCLUSIVITY
Xxxxxxx shall not grant a license, sublicense or other rights to any other
Person in the Xxxxxxx Content or the Xxxxxxx Trademarks in the Computer Field
for any purpose involving manufacture, use or sale of electronic multimedia
general reference encyclopedia products; provided, however, that such limitation
shall not apply to: (a) Xxxxxxx'x present arrangement with Information Access
Company for Text-Only on-line service; (b) Xxxxxxx'x distribution, prior to the
Royalty Completion Date, of the Text-Only version of the Product through any and
all of the channels except that distribution of Text-Only CD-ROM versions of the
Product in the retail and OEM channels are reserved to the Company; and (c)
thematic encyclopedias and other encyclopedia reference works other than general
reference works.
4.2.4 XXXXXXX INFRINGEMENT INDEMNITY
Xxxxxxx shall indemnify, defend and hold the Company (and its distributors
and sublicensees, including, without limitation, Sierra) harmless from and
against any and all claims that the Xxxxxxx Trademarks or Xxxxxxx Content (or
any portion thereof) infringe upon any patent, copyright, trademark or other
intellectual property rights of any third party. Xxxxxxx shall have no
obligation under this Section 4.2.4 with respect to any claim of copyright or
patent infringement based upon the combination or use of
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the Xxxxxxx Content (or any portion thereof) with any other program, goods or
products not furnished by Xxxxxxx where use of the Xxxxxxx Content (or any
portion thereof) alone would not constitute infringement or with respect to any
claim of trademark infringement based upon the use or combination of any Xxxxxxx
Trademark with any trademark, trade dress or other word, symbol or design where
the use of any Xxxxxxx Trademark alone would not constitute an infringement.
4.2.5 TEXT UPGRADES
Xxxxxxx shall make Upgrades available to the Company, from time to time
upon the request of a majority of the Board (but not more frequently than once
each Fiscal Year), at an initial price of Three Hundred Thousand Dollars
($300,000) per Upgrade based upon the practices of Xxxxxxx in updating its print
encyclopedia. After the initial Upgrade, the Upgrade price will be determined by
the Board in connection with the Annual Budget.
4.2.6 NONTRANSFERABILITY OF LICENSES
The licenses set forth in this Section 4.2 are intended to be
nontransferable, whether by assignment or by operation of law. Without limiting
the generality of the foregoing, the licenses set forth in this Section 4.2 are
not transferable to Sierra without Xxxxxxx'x prior written consent.
4.3 LICENSE OF SIERRA MULTIMEDIA COMPONENTS
4.3.1 XXXXX
Xxxxxx hereby grants to the Company a worldwide, royalty-free,
irrevocable, nontransferable right and license to adapt, convert, display,
perform, distribute, localize, make, port, use, sell and translate the Sierra
Multimedia Components for use in, and sale of, the Product.
4.3.2 LICENSE TO SIERRA TRADEMARKS
Sierra hereby grants to the Company and Xxxxxxx a worldwide, royalty-free,
irrevocable, nontransferable license (with right to sublicense with the prior
approval of Sierra) to use the Sierra Trademarks in connection with the
promotion, marketing and sale of the Product. Sierra will have the right to
review and approve the form of use of the Sierra Trademarks prior to
distribution of the Product or any promotional material with respect thereto.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 12
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4.3.3 EXCLUSIVITY
Sierra will not initiate a project to develop (whether for Sierra or for a
third party) an electronic multimedia English language general reference product
in the Encyclopedia Field (a "Competing Product"). If Sierra acquires (e.g.,
through the acquisition of a company with an existing or development-stage
electronic multimedia English language general reference encyclopedia, or
through the acquisition of Sierra by a third party with an existing or
development-stage multimedia English language general reference encyclopedia) a
Competing Product (completed or in development), then:
(a) Sierra will not, without Xxxxxxx'x prior written consent, use any of
the Xxxxxxx Trademarks or any of the Developed Sierra Multimedia Components or
any Existing Sierra Multimedia Components that have been incorporated into a
Product in connection with the Competing Product.
(b) Sierra will not, without Xxxxxxx'x prior written consent, reduce any
of its efforts regarding development or distribution of the Product below the
efforts anticipated prior to Sierra's acquisition of the Competing Product.
(c) Sierra will promptly notify Xxxxxxx in writing of Sierra's
acquisition of the Competing Product (the "Acquisition Notice").
(d) Xxxxxxx may, within one hundred twenty (120) days after receipt of
the Acquisition Notice, notify Sierra in writing that Xxxxxxx is exercising its
rights under (e) below (the "Exercise Notice").
(e) If Xxxxxxx delivers the Exercise Notice within one hundred twenty
(120) days after Sierra delivers the Acquisition Notice, then, if Sierra has not
ceased to own and distribute the Competing Product within eighteen (18) months
after receipt of the Exercise Notice, Xxxxxxx may, during the ninety (90) days
following such eighteen (18) month period;
(i) purchase Sierra's Interest (including without limitation all
Sierra's obligations to the Company or Xxxxxxx under this Agreement) at
the Exercise Price, in which case the Company may continue to use the
Sierra Trademarks for transition purposes for a period of six (6) months
after the purchase, and, solely with respect to the Sierra Multimedia
Components incorporated in one or more Products (including Products in
development) in existence at the time of the purchase, the license set
forth in Section 4.3.1 will continue until December 31, 2040, or
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 13
19
(ii) notify Sierra that the Company will dissolve pursuant to
Section 8.1.
(f) Sierra will not, without Xxxxxxx'x prior written consent, use any of
the Sierra Trademarks in connection with the Competing Product for one hundred
eighty (180) days after Sierra delivers the Acquisition Notice.
4.3.4 SIERRA INFRINGEMENT INDEMNITY
Sierra shall indemnify, defend and hold the Company (and its distributors
and sublicensees, including, without limitation, Xxxxxxx) harmless from and
against any and all claims that the Sierra Trademarks or Sierra Multimedia
Components (or any portion thereof) infringe upon any patent, copyright,
trademark or other intellectual property rights of any third party. Sierra shall
have no obligation under this Section 4.3.4 with respect to any claim of
copyright or patent infringement based upon the combination or use of the Sierra
Multimedia Components (or any portion thereof) with any other program, goods or
products not furnished by Sierra where use of the Sierra Multimedia Components
(or any portion thereof) alone would not constitute infringement or with respect
to any claim of trademark infringement based upon the use or combination of any
Sierra Trademark with any trademark, trade dress or other word, symbol or design
where the use of any Sierra Trademark alone would not constitute an
infringement.
4.3.5 NONTRANSFERABILITY OF LICENSES
The licenses set forth in this Section 4.3 are intended to be
nontransferable, whether by assignment or by operation of law. Without limiting
the generality of the foregoing, the licenses set forth in this Section 4.3 are
not transferable to Xxxxxxx without Sierra's prior written consent.
4.4 PRODUCTION OF PRODUCT
4.4.1 REVIEW FOR FACTUAL ACCURACY
Xxxxxxx will have the right to review the Product for factual accuracy
prior to publication and either approve or correct the Product or Updates.
4.4.2 SUPPLIERS
Sierra and Xxxxxxx will jointly agree upon one or more suppliers to
manufacture, print and assemble the Product and any related collateral
materials. If either Sierra or Xxxxxxx is a supplier, the Company will pay for
such services at arm's-length prices.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 14
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4.5 DISTRIBUTION RIGHTS TO THE MEMBERS
4.5.1 DISTRIBUTION RIGHTS GRANTED TO XXXXXXX
The Company hereby grants to Xxxxxxx the right to use, distribute, market
and sell the Product (whether as a stand-alone product or bundled with other
products) on an exclusive basis (i) through door-to-door sales worldwide; (ii)
through direct response (e.g., telemarketing and direct mail), except as set
forth in Section 4.5.2; (iii) directly to Xxxxxxx'x customer list; (iv) to
educational institutions and to public libraries worldwide (provided that
Xxxxxxx acknowledges that Sierra may have Products sold to educational
institutions and to public libraries through the sales channels set forth in
Section 4.5.2, and Sierra acknowledges that it will not focus on or encourage
such sales); (v) retail sales in the Xxxxxxx Countries, provided that Sierra may
sell the Product in the Xxxxxxx Countries as long as Sierra does not actively
solicit orders from customers located within the Xxxxxxx Countries; (vi) through
programmed upgrade sales that are substantially similar to Xxxxxxx'x sales
programs for hard-copy encyclopedias to include utilizing registration and
warranty certificates and (vii) through any on-line computer service where the
sale is by Xxxxxxx direct to the consumer (i.e., sold as packaged hard copy
products, but not for on-line use).
4.5.2 DISTRIBUTION RIGHTS GRANTED TO SIERRA
The Company hereby grants Sierra the right to use, distribute, market and
sell the Product (whether as a stand-alone product or bundled with other
products), on an exclusive basis (a) in all retail distribution and retail
marketing channels (other than the Xxxxxxx Countries); (b) through Sierra's own
product catalogs; (c) through Sierra's customer lists (including lists generated
through support calls for the Product); and (d) through any on-line computer
service where the sale is by Sierra, retailers or third parties (i.e., sold as
packaged hard copy products, but not for on-line use). Sierra shall be entitled
to use its standard form software license terms for the distribution and
licensing of the Product.
4.5.3 RIGHTS RESERVED TO THE COMPANY
Unless specifically granted to a Member pursuant to Sections 4.5.1 and
4.5.2 above, all rights to use, distribute, market and sell the Product are
reserved to the Company.
4.5.4 COMPENSATION TO THE COMPANY
In consideration for the grant of distribution rights to Sierra and
Xxxxxxx, Sierra and Xxxxxxx shall each pay to the Company a price per Product
unit Sold, which price
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 15
21
shall be determined in accordance with the formula below based upon the
wholesale price of the Product established from time to time by the Board. The
Members anticipate that at the end of the Initial Development Phase, the Board
will determine the suggested wholesale price for the Product and have targeted a
suggested wholesale price structure under which Sierra and Xxxxxxx will pay the
Company $24.00 per unit for the initial full-featured stand-alone multimedia
CD-ROM version. Each Member shall purchase Product from the Company for
distribution under this Section 4.5 at prices that are discounted from the
suggested wholesale price at a rate of forty percent (40%). Each of Sierra and
Xxxxxxx shall be entitled to a credit against such fee for Product returns. Any
fees owing shall be paid to the Company on a quarterly basis, within forty-five
(45) days after the end of each quarter, which payment shall be accompanied by a
statement setting forth the calculation of such fee and any credit for returns.
4.5.5 THIRD-PARTY ROYALTIES
The Company shall pay all third-party royalties and other fees for the
license or other use of any content or other materials used or contained in the
Product.
4.5.6 COMPANY TRADEMARK LICENSE
The Company grants to Sierra and Xxxxxxx the nonexclusive right (with
right to sublicense) to use any Company trademarks, trade names, trade dress or
similar property in connection with the distribution, promotion, marketing and
sale of Product.
4.5.7 COMPANY INFRINGEMENT INDEMNITY
The Company shall indemnify, defend and hold its distributors and
sublicensees, including Sierra and Xxxxxxx, harmless from and against any and
all claims that a Product, or any portion thereof, infringes upon any patent,
copyright, trademark or other intellectual property right. The Company shall
have no obligation under this Section 4.5.7 with respect to any claim of
copyright or patent infringement based upon the combination or use of the
Product with any other program, goods or products not furnished by the Company
where use of the Product alone would not constitute infringement or with respect
to any claim of trademark infringement based upon the use or combination of any
Company trademark with any trademark, trade dress or other word, symbol or
design where the use of the Company trademark alone would not constitute an
infringement.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 16
22
4.5.8 CROSS-MARKETING
Sierra and Xxxxxxx anticipate that the Product packaging and sales
materials will include inserts and other means of cross-marketing other products
and catalogs of each Member. Sierra and Xxxxxxx shall negotiate in good faith
any such cross-marketing arrangements.
4.5.9 CUSTOMER LISTS
At the end of each quarter, each Member will deliver a copy of its
customer list for the Product to the Company. The Company will maintain its list
of registered users, and will, within thirty (30) days after it receives each
Member's updated customer list, deliver to each Member a consolidated list,
including both Members' customer lists and the registered user base. Sierra and
Xxxxxxx may use the consolidated list to market and promote other products and
Xxxxxxx may use the list for sale of Upgrades, but neither Sierra nor Xxxxxxx
will disclose the list to any third party.
4.6 DEVELOPMENT
4.6.1 DEVELOPMENT PLAN
Within ninety (90) days after the Effective Date, Sierra shall prepare, in
consultation with Xxxxxxx, a plan for the development of the Company's first
multimedia encyclopedia software product (the "Development Plan").
4.6.2 ENABLING TECHNOLOGY
Xxxxxxx and Sierra hereby license to the Company (and, with respect to
Xxxxxxx, to Sierra in connection with Sierra's development work on Product)
during the term of this Agreement on a nonexclusive, nontransferable,
royalty-free basis and solely for use in connection with the development of
Product, the Enabling Technology, except that certain development tools and
content of Xxxxxxx will be licensed to the Company under a separate Royalty
Agreement entered into between Xxxxxxx and the Company concurrent with the date
of this Agreement. Sierra and Xxxxxxx shall notify the Company and the other
Member of any and all third-party royalties that will arise out of the Company's
or Sierra's use of their respective tools and technology and if the Company
proceeds to use such items, the Company shall pay or reimburse the licensing
Member for any and all third-party royalties due on the Company's or Sierra's
use of the same.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 17
23
4.6.3 SIERRA'S DEVELOPMENT RESPONSIBILITIES
Sierra shall be primarily responsible for implementing and completing the
Development Plan through use of its developers and facilities. The Company may,
at its option, obtain such services from third parties.
4.6.4 XXXXXXX'X DEVELOPMENT RESPONSIBILITIES
Xxxxxxx shall, in consultation with the Manager, source photographs, sound
clips, video clips and the like for use in the Product. Xxxxxxx shall, in that
regard, use reasonable efforts to make available to the Company its preferential
rate agreement with Xx Xxxxxxxx and its affiliates. The Company may, at its
option, obtain photographs, sound clips, video clips and the like from third
parties.
4.6.5 COST OF SERVICES; REIMBURSEMENT
Work under the Development Plan will be performed under and in accordance
with the Annual Budget. It is the intention of Sierra and Xxxxxxx to perform
services and contribute other items in accordance with their responsibilities
under the Development Plan and this Agreement at Cost to the Company. No Member
will reduce the resources it makes available to the development below the level
described in the Development Plan. All Member-provided goods shall be charged to
the Company at fully burdened manufacturing or acquisition cost. Each of Sierra
and Xxxxxxx shall also provide the Company, at no additional charge, access to
and reasonable use of the facilities of such Member that are useful for the
Company's development and publication of Product. The Company shall advance each
party its anticipated costs for its work under the Development Plan at the
beginning of each month during Product Development. Each of Sierra and Xxxxxxx
shall provide the Company and the other party with a report, within thirty (30)
days after the end of each month, detailing the costs incurred by such Member
and charged to the Company during such month. Advances to each Member in
subsequent months shall be adjusted to reflect actual charges made and
reimbursed in prior months.
4.7 CUSTOMER SERVICE, LICENSING FEES
4.7.1 SUPPORT
The Company will establish a toll-free customer support number. The
Company shall provide, at its cost, customer support and warranty services. The
Company may obtain such services from either Sierra or Xxxxxxx on an
arm's-length basis.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 18
24
4.7.2 PLATFORM LICENSE FEES
The Company shall pay any platform license fees or similar license fees
associated with use, reproduction and distribution in specific market segments.
4.8 OEM, ON-LINE SERVICE AND SIMILAR TRANSACTIONS
The Company may, from time to time, enter into one or more OEM
licenses, on-line content licenses or similar transactions that are not based on
sales of units of the Product. Each Member may solicit such transactions, but
the OEM sales, if any, shall be made by the Company and the Company will not
enter into any such transaction unless it is approved by the Board. The Company
will reimburse to a Member the marketing costs incurred with such transactions
if prior approval is received from the Board.
ARTICLE V. ALLOCATION OF PROFITS AND LOSSES
5.1 ALLOCATION OF PROFITS
After giving effect to any distributions for the Fiscal Year, Profits
for any Fiscal Year shall be allocated among the Members in accordance with
their Sharing Ratios.
5.2 ALLOCATION OF LOSSES
Losses for any Fiscal Year shall be allocated among the Members in
accordance with their Sharing Ratio.
5.3 OTHER ALLOCATION RULES
5.3.1 CONVENTIONS
For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Members
using any permissible method under Code Section 706 and the Regulations
thereunder.
5.3.2 SECTION 704(e)
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 shall, solely for tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted basis of
such
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 19
25
property to the Company for federal income tax purposes and its initial Gross
Asset Value. In the event the Gross Asset Value of any Partnership asset is
adjusted, 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.
5.4 INTENT OF ALLOCATIONS
The Members are authorized and directed to amend this Agreement to
allocate Profits, Losses and any other item in a manner different than that
provided above to the extent necessary so that the allocation of each Member's
distributive share is in accordance with and permitted by Section 704(b) of the
Code and the Treasury Regulations promulgated thereunder.
ARTICLE VI. CASH DISTRIBUTIONS
6.1 GENERAL
Except as otherwise provided in the Act and this Agreement, no Member
shall have the right or power to demand or receive a distribution in a form
other than cash and shall not be required or compelled to accept a distribution
of any asset in kind, to the extent that the interest distributed would exceed
the Member's pro rata share of operating or liquidating distributions.
Notwithstanding anything contained in this Agreement or the Certificate to the
contrary, no distribution shall be made to a Member in violation of the Act.
6.2 DISTRIBUTIONS
Distributions of cash shall be made within fifteen (15) days after the
end of each quarter upon a vote of the Board. It is the intention of the Members
to distribute out of the Company all of its available cash balances at the end
of each quarter, other than cash reserves for operating and other expenditures
contemplated in the Annual Budget. Except as otherwise set forth below,
distributions of cash shall be made among the Members in proportion to their
Sharing Ratios.
ARTICLE VII. TRANSFERS; ADMISSIONS; WITHDRAWAL
7.1 NO TRANSFER OF ECONOMIC OR MANAGEMENT RIGHTS
No Member shall Transfer all or any portion of such Member's interest
in the Company except with the unanimous consent of the remaining Members;
provided, however, a Member may transfer its rights, but not its obligations,
hereunder to an
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 20
26
Affiliate.
7.2 ADMISSION OF SUBSTITUTE MEMBERS
Subject to the other provisions of this Article VII, a transferee may
be admitted to the Company as a Substitute Member, with all of the rights of a
Member, only upon satisfaction of all of the conditions set forth below in this
Section 7.2.
(a) The Members unanimously consent to such admission, which
consent may be given or withheld in the sole and absolute discretion of the
Members.
(b) The transferee shall become a party to this Agreement as a
Member by signing an admission agreement and execute such documents and
instruments as the Company may reasonably request as may be 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 shall pay or reimburse the Company for all
reasonable legal, filing, and publication costs that the Company incurs in
connection with the admission of the transferee as a Member with respect to the
transferred Interest.
(d) The transferee obtains, at its own cost, an opinion from
counsel satisfactory to the Company that such transfer was made in accordance
with all applicable laws and regulations (including securities laws) and does
not adversely affect the taxation of the Company as a partnership for U.S.
federal income tax purposes.
7.3 OBLIGATIONS OF SUBSTITUTE MEMBER
(a) A transferee who becomes a Substitute Member has, to the extent
assigned, the rights and powers and is subject to the restrictions and
liabilities of a Member under the Act, the Certificate and this Agreement, and
is also liable for any obligations of the assignor to make Capital
Contributions, but is not obligated for liabilities reasonably unknown to the
transferee at the time the transferee becomes a Member.
(b) Even if a transferee becomes a Substitute Member, the
transferor is not released from the transferor's liability to the Company, but
ceases to be a Member when the transferee becomes a Substitute Member with
respect to the transferred Units.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 21
27
7.4 ADDITIONAL MEMBERS
The Board of Members, upon unanimous approval, shall have the sole
right to admit additional Members upon such terms and conditions, at such time
or times, and for such Capital Contributions as the Board of Members shall in
its sole discretion determine. In connection with any such admission, the Board
of Members shall amend the Company's books and records to reflect the name,
address, capital contribution, number of Units of the additional Member. Any
additional Member shall have the right to appoint one (1) Representative to the
Board.
7.5 NO RIGHT TO WITHDRAWAL
No Member shall have the right to withdraw from the Company except with
the consent of the Board of Members and upon such terms and conditions as may be
specifically agreed upon between the Board of Members and the withdrawing
Member. These restrictions on withdrawal are exclusive and no Member shall be
entitled to claim any further or different distribution upon withdrawal under
the Act or otherwise.
ARTICLE VIII. DISSOLUTION OF COMPANY
8.1 EVENTS CAUSING DISSOLUTION
(a) The Company shall dissolve upon the happening of any of the
following events:
(i) the occurrence of an Event of Withdrawal of a Member
or any other event causing a dissolution of the Company under the Act, unless
the remaining Members, within ninety (90) days of such event, unanimously agree
to continue the Company (no withdrawal or resignation of a Member shall relieve
it of its Capital Contribution or Mandatory Additional Capital Contribution
obligations under Sections 2.1 and 2.2 hereof);
(ii) the sale or other disposition of all or substantially
all of the assets of the Company and the collection of all proceeds therefrom;
(iii) the vote of all MemberS to dissolve the Company;
(iv) the expiration of the term of the Company specified
in Section 1.3 hereof;
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 22
28
(v) the delivery by any Member of a Final Deadlock Notice
to the other Members, unless the Members, within ninety (90) days of such event,
unanimously agree to continue the Company; or
(vi) exercise of the Exercise Right by Xxxxxxx under
Section 4.3.3.
(b) Dissolution of the Company shall be effective on the day on
which the event giving rise to the dissolution occurs, but the Company shall not
terminate until the assets of the Company shall have been distributed as
provided in Section 8.2. Notwithstanding the dissolution of the Company, prior
to the termination of the Company the business of the Company and the affairs of
the MemberS shall continue to be governed by this Agreement.
(c) In the event of dissolution of the Company as a result of an
event described in Section 8.1(a)(i), the Member causing the dissolution shall
cease to have Management Rights and shall retain only Economic Rights with
respect to its Interest.
8.2 LIQUIDATION
(a) Upon a dissolution of the Company, proceeds shall be applied
and distributed in the following order and priority:
(i) to the payment and discharge of all of the Company's
debts and liabilities (other than those to the Members) including the
establishment of any necessary reserves;
(ii) to the payment of any debts and liabilities to the
MemberS; and
(iii) any remaining property and assets of the Company
shall be distributed among the Members in accordance with their positive Capital
Account balances.
(b) The Capital Account balances of each Member shall be
appropriately adjusted before any distributions pursuant to this Section 8.2 to
reflect sales or other dispositions by the Company giving rise to Capital
Account adjustments and to reflect the Capital Account adjustments provided
elsewhere under this Agreement. Profits and Losses resulting from such
liquidation, if any, shall be allocated among the Members as provided for in
Article V. If assets of the Company are to be distributed in kind, such
distribution shall be made in such proportions as cash would have been
distributed, if available for distribution, under this Article, after adjusting
the Members' Capital Accounts as if the property had been sold at its then fair
market value. Notwithstanding the foregoing, (i) Sections 8.4 and 8.5 hereof
shall govern the
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 23
29
distribution of certain assets described therein, (ii) the fair market value of
the Xxxxxxx Content shall equal the value assigned in Section 2.1(b) hereof, and
(iii) the fair market value of the Developed Sierra Multimedia Components shall
equal Five Hundred Thousand Dollars ($500,000).
(c) Each Member shall look solely to the assets of the Company for
all distributions with respect to the Company, including the return of its
Capital Contribution thereof, and shall have no recourse therefor, upon
dissolution or otherwise, against the Company or the other Member. Unless
otherwise agreed upon by the Members and except as provided in Sections 8.3 and
8.4 below, no Member shall have any right to demand or receive property other
than cash upon dissolution and termination of the Company.
8.3 ENABLING TECHNOLOGY
Except as set forth in Section 8.7, upon dissolution of the Company (i)
the rights and license to the enabling technology of each Member granted to the
Company and/or Sierra under Section 4.6.2 shall expire; (ii) the Company and
each Member shall destroy or return the licensed enabling technology it received
to the licensing party and cease all subsequent use of such licensed enabling
technology, and (iii) title to all technology of the Company derived from or
otherwise based upon the enabling technology licensed to the Company by a Member
and all associated copyright, patent and other intellectual property rights
shall be transferred and distributed to that Member, subject to the rights of
Sierra and Xxxxxxx described in Sections 8.3, 8.4 and 8.5.
8.4 RIGHTS TO XXXXXXX CONTENT
Except as provided in Section 8.7, upon dissolution of the Company, all
rights to Xxxxxxx Content licensed to the Company under the license grant
contained in Section 4.2 and all associated copyright, patent and other
intellectual property rights shall revert to Xxxxxxx.
8.5 RIGHTS TO SIERRA MULTIMEDIA COMPONENTS
Except as provided in Section 8.7, upon dissolution of the Company, all
rights to Existing Sierra Multimedia Components licensed to the Company under
the license grant contained in Section 4.3 and all associated copyright, patent
and other intellectual property rights shall revert to Sierra. In the event that
Xxxxxxx is required to make any contribution to the Company pursuant to Section
8.9, Xxxxxxx shall be entitled to continue to use the Developed Sierra
Multimedia Components after dissolution of the Company.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 24
30
8.6 COMPANY TECHNOLOGY
Except as provided in Section 8.7 upon dissolution of the Company,
title to all other technology and products owned by the Company and all
associated copyright, patent and other intellectual property rights shall be
liquidated and sold. In the event that the Company develops its own search
engine for use with the Product, then both Sierra and Xxxxxxx shall have the
unconditional right to use it upon dissolution pursuant to whatever terms and
conditions are applicable with respect to any agreements restricting the use of
such search engine by third parties.
8.7 CONTINUATION OF USE
Upon dissolution of the Company, if the Company has entered the
Operations Phase, then Sierra and Xxxxxxx may each continue for a period of
twenty-four (24) months after the effective date of such dissolution to make,
use, distribute and sell the Product incorporating any Enabling Technology, the
Xxxxxxx Content, the Sierra Multimedia Components and any and all technology and
products owned by the Company. Each party shall pay the other a fee for each
Product unit sold by such party equal to one-half the fee payable to the Company
under Section 4.5.4 immediately prior to the dissolution. All such fees shall be
paid to the other party within thirty (30) days of the end of each calendar
quarter. After the expiration of the twenty-four (24) month period described in
this Section 8.7, neither Sierra nor Xxxxxxx shall have any right to make, use,
distribute or sell the Product incorporating the property of the other.
8.8 USE OF OTHER MEMBER'S NAME
Except for Sierra's and Xxxxxxx'x continued use (in the same manner as
used by the Company) of the Xxxxxxx Trademarks and the Sierra Trademarks in
connection with the rights retained by each under Section 8.7, and Sierra's or
Xxxxxxx'x continued use of any Company trademarks, trade names and trade dress
on the products distributed by Sierra and Xxxxxxx after the dissolution of the
Company, no Member shall use the trademarks, trade name or trade dress of the
other Members or the Company without the prior written consent of the other
Member(s).
8.9 DEFICIT CAPITAL ACCOUNTS
Notwithstanding anything to the contrary contained in this Agreement,
and notwithstanding any custom or rule of law to the contrary, to the extent
that a deficit, if any, in the Capital Account of any Member results from or is
attributable to deductions and losses of the Company (including non-cash items
such as Depreciation), or distributions of money pursuant to this Agreement to
all Members,
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 25
31
upon dissolution of the Company such deficit shall not be an asset of the
Company and such Member shall not be obligated to contribute such amount to the
Company to bring the balance of such Member's Capital Account to zero.
Notwithstanding anything herein, any custom or any rule of law to the contrary,
to the extent that Xxxxxxx'x Capital Account is a deficit as a result of the
distribution of the Xxxxxxx Content to it, then Xxxxxxx shall be required to
contribute money to the Company equal to fifty percent (50%) of such deficit
created but in no event more than two hundred fifty thousand ($250,000).
ARTICLE IX. BOOKS, RECORDS AND ACCOUNTING
9.1 BOOKS AND RECORDS
The Company shall keep and maintain a complete and accurate set of
books and records in accordance with generally accepted accounting practices
applied in a consistent manner correctly reflecting all transactions of the
Company. Unless otherwise agreed to by all Members, the Company's books shall be
maintained on an accrual basis. The Company's books and records shall be kept at
its principal office. Each of the Members shall have access to such books and
records and the right to examine, copy and audit the same at all reasonable
times. The Company's books shall be audited not less frequently than annually by
an independent certified public accountant acceptable to all Members. The
Company will provide each Member with unaudited financial statements of the
Company (including, but not necessarily limited to, a balance sheet and a
statement of the results of business for such period and such additional
information reasonably requested by a Member) within ten (10) Business Days
after the end of each calendar quarter and annual financial statements of the
Company within thirty (30) Business Days after the end of each Fiscal Year.
9.2 FISCAL YEAR
The Company's Fiscal Year shall be from January 1 through December 31.
9.3 BANK ACCOUNTS
All funds of the Company shall be deposited under the name of the
Company in such bank account or accounts at such bank or banks as shall be
approved from time to time by the Board. All drafts, checks, bills and cash
which may from time to time be received by, for or on account of the Company
shall be deposited immediately in such account or accounts in the same form in
which they are received. Withdrawals from such accounts shall be made only upon
the signature of the Manager or an individual authorized by the Board.
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9.4 ANNUAL BUDGET
9.4.1 ANNUAL BUDGET PLANNING
No later than thirty (30) Business Days prior to the first day of each
Fiscal Year of the Company (or within thirty (30) Business Days after the
Effective Date with respect to the 1995 budget), the Manager shall submit to the
Board for approval a proposed budget setting forth in accordance with generally
accepted accounting practices the estimated revenue and expenses of the Company
during such Fiscal Year. The budget shall set forth a monthly operating budget
of anticipated revenue, expenses, level of profit and cash flow for such Fiscal
Year. The Manager shall revise and for a particular Fiscal Year resubmit the
proposed budget as directed by the Board. The budget approved by the Board is
referred to herein as the "Annual Budget". The Board of Members will review the
Annual Budget and operations at least twice each Fiscal Year. If during the
course of a Fiscal Year a significant change of any Annual Budget line item is
expected, the Manager shall immediately notify the Board of a revised version of
the Annual Budget (which may include reduced expenses) to address the matter.
The revised Annual Budget approved by the Board is referred to herein as the
"Revised Annual Budget."
9.4.2 REVIEW OF ANNUAL PERFORMANCE
Within ninety (90) Business Days after the end of each Fiscal Year of
the Company, the Manager shall submit to the Board actual financial information
and a comparison analysis with the Annual Budget (or Revised Annual Budget).
9.5 ANNUAL BUSINESS PLAN
No later than thirty (30) Business Days prior to the first day of each
Fiscal Year of the Company, the Manager shall submit to the Board for approval a
proposed comprehensive business plan setting forth the sales, marketing,
operation, development and other plans of the Company for such Fiscal Year and a
business plan setting forth a general outline and direction of the activities
planned for the next two Fiscal Years. The Manager shall revise and resubmit the
proposed business plan as directed by the Board. The business plan approved by
the Board for a particular Fiscal Year is referred to herein as the "Annual
Business Plan." For the 1995 business plan, within thirty (30) Business Days
after the Effective Date the Manager shall submit to the Board for approval a
proposed comprehensive business plan setting forth the sales, marketing,
operation, development and other plans of the Company for developing the
Company's business during 1995 and a business plan setting forth the general
outline and direction of the activities planned to continue the development and
expansion of such business for 1996 and 1997.
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ARTICLE X. INDEMNIFICATION
10.1 INDEMNIFICATION
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding") by
reason of the fact that he or she is or was a director, officer or manager of
the Company (hereinafter an "indemnitee"), whether the basis of such a
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
manager, employee or agent, shall be indemnified and held harmless by the
Company to the fullest extent authorized by the Act, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Company to provide broader indemnification
rights than such law permitted the Company to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments
fines, excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith.
10.2 ADVANCE PAYMENT
The right to indemnification conferred in Section 10.1 shall include
the right to be paid by the Company the expenses (including attorneys' fees)
incurred in defending any proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"). The rights to indemnification and to
the advancement of expenses conferred in Sections 10.1 and 10.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a manager, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
10.3 NONEXCLUSIVITY OF RIGHTS
The rights to indemnification and to the advancement of expenses
conferred in this Article X shall not be exclusive of any other right that any
Person may have or hereafter acquire under any statute, agreement, vote of the
Members or otherwise.
10.4 INSURANCE
The Company may maintain insurance, at its expense, to protect itself
and any Manager, officer, employee or agent of the Company or another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise against any
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34
expense, liability or loss, whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under the Act.
10.5 INDEMNIFICATION OF OTHERS
The Company may, to the extent authorized from time to time by the
Board of Members, grant rights to indemnification and to advancement of expenses
to any employee or agent of the Company to the fullest extent of the provisions
of this Article X with respect to the indemnification and advancement of
expenses of Managers and officers of the Company.
ARTICLE XI. AMENDMENT
This Agreement may be amended, restated or modified from time to time
only by a written instrument unanimously adopted by the Members. No Member shall
have any vested rights in this Agreement which may not be modified through an
amendment to this Agreement.
ARTICLE XII. MISCELLANEOUS
12.1 CONFIDENTIALITY
Each Member and the Company will exercise the same degree of care, but
no less than a reasonable degree of care, to keep confidential the Confidential
Information of the other Member(s) or the Company as it uses to protect its own
Confidential Information of a like nature. Without limiting the generality of
the foregoing, each Member agrees to (and to cause the Company to agree to) (a)
instruct and require all of its employees and agents who have access to the
Confidential Information to maintain the confidentiality thereof; (b) disclose
the Confidential Information of the other Member(s) or the Company only to those
individuals that have a "need to know" such Confidential Information; and (c)
take such actions as may be reasonable to limit disclosure of the Confidential
Information of the other Member(s) or the Company by such individuals. If the
Recipient is served with any subpoena or other compulsory judicial or
administrative process calling for production of Confidential Information of the
other Member(s), the Recipient will immediately notify the Discloser in order
that the Discloser may take such action as it deems necessary to protect its
interest and Recipient shall cooperate with Discloser to limit the scope and use
of the information to be disclosed.
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12.2 PRESS RELEASES
No Member or the Company shall make any public announcements regarding
this Agreement, the formation of the Company or the other activities
contemplated hereunder without first providing the other Member(s) the proposed
text of such announcement and obtaining the approval of the other Member(s),
which approval shall not be unreasonably withheld.
12.3 APPLICATION OF DELAWARE LAW
This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Delaware without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
12.4 CONSTRUCTION
Whenever the singular number is used in this Agreement and when
required by the context, the same shall include the plural and vice versa, and
the masculine gender shall include the feminine and neuter genders and vice
versa. Each party hereto was represented by counsel and participated in the
drafting hereof and no term or condition hereof shall be construed in favor of
or against either party as the drafting party.
12.5 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument.
12.6 EXECUTION OF ADDITIONAL INSTRUMENTS
Each Member hereby agrees to execute such other and further statements
of interest and holdings, designations, powers of attorney and other instruments
necessary to comply with any laws, rules or regulations.
12.7 HEADINGS
The headings in this Agreement are inserted for convenience only and
are in no way intended to describe, interpret, define, or limit the scope,
extent or intent of this Agreement or any provision hereof.
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12.8 HEIRS, SUCCESSORS AND ASSIGNS
Each and all of the covenants, terms, provisions and agreements herein
contained shall be binding upon and inure to the benefit of the parties hereto
and, to the extent permitted by this Agreement, their respective heirs, legal
representatives, successors and assigns. Each of Sierra and Xxxxxxx shall be
permitted to assign all of its rights, but not its obligations, under this
Agreement to an Affiliate.
12.9 RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies provided by this Agreement are cumulative and
the use of any one right or remedy by any party shall not preclude or waive the
right to use any or all other remedies. Said rights and remedies are given in
addition to any other rights the parties may have by law, statute, ordinance or
otherwise.
12.10 SEVERABILITY
If any provision of this Agreement or the application thereof to any
person or circumstance shall be invalid, illegal or unenforceable to any extent,
the remainder of this Agreement and the application thereof shall not be
affected and shall be enforceable to the fullest extent permitted by law.
12.11 WAIVERS
The failure of any party to seek redress for violation of or to insist
upon the strict performance of any covenant or condition of this Agreement shall
not prevent a subsequent act, which would have originally constituted a
violation, from having the effect of an original violation.
12.12 NOTICES
Any notice, demand or communication required or permitted to be given
by any provision of this Agreement shall be deemed to have been sufficiently
given or served for all purposes if (a) delivered personally, (b) deposited with
a prepaid messenger, express or air courier or similar courier for delivery to
the address set forth below, (c) deposited in the official certified or
registered mail, postage prepaid to the address set forth below, or (d)
transmitted by telecopier or facsimile to the number specified below (with
originals mailed the same day by official mail, postage prepaid to the address
set forth below):
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37
If to Sierra: Sierra On-Line, Inc.
0000 - 000xx Xxxxx X.X., Xxxxx 000
Xxxxxxxx, XX 00000
U.S.A.
Attn: Xx. Xxxxxxx Xxxxxx
Tel. (000) 000-0000
Fax (000) 000-0000
and with a copy to: Sierra On-Line, Inc.
0000 - 000xx Xxxxx X.X., Xxxxx 000
Xxxxxxxx, XX 00000
U.S.A.
Attn: Xx. Xxxxxxx Xxxxxxx
Tel. (000) 000-0000
Fax (000) 000-0000
If to Xxxxxxx: X.X. Xxxxxxx, L.P.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
X.X.X.
Attn: Xxxxxxx X. Xxxxxxx
Tel. (000) 000-0000
Fax (000) 000-0000
and with a copy to: Xxxxxxxx & Xxxxxxxx
0 Xxxxxxxx Xxxxx
X.X. Xxx 000
Xxxxxxxx, XX 00000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Tel. (000) 000-0000
Fax (000) 000-0000
Notice shall be deemed to have been received (i) upon receipt in the case of
personal delivery, (ii) three (3) Business Days after being deposited in the
case of messenger, express or air courier or similar courier, (iii) seven (7)
Business Days after the date deposited in official certified or registered mail,
and (iv) the day of receipt as evidenced by a facsimile confirmation statement
in the case of transmittal by facsimile. Any Member may change its respective
addresses and facsimile number by giving notice to the other Member(s) as
provided in this Section.
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12.13 ATTORNEYS' FEES
Each party hereto shall be responsible for the payment of its own
attorneys' fees and other costs incurred in connection with negotiating and
drafting this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
X.X. XXXXXXX, L.P. SIERRA ON-LINE, INC.
By: By:
------------------------------ -----------------------------
Its: Its:
---------------------------- ---------------------------
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 33
39
EXHIBIT A
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Exhibit A. Certain
additional defined terms are set forth elsewhere in this Agreement. The singular
shall include the plural and the masculine gender shall include the feminine and
neuter, and vice versa, as the context requires.
"ACCUMULATED LOSS ACCOUNT" means a Company-maintained bookkeeping
account which shall be increased by any Losses allocated to Xxxxxxx and shall be
reduced by any special allocation of Profits to Xxxxxxx under Section 5.1.2 of
the Agreement.
"ACQUISITION NOTICE" shall have the meaning set forth in Section 4.3.3
of the Agreement.
"ACT" means the Delaware Limited Liability Company Act, and any
successor statute, as amended from time to time.
"AFFILIATE" means, with respect to any Person, any Person who directly
or indirectly (through one or more intermediaries) controls, is controlled by or
is under common control with such Person. For purposes of this definition, the
term "controls," "is controlled by," or "is under common control with" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Limited Liability Company Agreement as
originally executed and as amended or restated from time to time.
"ANNUAL BUDGET" shall have the meaning set forth in Section 9.4.1 of
the Agreement.
"ANNUAL BUSINESS PLAN" shall have the meaning set forth in Section 9.5
of the Agreement.
"BANKRUPTCY" means, with respect to any Person, the occurrence of any
of the following: (a) the filing of a voluntary petition for relief under the
U.S. Bankruptcy Code or an admission by such Person of such Person's inability
to pay its debts as
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40
they become due, (b) the making by such Person of a general assignment for the
benefit of creditors, (c) in the case of the filing of an involuntary petition
in bankruptcy against such Person, the filing of an answer admitting the
material allegations thereof or consenting to the entry of an order for relief,
or a default in answering the petition, or (d) the entry of an order for relief
under the U.S. Bankruptcy Code against such Person.
"BOARD" or "BOARD OF MEMBERS" means the board of Members designated in
Section 3.1 hereof.
"BUSINESS DAY" means any Monday through Friday except for any such days
that are national holidays in the United States.
"CAPITAL ACCOUNT" means, with respect to any Member, the account
maintained with respect to a Member determined in accordance with Section 2.7.
"CAPITAL CONTRIBUTION" means, with respect to any Member, the amount of
money and the fair market value of any property or the fair market value of
services contributed or to be contributed to the Company with respect to the
Interest in the Company held by such Member provided, however, that any
contribution by a Member of property or services must be agreed to in advance
and in writing as a Capital Contribution by the other Members.
"CERTIFICATE" means the Certificate of Formation of the Company as
filed with the Delaware Secretary of State's Office as the same may be properly
amended or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended, from time
to time, or any corresponding provision or provisions of any succeeding law and
any reference to a Section of the Code shall be deemed to include a reference to
any successor provision thereto.
"XXXXXXX" means X.X. Xxxxxxx, L.P.
"XXXXXXX CONTENT" means the text and line illustrations of Xxxxxxx'x 24
volume English language general reference encyclopedia and all updates and
revisions thereto.
"XXXXXXX COUNTRIES" means Italy, Spain, Mexico and Portugal.
"XXXXXXX TRADEMARKS" means those Xxxxxxx trademarks and trade dress
used in connection with any Xxxxxxx products incorporated in whole or in part
into any Product.
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41
"COMPANY" means Sierra Xxxxxxx L.L.C.
"COMPETING PRODUCT" shall have the meaning set forth in Section 4.3.3
of the Agreement.
"COMPUTER FIELD" means the use of any computer on any media or through
any now or hereafter in existence means, including, without limitation, CD-ROM
disk and on-line multimedia services.
"CONFIDENTIAL INFORMATION" means any type of information or material of
one Member or the Company (the "Discloser") that is disclosed to the other
Member(s) or the Company (the "Recipient") as a consequence of or through its
participation in the activities anticipated by this Agreement and that is
identified by the Discloser as being confidential; provided, that all source
code and non-public enabling technology licensed under this Agreement shall be
deemed to be the Confidential Information of the licensing Member without the
necessity of identifying such information or materials as confidential.
Confidential Information includes, without limitation, any such information that
relates to research, development, trade secrets, know-how, inventions, source
code, technical data, software programming, concepts, designs, procedures,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, business plans or strategy, and information entrusted to a Member by
other persons or entities. However, Confidential Information does not include
any information which: (a) was in the Recipient's possession before receipt from
the Discloser; (b) is or becomes a matter of public knowledge through no fault
of the Recipient; (c) is rightfully received by the Recipient from another
Person without a duty of confidentiality; (d) is independently developed by
Recipient; or (e) is disclosed by Recipient with the Discloser's prior written
approval.
"COST" means two (2) times the direct labor cost of the applicable
item.
"XX XXXXXXXX" means Istituto Geografico Xx Xxxxxxxx, Editorial Planeta
Xx Xxxxxxxx and their Affiliates.
"DEPRECIATION" means, for each fiscal year or other 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.
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42
"DEVELOPED SIERRA MULTIMEDIA COMPONENTS" means any items developed by
Sierra for the Company pursuant to Section 4.5.
"DEVELOPMENT PLAN" shall have the meaning set forth in Section 4.6.1 of
the Agreement.
"DISCLOSER" shall have the meaning set forth in the definition of
Confidential Information.
"ECONOMIC RIGHTS" means a Member's share of the Profits, Losses and
distributions of cash or Company property pursuant to the Act and this Agreement
but shall not include any Management Rights.
"EFFECTIVE DATE" shall have the meaning set forth in the first
paragraph of this Agreement.
"ENABLING TECHNOLOGY" means all development tools, enabling technology
and content useful for the creation and development of the Product that Sierra
or Xxxxxxx is now or hereafter legally entitled to license or sublicense to
Xxxxxxx or Sierra, as the case may be, and that the Members determine will be
used to develop the Product.
"ENCYCLOPEDIA FIELD" means the field of multimedia general reference
encyclopedias in an electronic format.
"EVENT OF WITHDRAWAL OF A MEMBER" means the bankruptcy or dissolution
of a Member or the occurrence of any other event that would terminate the
continued membership of a Member in the Company.
"EXERCISE NOTICE" shall have the meaning set forth in Section 4.3.3 of
the Agreement.
"EXERCISE PRICE" means eighty percent (80%) of the value of Sierra's
Interest, determined as of the last day of the last full fiscal quarter before
the date of the Exercise Notice. The value of Sierra's Interest will be
unanimously agreed upon by the Members. If the Members are unable to agree upon
the value of Sierra's Interest, a valuation firm mutually acceptable to the
Members engaged in the business of performing business valuations will be
selected by the Board, to determine the value of Sierra's Interest. If the
Members are unable to agree upon a valuation form within forty-five (45) days
after the date of the Exercise Notice, then either party may request Interactive
Multimedia Association to select a valuation firm, and the firm selected by
Interactive Multimedia Association will serve as the valuation firm on
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 37
43
______________. The valuation shall take into account all the circumstances
relevant to the value of the Company at the time, including without limitation,
the impact of Sierra's departure on the business of the Company, the Company's
ability to develop other distribution channels or otherwise replace Sierra, the
market value of similar companies (public and private), the value of the
continuation of the license under Section 4.3.1, and any need for the Company to
seek working capital as a result of Sierra's departure, and the Company's
current and projected revenues, costs and profits.
"EXISTING SIERRA MULTIMEDIA COMPONENTS" means any animation or visual
material that is currently owned by Sierra and that the Members determine would
be appropriate for use in a multimedia general reference encyclopedia.
"FINAL DEADLOCK NOTICE" shall have the meaning set forth in Section
3.1.6 of the Agreement.
"FISCAL YEAR" means the twelve months ending on December 31 each year.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) 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.
(b) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Members, as of the following times:
(1) the acquisition of an additional interest in the
Company by any new or existing Member in exchange for more than a de minimis
Capital Contribution;
(2) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an interest in
the Company if the Members reasonably determine that such adjustment is
necessary or appropriate to reflect the relative economic interests of the
Member in the Company; and
(3) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
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44
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution; and
(d) The Gross Asset Values of the 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 the Member determines that an adjustment pursuant to
subsection (b) is necessary or appropriate in connection with a transaction that
would otherwise result in any adjustment pursuant to this subsection.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraphs (a), (b) or (d) 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.
"INITIAL DEADLOCK NOTICE" shall have the meaning set forth in Section
3.1.6 of the Agreement.
"INITIAL DEVELOPMENT PHASE" means the period beginning on the date of
the Agreement and ending on the first commercial shipment of the Product.
"INITIAL MEMBERS" means Sierra and Xxxxxxx.
"INTEREST" means a Member's entire interest in the Company, including
such Member's Economic Rights and Management Rights.
"MANAGER" means the individual appointed in accordance with Section
3.3.1.
"MEMBER" means each of the parties who executes a counterpart of this
Agreement and each of the parties who may hereafter become an additional or
Substitute Member, in his, her or its capacity as a Member of the Company.
"OPERATIONS PHASE" means the period beginning on the first day after
the end of the Initial Development Phase and ending on the dissolution of the
Company.
"PERSON" means any individual or entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such "Person"
where the context so permits.
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"PRODUCT" means an electronic multimedia English language general
reference encyclopedia (whether in Text-Only format or multimedia format, and
whether delivered on tangible media or via on-line service) derived from the
Xxxxxxx Content and all upgrades, new versions, updates, error corrections and
other Company revisions and additions to such Product.
"PROFITS" and "LOSSES" means, for each Fiscal Year (or other period),
an amount equal to the Company's taxable income or loss for such Fiscal Year (or
other period), determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses pursuant
to this definition of "Profits" and "Losses" shall be added to such taxable
income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is
adjusted, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Profits or
Losses;
(d) Gain or loss resulting from any disposition of 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
(e) 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 fiscal year or other
period.
"RECIPIENT" shall have the meaning set forth in the definition of
Confidential Information.
"REGULATIONS" means temporary and final income tax regulations
promulgated under the Code in effect as of the date of filing the Certificate
and the corresponding
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 40
46
sections of any regulations subsequently issued that amend or supersede such
regulations, from time to time.
"REPRESENTATIVE" means the individual(s) appointed in accordance with
Section 3.1.3.
"REVISED ANNUAL BUDGET" shall have the meaning set forth in Section
9.4.1 of the Agreement.
"ROYALTY COMPLETION DATE" means the date on which both the Company has
paid Xxxxxxx aggregate royalties equal to $1,000,000 under the Royalty Agreement
entered into between Xxxxxxx and the Company as of the date of this Agreement
and the Multimedia version of the Product is available for sale but in no event
prior to December 31, 1996.
"SHARING RATIO" means the ownership percentages of the Members in the
Company, which percentage for a Member shall be equal to the quotient where the
numerator equals the Capital Contributions by that Member and the denominator
equals the Capital Contributions by all Members. The initial Sharing Ratios of
Xxxxxxx and Sierra are fifty percent (50%) each.
"SIERRA" means Sierra On-Line, Inc.
"SIERRA MULTIMEDIA COMPONENTS" means the Developed Sierra Multimedia
Components and the Existing Sierra Multimedia Components.
"SIERRA TRADEMARKS" means the Sierra name and logo.
"SOLD" means Product shipped to a Member or at a Member's request.
"SUBSTITUTE MEMBER" means a transferee who has been admitted as a
member of the Company with all of the rights and obligations of membership
pursuant to this Agreement and related admission agreement.
"TEXT ONLY" means written words and line illustrations.
"TRANSFER" means any sale, assignment, gift, hypothecation, pledge or
other disposition, directly or indirectly, whether voluntary or by operation of
law of all or any portion of an Interest in the Company.
"UNIT" means the basic share of limited liability company interest
entitling the holder thereof to all the rights and benefits of a Member under
this Agreement.
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"UPGRADES" means new information, text, line illustrations and other
content desired for the Company's Product, including, without limitation and at
a minimum, those included in any revision to the text version of Xxxxxxx'x
general reference encyclopedia.
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Xxxxxxx Sierra L.L.C. Limited Liability Company Agreement page 42
