EXHIBIT 10.8
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
AGREEMENT
OF
ZB HOLDINGS LLC
a Delaware Limited Liability Company
Dated as of March 20, 2000
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LIMITED LIABILITY COMPANY AGREEMENT
OF
ZB HOLDINGS LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT OF ZB HOLDINGS LLC (the
"Agreement") is made and entered into as of the 20/th/ day of March, 2000 (the
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"Effective Date"), by and between Online Retail Partners Inc., a Delaware
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corporation f/k/a Online Retail Partners LLC, a Delaware limited liability
company ("ONRP"), Zany Brainy, Inc., a Pennsylvania corporation ("Retail
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Sponsor"), (Retail Sponsor together with ONRP, the "Members", with each being
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referred to, individually, as a "Member"), for the purpose of setting forth the
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rights and obligations of the Members of ZB Holdings LLC (the "Company"), a
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limited liability company formed under the Delaware Limited Liability Company
Act, 6 Del. C. (S) 18-101 et seq., as amended from time to time, (the "Act").
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RECITALS
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WHEREAS, Zany Xxxxxx.xxx, a Delaware limited liability company
("XX.xxx") was formed by Zany Brainy on September 7, 1999; and
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WHEREAS, Zany Brainy, ONRP, ONRP Services LLC, a Delaware limited
liability company and a wholly-owned Subsidiary of ONRP ("ONRPS"), the Company,
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and XX.xxx entered into a series of Operating Agreements, and ONRP, Zany Brainy
and the Company entered into the ZB Holdings Limited Liability Company Agreement
(the "Original Holdings Operating Agreement") to form a joint venture for the
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purpose of operating an e-commerce site on the World Wide Web, all effective as
of October 20, 1999. The establishment of the joint venture shall be referred to
herein as the "Transaction"; and
WHEREAS, as part of the Transaction, all interests in XX.xxx were
transferred to the Company, pursuant to a Contribution and Interest Purchase
Agreement dated as of October 20, 1999 ("Original Contribution Agreement"); and
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WHEREAS, pursuant to the Original Contribution Agreement, the Company
also (i) received $5 million in cash from each of Zany Brainy and ONRP
(collectively, the "Funds"), (ii) received certain assets (the "Assets") of Zany
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Brainy as set forth in Section 1 of Schedule 1.1(b) thereto, and (iii) assumed
certain rights (the "Rights") and liabilities (the "Liabilities") from Zany
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Brainy as set forth in Schedule 1.1(d) thereto; and
WHEREAS, the Company, entered into an Interim Limited Liability
Operating Agreement dated as of November 11, 1999 ("Interim Agreement") which
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set forth the preliminary rights, obligations and duties of members of XX.xxx;
and
WHEREAS, pursuant to the Interim Agreement, the Company also assigned
and transferred to the XX.xxx, and XX.xxx accepted, all of the Funds, Assets
(including all
intellectual property rights appurtenant thereto), Rights and Liabilities
received by the Company under the Original Contribution Agreement; and
WHEREAS, ONRP contributed an additional $10 million to the Company in
exchange for additional Interests in the Company on November 15, 1999 as part of
the Follow-On Subscription (as defined in the Original Holdings Operating
Agreement) which funds were contributed to XX.xxx; and
WHEREAS, the Members declared a ten-for-one split of the Membership
Interests in the Company on March 17, 2000; and
WHEREAS, the Members desire to Amended and Restate the Original
Operating Agreement as set forth herein.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE 1
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ORGANIZATIONAL MATTERS
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1.1 Formation. The Company was formed under the Act for the purposes and upon
the terms and conditions hereinafter set forth. The rights and liabilities of
the Members of the Company shall be as provided in the Act, except as otherwise
expressly provided herein. In the event of any inconsistency between any terms
and conditions contained in this Agreement and any non-mandatory provisions of
the Act, the terms and conditions contained in this Agreement shall govern.
1.2 Name. The name of the Company formed hereby shall be ZB Holdings LLC. The
Company may also conduct business at the same time under one or more fictitious
names if the Board determines that such is in the best interests of the Company.
The Board may change the name of the Company, from time to time, in accordance
with applicable law.
1.3 Principal Place of Business; Other Places of Business. The principal place
of business of the Company will initially be located at 47 East 00/xx/ Xxxxxx,
00/xx/ Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or such other place within or outside
the State of Delaware as the Board may from time to time designate. The Company
may maintain offices and places of business at such other place or places within
or outside the State of Delaware as the Board deems advisable.
1.4 Business Purpose. The Company is formed for the object and purpose of, and
the nature of the business to be conducted and promoted by the Company is,
engaging in any lawful business, purpose or activity for which limited liability
companies may be formed under the Act and engaging in any and all activities
necessary, convenient, desirable or incidental to the foregoing, including,
without limitation, developing and operating an Internet commerce website (the
"Site") offering its customers comprehensive content, leading product assortment
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in its category and related value-added online services. It is the objective of
the Members that the Site be ready for initial testing by October 15, 1999 and
become fully operational by November 1, 1999.
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1.5 Certificate of Formation; Filings. A Certificate of Formation of the
Company (the "Certificate") was executed and filed in the office of the Delaware
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Secretary of State as required by the Act on October 4, 1999. Amendments to the
Certificate may be executed and filed from time to time in a form prescribed by
the Act as authorized by the Board, provided that if any such amendments alter
the rights and obligations of the parties herein, the approval of a Majority in
Interest will be required. The Board shall also cause to be made, on behalf of
the Company, such additional filings and recordings as the Board shall deem
necessary or advisable.
1.6 Fictitious Business Name Statements. Following the execution of this
Agreement, fictitious business name statements shall be filed and published when
and if the Board determines it necessary. Any such statement shall be renewed as
required by applicable law, unless the Board determines otherwise.
1.7 Designated Agent for Service of Process. The Company shall continuously
maintain a registered office and a designated and duly qualified agent for
service of process on the Company in the State of Delaware.
1.8 Term. The term of the Company commenced on the date that the Certificate
was filed with the Office of the Delaware Secretary of State, and shall continue
until the Company is dissolved pursuant to this Agreement. The existence of the
Company as a separate legal entity shall continue until cancellation of the
Certificate in the manner required by the Act.
1.9 Title to Company Property. All property owned by the Company, whether real
or personal, tangible or intangible, shall be deemed to be owned by the Company,
and no Member individually shall have any interest in such property. Title to
all such property may be held in the name of the Company or a designee, which
designee may be a Member or its Affiliate.
1.10 Membership Interests Uncertificated. The interests of the Members of the
Company shall not be certificated.
ARTICLE 2
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DEFINITIONS
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Capitalized words and phrases used and not otherwise defined elsewhere
in this Agreement shall have the following meanings:
2.1 "Act" is defined in the Preamble.
2.2 "Additional Members" means those Persons admitted to the Company as Members
of the Company pursuant to Paragraph 3.4 of the Agreement.
2.3 "Additional ROFR Membership Interests" is defined in Paragraph 7.2.2 of
this Agreement.
2.4 "Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:
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2.4.1 Add to such Capital Account the following items:
(a) The amount, if any, that such Member is obligated to contribute
to the Company upon liquidation of such Member's Membership Interest, pursuant
to the terms of this Agreement; and
(b) The amount that such Member is obligated to restore or is
deemed to be obligated to restore pursuant to Regulations Section 1.704-
1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5); and
2.4.2 Subtract from such Capital Account such Member's share of the items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
2.5 "Affected Membership Interests" is defined in Paragraph 7.2.1 of this
Agreement.
2.6 "Affiliate" means, with reference to a specified Person: (a) a Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the specified Person, (b) any
Person that is a director, executive officer, general partner, manager or
trustee of, or serves in a similar capacity with respect to, the specified
Person, or for which the specified Person is a director, executive officer,
general partner, manager or trustee, or serves in a similar capacity, or (c) any
member of the Immediate Family of the specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that a Person which owns less than twenty percent (20%) of
the outstanding equity interests of a specified Person shall not be deemed to be
an Affiliate of the specified Person solely by reason of such equity ownership.
2.7 "Agreement" is defined in the Preamble.
2.8 "Assignee" means any Person (a) to whom a Member (or assignee thereof)
Transfers all or any part of its interest in the Company, and (b) which has not
been admitted to the Company as a Substitute Member pursuant to Paragraph 7.7 of
this Agreement.
2.9 "Board" shall mean the board of managers of the Company. The Board shall be
composed of seven members, including (a) the Chief Executive Officer of the
Company, (b) three individuals designated by ONRP and (c) three individuals
designated by Retail Sponsor. To the extent that XX.xxx or any other Subsidiary
of the Company has a board of managers, such Subsidiary's board of managers
shall be composed of the same individuals as the Board. Each member of the Board
(i) shall be a natural person who need not be resident of the State of Delaware
and (ii) is hereby designated as a "manager" of the Company within the meaning
of the Act.
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2.10 "Capital Account" means the Capital Account maintained for each Member on
the Company's books and records in accordance with the following provisions:
2.10.1 To each Member's Capital Account there shall be added (a) such
Member's Capital Contributions, (b) such Member's allocable share of Net Profits
and any items in the nature of income or gain that are specially allocated to
such Member pursuant to Article 5 hereof or other provisions of this Agreement,
and (c) the amount of any Company liabilities assumed by such Member or which
are secured by any Company Assets distributed to such Member.
2.10.2 From each Member's Capital Account there shall be subtracted (a)
the amount of (i) cash and (ii) the Gross Asset Value of any Company Assets
(other than cash) distributed to such Member (other than any payment of
principal and/or interest to such Member pursuant to the terms of a loan made by
the Member to the Company) pursuant to any provision of this Agreement, (b) such
Member's allocable share of Net Losses and any other items in the nature of
expenses or losses that are specially allocated to such Member pursuant to
Article 5 or other provisions of this Agreement, and (c) liabilities of such
Member assumed by the Company or which are secured by any property contributed
by such Member to the Company.
2.10.3 In the event any interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest.
2.10.4 In determining the amount of any liability for purposes of
Paragraphs 2.10.1 and 2.10.2 hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and Regulations.
2.10.5 The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied
in a manner consistent with such Regulations. In the event that the Board shall,
upon the advice of counsel, determine that it is necessary to modify the manner
in which the Capital Accounts, or any additions or subtractions thereto, are
computed in order to comply with such Regulations, the Board may make such
modification, provided that it will not have a material effect on the amounts
distributable to any Member pursuant to Article 9 hereof upon the dissolution of
the Company. The Board shall also, upon the advice of counsel, make (a) any
adjustments that are necessary in cases as to which guidance under Regulations
Section 1.704-1(b)(2)(iv) is lacking 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 (b) any appropriate modifications
in the event that unanticipated events might otherwise cause this Agreement not
to comply with Regulations Sections 1.704-1(b) and 1.704-2.
2.11 "Capital Contribution Agreement" means the Contribution and Interest
Purchase Agreement, dated as of October 15, 1999, by and among the Retail
Sponsor, ONRP and the Company.
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2.12 "Capital Contributions" means, with respect to any Member, the total amount
of cash and the initial Gross Asset Value of property (other than cash)
contributed to the capital of the Company by such Member, whether as an initial
Capital Contribution or as an additional Capital Contribution.
2.13 "Cash Available for Distribution" means, with respect to any fiscal year,
all Company cash receipts (excluding the proceeds from any Terminating Capital
Transaction), after deducting payments for Operating Cash Expenses, payments
required to be made in connection with any loan to the Company or any other loan
secured by a lien on any Company Assets, capital expenditures and any other
amounts set aside for the restoration, increase or creation of reasonable
Reserves.
2.14 "Certificate" means the Certificate of Formation of the Company filed under
the Act in the Office of the Delaware Secretary of State for the purpose of
forming the Company as a Delaware limited liability company, and any duly
authorized, executed and filed amendments or restatements thereof.
2.16 "Code" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
2.17 "Common Interest" means the Voting Common Interests and the Non-Voting
Common Interests.
2.18 "Company" is defined in the Preamble.
2.19 "Company Minimum Gain" has the meaning set forth in Regulations Sections
1.704-2(b)(2) and 1.704-2(d)(1) for the phrase "partnership minimum gain."
2.20 "Company Assets" means all direct and indirect interests in real and
personal property owned by the Company from time to time, and shall include both
tangible and intangible property (including cash).
2.21 "Confidential Information" means all non-public information, including,
without limitation, data, customer lists or other customer-specific or marketing
information, customer buying patterns, algorithms, know-how, ideas and all
business, technical, pricing, cost and financial information, provided to the
other party and any other information marked or disclosed as being confidential
information that is obtained by the other party. Without limitation of the
foregoing, this Agreement and the Operating Agreements shall be deemed to be
Confidential Information.
2.22 "Conversion Corporation" is defined in Paragraph 8.3.2.
2.23 "Converting Subsidiary" is defined in Paragraph 8.3.1.
2.24 "Corporate Conversion" is defined in Paragraph 8.3.2.
2.25 "Cutoff Date" is defined in Paragraph 7.2.3.
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2.26 "Depreciation" means, for each fiscal year or other period, an amount equal
to the federal income tax 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 that 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; provided, however, that (a) if the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the Board
and (b) for any asset with respect to which the Company uses the "remedial
allocation method" under Regulations Section 1.704-3(d), Depreciation shall be
determined in accordance with Regulations Section 1.704-3(d)(2).
2.27 "Director" means a manager of the Company who is a member of the Board.
2.28 "Economic Interest" means a Person's right to share in the Net Profits, Net
Losses, or similar items of, and to receive distributions from, the Company, but
does not include any other rights of a Member including, without limitation, the
right to vote or to participate in the management of the Company, or, except as
specifically provided in this Agreement or required under the Act, any right to
information concerning the business and affairs of the Company.
2.29 "Effective Date" is defined in the Preamble.
2.30 "Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
2.30.1 The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset set forth in
Exhibit A.
2.30.2 The Gross Asset Values of all Company Assets immediately prior to
the occurrence of any event described in subparagraph (a), subparagraph (b),
subparagraph (c) or subparagraph (d) hereof shall be adjusted to equal their
respective gross fair market values, as determined by the Board using such
reasonable method of valuation as it may adopt, as of the following times:
(a) the acquisition of an additional interest in the Company (other
than in connection with the execution of this Agreement) by a new or existing
Member in exchange for more than a de minimis Capital Contribution, if the Board
reasonably determines that such adjustment is necessary or appropriate to
reflect the relative Economic Interests of the Members in the Company;
(b) the distribution by the Company to a Member of more than a de
minimis amount of Company Assets as consideration for an interest in the
Company, if the Board reasonably determines that such adjustment is necessary or
appropriate to reflect the relative Economic Interests of the Members in the
Company;
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(c) the liquidation of the Company within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); and
(d) at such other times as the Board shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.
2.30.3 The Gross Asset Value of any Company Asset distributed to a
Member shall be the gross fair market value of such asset on the date of
distribution as determined by the Board.
2.30.4 The Gross Asset Values of Company Assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this Paragraph 2.30.4 to
the extent that the Board reasonably determines that an adjustment pursuant to
Paragraph 2.30.2 above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
Paragraph 2.30.4.
2.30.5 If the Gross Asset Value of a Company Asset has been determined
or adjusted pursuant to Paragraph 2.30.1, Paragraph 2.30.2 or Paragraph 2.30.4
hereof, such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such Company Asset for purposes of computing
Net Profits and Net Losses.
2.31 "HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
2.32 "Immediate Family" means, and is limited to, an individual Member's
current spouse, parents, parents-in-law, grandparents, children, siblings, and
grandchildren, or a trust or estate all of the beneficiaries of which consist
of, or an entity controlled by, such Member or any of the foregoing individuals.
2.33 "Incapacity" means the entry of an order of incompetence or of insanity,
or the death, dissolution, bankruptcy (as defined in the Act) or termination
(other than by merger or consolidation) of any Person.
2.34 "Indemnitee" is defined in Paragraph 6.6.1.
2.35 "Initial Assets" is defined in Paragraph 3.1.
2.36 "IPO" means any underwritten public offering of equity securities.
2.37 "Issuer" is defined in Paragraph 8.4.1.
2.38 "Issuer Securities" is defined in Paragraph 8.4.1.
2.39 "Liquidator" is defined in Paragraph 9.5.1.
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2.40 "Majority in Interest" means Members holding a majority of the aggregate
of the Voting Common Interests and Voting Preferred Interests held by all
Members of the Company.
2.41 "Maximum Allowed Exchange" is defined in Paragraph 8.4.3.
2.42 "Member" means each of ONRP and Retail Sponsor and includes any Person
admitted as an Additional Member or a Substitute Member pursuant to the
provisions of this Agreement, in such Person's capacity as a member of the
Company, and "Members" means two (2) or more of such Persons when acting in
their capacity as members of the Company. For purposes of the Act, the Members
shall constitute one (1) class or group of members.
2.43 "Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Regulations Section 1.704-2(i) with respect to "partner
non-recourse debt minimum gain."
2.44 "Member Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4) for the phrase "partner nonrecourse debt."
2.45 "Member Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(i) for the phrase "partner nonrecourse deductions."
2.46 "Membership Interest" means the Common Interests and the Preferred
Interests and refers to the interest of a Member in the Company at any
particular time, including, without limitation, the Member's Economic Interest,
any and all rights to participate in the Company's affairs and the rights to any
and all benefits to which a Member may be entitled as provided in this
Agreement, together with the obligations of such Member to comply with all of
the terms and provisions of this Agreement. The initial Membership Interests of
the Members are set forth in Exhibit A.
2.47 "Membership Interest Transfer" means any Transfer of Membership
Interests, other than a Permitted Transfer.
2.48 "Net Profits" or "Net Losses" means, for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such year or
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:
2.48.1 Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Profits or Net Losses
pursuant to this Paragraph 2.46 shall be added to such taxable income or loss;
2.48.2 Any expenditure of the Company described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Profits or Net Losses pursuant to this Paragraph 2.48, shall be
subtracted from such taxable income or loss;
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2.48.3 Gain or loss resulting from any disposition of Company Assets
where such gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Company Assets disposed
of, notwithstanding that the adjusted tax basis of such Company Assets differs
from its Gross Asset Value;
2.48.4 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 periods;
2.48.5 To the extent an adjustment to the adjusted tax basis of any
asset included in Company Assets pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be
taken into account in determining Capital Accounts as a result of a distribution
other than in liquidation of a Member's Membership Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for the
purposes of computing Net Profits and Net Losses;
2.48.6 If the Gross Asset Value of any Company Asset is adjusted in
accordance with Paragraph 2.30.2 or Paragraph 2.30.3 of this Agreement, the
amount of such adjustment shall be taken into account in the taxable year of
such adjustment as gain or loss from the disposition of such asset for purposes
of computing Net Profits or Net Losses; and
2.48.7 Notwithstanding any other provision of this Paragraph 2.48, any
items that are specially allocated pursuant to Paragraph 5.2 or Paragraph 5.3.2
hereof shall not be taken into account in computing Net Profits or Net Losses.
2.49 "Nonrecourse Deductions" has the meaning set forth in Regulations
Sections 1.704-2(b)(1) and 1.704-2(c).
2.50 "Nonrecourse Liability" has the meaning set forth in Regulations Sections
1.704-2(b)(3) and 1.752-1(a)(2).
2.51 "Non-Voting Common Interest" means a Common Interest in the Company (a)
having the right to receive allocations of Net Profits or Net Losses,
distributions and proceeds of liquidation in the manner specified for Common
Interests in this Agreement but (b) which is not entitled to vote on any matter
submitted to the Members for approval in accordance with Paragraph 6.2 of this
Agreement.
2.52 "Non-Voting Preferred Interest" means a Preferred Interest in the Company
(a) having the right to receive allocations of Net Profits or Net Losses,
distributions and proceeds of liquidation in the manner specified for Preferred
Interests in this Agreement but (b) which is not entitled to vote on any matter
submitted to the Members for approval in accordance with Paragraph 6.2 of this
Agreement.
2.53 "Non-Voting Stock" is defined in Paragraph 8.4.4 of this Agreement.
2.54 "Offer Notice" is defined in Paragraph 7.2.1.
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2.55 "Offering Member" is defined in Paragraph 7.2.1 of this Agreement.
2.56 "Officers" is defined in Paragraph 6.9.
2.57 "ONRP" is defined in the Preamble.
2.58 "ONRPS" is defined in the Recitals.
2.59 "Operating Agreements" means (i) the Services Agreement, dated as of
October 15, 1999, by and between Retail Sponsor and XX.xxx, (ii) the Trademark
License Agreement, dated as of October 15, 1999, by and between Retail Sponsor
and XX.xxx, (iii) the Supply Agreement, dated as of October 15, 1999, by and
between Retail Sponsor and XX.xxx, (iv) the Data Sharing/License Agreement,
dated as of October 15, 1999, by and among ONRPS, Retail Sponsor and XX.xxx, and
(v) the Web Site Services Agreement, dated as of October 15, 1999, by and
between ONRPS and XX.xxx.
2.60 "Operating Cash Expenses" means, with respect to any fiscal period, the
amount of cash disbursed or owed in the ordinary course of business during the
period, including without limitation, all cash expenses, such as advertising,
promotion, property management, insurance premiums, taxes, utilities, repair,
maintenance, legal, accounting, bookkeeping, computing, equipment use, travel on
Company business, telephone expenses and salaries, and direct expenses of
Company employees (if any) and agents while engaged in Company business.
Operating Cash Expenses shall include fees paid by the Company to the Board or
any Affiliate thereof permitted by this Agreement, and the actual cost of goods,
materials and administrative services used for or by the Company, whether
incurred by the Board, any Affiliate thereof or any non-Affiliate in performing
functions set forth in this Agreement reasonably requiring the use of such
goods, materials or administrative services. Operating Cash Expenses shall not
include expenditures paid from Reserves.
2.61 "Ownership Percentage" means the ownership percentage of the Membership
Interests of a Member in the Company as determined by dividing the number of
Membership Interests held by such Member by the total number of Membership
Interests then outstanding. The initial Ownership Percentage for each Member is
set forth in Exhibit A.
2.62 "Permitted Transfer" means any Transfer of Membership Interests: (i) made
by a Member to one or more of such Member's Affiliates or, if such Member is a
partnership or limited liability company, to its partners or members; (ii) made
by any Member to the Company, subject to Paragraph 6.2.1(1); (iii) made by a
Member to his or her Immediate Family; (iv) made by a Member pursuant to
testamentary or intestate disposition; or (v) made by Retail Sponsor of
Non-Voting Preferred Interests to no more than 10 of its employees, officers or
members of the Board of Directors of Retail Sponsor, provided that the Transfer
set forth in subsection 2.62 (v) shall not relate to more than a total of
666,670 of such Non-Voting Preferred Interests.
2.63 "Person" means and includes an individual, a corporation, a partnership
(general or limited), a limited liability company, a trust, an unincorporated
organization, a government or any department or agency thereof, or any entity
similar to any of the foregoing.
11
2.64 "Plan" means any stock option or similar equity incentive plan of XX.xxx,
as adopted and as amended from time to time with the approval of a Majority in
Interest.
2.65 "Preference Amount" means, with respect to each Membership Interest, an
amount equal to $10.00.
2.66 "Preferred Interest" means the Voting Preferred Interests and the Non-
Voting Preferred Interests.
2.67 "Purchasers" is defined in Paragraph 7.2.4.
2.68 "Recourse Liability" has the meaning set forth in Regulations Section
1.752-1(a)(1).
2.69 "Regulations" means proposed, temporary and final Treasury Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding Treasury Regulations).
2.70 "Regulatory Allocations" is defined in Paragraph 5.2.8.
2.71 "Reserves" means funds set aside or amounts allocated to reserves that
shall be maintained in amounts deemed sufficient by the Board for working
capital, to pay taxes, insurance, debt service, and other costs or expenses
incident to the conduct of business by the Company as contemplated hereunder.
2.72 "Responsible Party" is defined in Paragraph 6.6.6.
2.73 "Retailer" means any Person with which ONRP has formed a limited
liability company or other joint ventures for the purpose of developing and
operating an Internet commerce website.
2.74 "Retail Sponsor" is defined in the Preamble.
2.75 "ROFR Acceptance Notice" is defined in Paragraph 7.2.2.
2.76 "ROFR Allotment" means for any Member the product of (A) the total number
of Affected Membership Interests available for purchase thereunder multiplied by
(B) a fraction, the numerator of which is the number of Membership Interests
owned by such Member and the denominator of which is the total number of issued
and outstanding Membership Interests excluding the Affected Membership
Interests. 2.77 "Same Category" means children's (i) toys (including games,
dolls, plush toys, electronic toys, puzzles and arts and crafts), (ii) audio and
video tapes and other multimedia products, (iii) books, (iv) software, (v)
juvenile furniture (excluding newborn and infant furniture) and (vi) educational
resource products, which, in each case, are targeted to children age 12 and
under.
2.78 "Site" is defined in Paragraph 1.4.
2.79 "Subscription Agreement" means the Contribution and Interest Purchase
Agreement, dated as of October 18, 1999, by and among the Company, ONRP and
Retail Sponsor.
12
2.80 "Subsequent Financing" is defined in Paragraph 3.2.3.
2.81 "Subsidiary" means any and all corporations, partnerships, limited
liability companies and other entities with respect to which either the Company
or the Retail Sponsor, directly or indirectly, own 50% or more of the securities
having the power to elect members of the board of directors or similar body
governing the affairs of such entity.
2.82 "Substitute Member" means any Person (a) to whom a Member (or assignee
thereof) Transfers all or any part of its interest in the Company, and (b) which
has been admitted to the Company as a Substitute Member pursuant to Paragraph
7.7 of this Agreement.
2.83 "Tax Distribution" is defined in Paragraph 4.3.
2.84 "Terminating Capital Transaction" means any sale or other disposition of
all or substantially all of the assets of the Company or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Company.
2.85 "Termination Payment" is defined in Paragraph 7.6.
2.86 "Trade Secrets" means the "trade secrets" as defined under applicable
law.
2.87 "Transfer" means, with respect to any Membership Interest, or any part
thereof, in the Company, a sale, conveyance, exchange, assignment, pledge,
encumbrance, gift, bequest, hypothecation or other transfer or disposition by
any other means, whether for value or no value and whether voluntary or
involuntary (including, without limitation, by operation of law), or an
agreement to do any of the foregoing.
2.88 "Transfer Period Termination Date" is defined in Paragraph 7.2.5.
2.89 "Voting Common Interest" means a Common Interest in the Company having
(a) the right to receive allocations of Net Losses and Net Profits,
distributions and proceeds of liquidation in the manner specified for Common
Interests in this Agreement and (b) the right to vote on any matter submitted to
the Members for approval in accordance with Paragraph 6.2.3 of this Agreement.
2.90 "Voting Preferred Interest" means a Preferred Interest in the Company
having (a) the right to receive allocations of Net Losses and Net Profits,
distributions and proceeds of liquidation in the manner specified for Preferred
Interests in this Agreement and (b) the right to vote on any matter submitted to
the Members for approval in accordance with Paragraph 6.2.3.
2.91 "XX.xxx" means XxxxXxxxxx.xxx LLC, a Delaware limited liability company
and, upon the execution of the Capital Contribution Agreement, a wholly-owned
Subsidiary of the Company.
13
ARTICLE 3
---------
CAPITAL; CAPITAL ACCOUNTS AND MEMBERS
-------------------------------------
3.1 Initial Capital Contributions of Members. At the date hereof, the
authorized Membership Interests are as follows: 5,000,000 Voting Common
Interests; 3,734,830 Non-Voting Common Interests; 5,000,000 Voting Preferred
Interests; and 6,666,670 Non-Voting Preferred Interests. The names, addresses,
initial Capital Contributions (the "Initial Assets") Membership Interests and
--------------
Ownership Percentages of the Members are set forth on Exhibit A attached hereto
and incorporated herein. All Members acknowledge and agree that the initial
Capital Contributions set forth in Exhibit A represent the amount of money and
the Gross Asset Value of all property (other than money) initially contributed
by the Members. The Board shall be required to update Exhibit A from time to
time as necessary to accurately reflect the information therein. Any amendment
to Exhibit A shall not be deemed an amendment to this Agreement. Any reference
in this Agreement to Exhibit A shall be deemed to be a reference to Exhibit A as
amended and in effect from time to time.
3.2 Additional Capital Contributions by Members
3.2.1 No Member shall be (a) required or (b) except as provided in this
Paragraph 3.2 or as otherwise approved by a Majority in Interest, permitted, to
make any additional Capital Contributions to the Company.
3.2.2 ONRP shall make an additional Capital Contribution of $5,137,758
in consideration of the issuance of an additional 5,242,610 Non-Voting Common
Interests and Retail Sponsor shall make an additional Capital Contribution of
$6,862,242 in consideration of the issuance of an additional 7,002,288 Non-
Voting Preferred Interests (the "Third Subscription"), all of which interests
------------------
are hereby authorized, provided, however, that neither ONRP nor Retail Sponsor
shall have the obligation to make the Third Subscription unless (a) the other
Member has, in all material respects, complied with its obligations under the
Operating Agreements and (b) the representations and warranties of the Company
and the other Member contained in the Third Subscription Agreement are true and
correct at the time the Subscription is consummated. The Capital Contributions
to be made by ONRP and Retail Sponsor pursuant to this Paragraph 3.2.2 shall be
made in three monthly installments, the first of which shall occur on March __,
2000, the amount of each installment shall be determined by the Board, provided
that each Capital Contribution installment made by ONRP and Retail Sponsor shall
be made in the same proportion as the aggregate total Capital Contribution
required by each party pursuant to this Paragraph 3.2.2. The total amount of
Interests to be provided to ONRP and Retail Sponsor under this Paragraph 3.2.2
shall all be issued concurrently with the payment of the initial installment on
March 7, 2000.
3.2.3 In the event of any future equity financing by the Company,
including an initial public offering of equity securities by the Company, (each,
a "Subsequent Financing"), each of the Members shall have the right to
--------------------
subscribe, to the extent of its then-current Ownership Percentage, to such
Subsequent Financing unless in the case of any such Subsequent Financing that is
an underwritten public offering of common stock, (a) the managing underwriter in
connection with such Subsequent Financing advises that a full or partial waiver
of such right is required in order to consummate such Subsequent Financing and
(b) such waiver would not
14
materially prejudice either Retail Sponsor or ONRP. In the event of any future
equity financing by XX.xxx or any other Subsidiary of the Company, each of the
Members shall be afforded the ratable right to purchase additional Non-Voting
Common Interests or Non-Voting Preferred Interests (which shall be determined
based on the type of Membership Interests already owned by each such Member) in
the Company in an amount sufficient to permit the Company to purchase a
sufficient number of equity securities of XX.xxx or such other Subsidiary to
permit the Company to maintain its ratable ownership percentage therein.
3.2.4 Notwithstanding anything to the contrary in Section 3.2.3, if any
Member who holds Non-Voting Preferred Interests fails to participate with
respect to its Non-Voting Preferred Interests in any Subsequent financing by the
Company, XX.xxx or any other Subsidiary as set forth in Section 3.2.3, Retail
Sponsor shall have the right to additionally participate in any such equity
financing to the extent that the Members who hold Non-Voting Preferred Interests
did not participate with respect to their Non-Voting Preferred Interests.
3.3 Capital Accounts. A Capital Account shall be established and maintained for
each Member in accordance with the terms of this Agreement.
3.4 Additional Members. Following formation of the Company, the Board is hereby
authorized, upon receipt of approval of a Majority in Interest, to issue
interests in the Company directly from the Company, and to admit one or more
recipients of such interests as additional Members ("Additional Members") from
------------------
time to time, on such terms and conditions and for such Capital Contributions,
if any, as the Board may determine with the approval of a Majority in Interest.
No action or consent by any Person other than a Majority in Interest shall be
required in connection with the admission of an Additional Member. As a
condition to being admitted to the Company, each Additional Member shall execute
an agreement to be bound by the terms and conditions of this Agreement.
3.5 Member Capital. Except as otherwise provided in this Agreement or with the
prior written consent of a Majority in Interest: (a) no Member shall demand or
be entitled to receive a return of or interest on its Capital Contributions or
Capital Account, (b) no Member shall withdraw any portion of its Capital
Contributions or receive any distributions from the Company as a return of
capital on account of such Capital Contributions, and (c) the Company shall not
redeem or repurchase the Membership Interest, or any portion thereof, of any
Member.
3.6 Member Loans. No Member shall be required or permitted to make any loans or
otherwise lend any funds to the Company, except with the consent of a Majority
in Interest. Notwithstanding the foregoing, the Members shall be permitted (but
not required) to make loans to the Company to the extent a Majority in Interest
reasonably determines that such loans are necessary, advisable or convenient for
the business of the Company, provided that any such loans shall be unsecured and
on terms that are no less favorable to the Company as may be available from
independent third parties. No loan made by any Member to the Company shall have
any effect on such Member's Membership Interests, any such loans representing a
debt of the Company payable or collectible solely from the assets of the Company
in accordance with the terms and conditions upon which such loan was made.
15
3.7 Liability of Members. Except as otherwise required by an express provision
of this Agreement or any non-waivable provision of the Act or other applicable
law: (a) no Member shall be personally liable in any manner whatsoever for any
debt, liability or other obligation of the Company, whether such debt, liability
or other obligation arises in contract, tort, or otherwise; and (b) no Member
shall in any event have any liability whatsoever in excess of (i) the amount of
its Capital Contributions, (ii) its share of any assets and undistributed
profits of the Company, and (iii) the amount of any wrongful distribution to
such Member, if, and only to the extent, such Member has actual knowledge (at
the time of the distribution) that such distribution is made in violation of
Section 18-607 of the Act. Except as expressly provided herein, no Member, in
its capacity as such, shall have liability to the Company, any other Member or
the creditors of the Company.
3.8 XX.xxx.
3.8.1 Contributions to XX.xxx. Except as otherwise determined by the
Board, all assets received by the Company will be contributed to XX.xxx. XX.xxx
will have two types of membership interests: (i) voting preferred interests and
(ii) non-voting common interests. In exchange for its contribution of the
Initial Assets to XX.xxx, the Company will receive 20,401,500 (post-split)
voting preferred interests of XX.xxx. The Company will contribute the proceeds
of the Third Subscription to XX.xxx in exchange for the issuance of 12,244,898
additional voting preferred interests of XX.xxx.
3.8.2 3,032,140 (post-split) non-voting common interests of XX.xxx will
be reserved for option grants to employees of the Company and/or its
subsidiaries, including XX.xxx. Initially, 2,627,850 (post-split) of these non-
voting common interests of XX.xxx will be reserved for option grants to
employees of the Company and XX.xxx and 404,290 (post-split) non-voting common
interests of XX.xxx will be reserved for option grants to employees of ONRP and
Retail Sponsor. The grants of options to employees of the Company and/or its
subsidiaries, ONRP and/or Retail Sponsor shall be made by the Board (in its sole
and absolute discretion) in accordance with the provisions of the Plan.
3.8.3 Warrants to purchase 515,460 (post-split) non-voting common
interests of XX.xxx will be reserved for issuance to Xxxxxx/Xxxxxx Associates,
Inc. for their services in conducting certain executive search services on
behalf of the Company and XX.xxx.
3.8.4 The Members anticipate that XX.xxx would be the site of any
initial public offering with respect to the business of the Site. Prior to an
initial public offering, upon the receipt of approval of a Majority in Interest,
XX.xxx shall be converted into a Delaware corporation in accordance with
Paragraph 8.3 of this Agreement.
3.8.5 The Chief Executive Officer of the Company shall also be the
Chief Executive Officer of XX.xxx. The Board shall also constitute the board of
managers of XX.xxx.
16
ARTICLE 4
---------
DISTRIBUTIONS
-------------
4.1 Distributions of Cash Available for Distribution.
4.1.1 Except as otherwise provided in Paragraph 4.3 and Article 9
and subject to the provisions of Paragraph 6.2, Cash Available for Distribution
shall be distributed to the Members only at such times as may be determined in
the sole discretion of the Board.
4.1.2 Subject to Paragraph 4.3 and Article 9 hereof, all
distributions of Cash Available for Distribution shall be distributed to the
Members in accordance with the priorities set forth in Paragraph 4.4.
4.2 Distributions Upon Liquidation. Distributions made in conjunction with the
final liquidation of the Company, including, without limitation, the net
proceeds of a Terminating Capital Transaction, shall be applied or distributed
as provided in Article 9 hereof.
4.3 Tax Distributions. With respect to each fiscal year, the Company shall
distribute to the Members, to the extent of Cash Available for Distribution,
amounts intended to enable the Members to discharge their United States federal,
state and local income tax liabilities arising from the allocations made
pursuant to Article 5, (each, a "Tax Distribution"). The amount of any such Tax
----------------
Distribution shall be determined by the Board in its reasonable discretion
taking into account (a) the maximum combined United States and state tax rate
applicable to individuals or corporations (whichever is higher) on ordinary
income and net short-term capital gain or on net long-term capital gain, as
applicable, and taking into account the deductibility of state and local income
taxes for United States federal income tax purposes (and the deductibility of
local income taxes for state tax purposes, if applicable), and (b) the amounts
so allocated pursuant to Article 5 to each Member, and otherwise based on such
reasonable assumptions as the Board determines in good faith to be appropriate.
Tax Distributions shall be made to the Members pro rata in accordance with their
respective allocation of the corresponding items of gain or income, and shall be
treated as advances with respect to amounts otherwise to be received by such
Members pursuant to this Article 4 or Article 9.
4.4 Distributions. Subject to the provisions of Article 9 and Paragraph 4.3
hereof, and subject to the rights and preferences of any classes of Membership
Interests approved in accordance with the provisions of this Agreement and
issued by the Company from time to time, Cash Available for Distribution and
distributions in kind of Company Assets shall be distributed:
4.4.1 First, to the Members holding Preferred Interests, in
proportion to the number of their Preferred Interests, until an amount equal to
the Preference Amount has been paid with respect to such Preferred Interests;
4.4.2 Second, to the Members holding Common Interests, in
proportion to the number of their Common Interests, until an amount equal to the
Preference Amount has been paid with respect to such Common Interests; and
4.4.3 Thereafter, to the Members in proportion to their respective
Ownership Percentages.
17
4.5 Distributions in Kind. No right is given to any Member to demand or receive
property other than cash as provided in this Agreement. The Board may determine
to make a distribution in kind of Company Assets to the Members, and such
Company Assets shall be distributed in such a fashion as to ensure that the fair
market value thereof is distributed and allocated in accordance with this
Article 4 and Articles 5 and 9 hereof; provided, however, that no Member may be
compelled to accept a distribution consisting, in whole or in part, of any
Company Assets in kind unless the ratio that the fair market value of such
distribution in kind bears to such Member's total distribution does not exceed
the ratio that the fair market value of similar distributions in kind bear to
the total distributions of other Members receiving distributions concurrently
therewith (if any), except upon a dissolution and winding up of the Company.
4.6 Withholding. The Company may withhold distributions or portions thereof if
it is required to do so by any applicable rule, regulation, or law, and each
Member hereby authorizes the Company to withhold from or pay on behalf of or
with respect to such Member any amount of federal, state, local or foreign taxes
that the Board determines that the Company is required to withhold or pay with
respect to any amount distributable or allocable to such Member pursuant to this
Agreement. Any amount paid on behalf of or with respect to a Member pursuant to
this Paragraph 4.6 shall constitute a loan by the Company to such Member, which
loan shall be repaid by such Member within fifteen (15) days after notice from
the Company that such payment must be made; provided, however, that there shall
be no such loan treatment if (a) the Company withholds such payment from a
distribution which would otherwise be made to the Member or (b) the Board
determines, in its sole and absolute discretion, that such payment may be
satisfied out of Cash Available For Distribution which would, but for such
payment, be distributed to the Member. Any amounts withheld pursuant to this
Paragraph 4.6 shall be treated as having been distributed to such Member. Each
Member hereby unconditionally and irrevocably grants to the Company a security
interest in such Member's Membership Interests in the Company to secure such
Member's obligation to pay to the Company any amounts required to be paid
pursuant to this Paragraph 4.6. In the event that a Member fails to pay any
amounts owed to the Company pursuant to this Paragraph 4.6 when due, the
remaining Member(s) may, in their respective sole and absolute discretion, elect
to make the payment to the Company on behalf of such defaulting Member, and in
such event shall be deemed to have loaned such amount to such defaulting Member
and shall succeed to all rights and remedies of the Company as against such
defaulting Member (including, without limitation, the right to receive
distributions). Any amounts payable by a Member hereunder shall bear interest at
12.0% from the date such amount is due (i.e., 15 days after demand) until such
amount is paid in full. Each Member shall take such actions as the Company shall
request in order to perfect or enforce the security interest created hereunder.
A Member's obligations hereunder shall survive the dissolution, liquidation, or
winding up of the Company.
4.7 Limitations on Distributions. Notwithstanding any provision to the contrary
contained in this Agreement, neither the Company nor the Board, on behalf of the
Company, shall knowingly make a distribution to any Member or the holder of any
interest in the Company on account of its Membership Interest or Economic
Interest in the Company (as applicable) in violation of Section 18-607 of the
Act.
18
ARTICLE 5
---------
ALLOCATIONS OF NET PROFITS AND NET LOSSES
-----------------------------------------
5.1 General Allocation of Net Profits and Losses.
5.1.1 Net Profits and Net Losses shall be determined and allocated
with respect to each fiscal year of the Company as of the end of such fiscal
year. Subject to the other provisions of this Agreement, an allocation to a
Member of a share of Net Profits or Net Losses shall be treated as an allocation
of the same share of each item of income, gain, loss or deduction that is taken
into account in computing Net Profits or Net Losses.
5.1.2 Subject to the other provisions of this Article 5, Net
Profits shall be allocated in the following order of priority:
(a) First, to the Members, in proportion to their respective
Ownership Percentages, until an amount equal to the amount of Net Losses
previously allocated to such Membership Interests pursuant to Paragraph
5.1.3(d), if any, has been allocated with respect to such Membership Interests;
(b) Second, to the Members holding Preferred Interests, in
proportion to the number of their Preferred Interests, until an amount equal to
the amount of Net Losses previously allocated to such Preferred Interests
pursuant to Paragraph 5.1.3(c), if any, has been allocated with respect to such
Preferred Interests;
(c) Third, to the Members holding Common Interests, in
proportion to the number of their Common Interests, until an amount equal to the
amount of Net Losses previously allocated to such Common Interests pursuant to
Paragraph 5.1.3(b), if any, has been allocated with respect to such Common
Interests; and
(d) Thereafter, to the Members in proportion to their
respective Ownership Percentages.
5.1.3 Subject to the other provisions of this Article 5, Net
Losses shall be allocated in the following order of priority:
(a) First, to the Members, in proportion to their respective
Ownership Percentages, until each such Membership Interest has been allocated an
amount equal to the amount of Net Profits previously allocated to such
Membership Interest pursuant to Paragraph 5.1.2(d), if any;
(b) Second, to the Members holding Common Interests, in
proportion to the number of their Common Interests, until each such Member's
Capital Account has been reduced to zero, provided that with respect to any
Member holding Common Interests and Preferred Interests, this clause (b) shall
reduce such Member's Capital Account only to the extent of such Member's Common
Interests;
(c) Third, to any Member holding Preferred Interests, in
proportion to the number of their Preferred Interests, until each such Capital
Account has been reduced to zero,
19
provided that with respect to any Member holding Common Interests and Preferred
Interests, this clause (c) shall reduce such Member's Capital Account only to
the extent of such Member's Preferred Interests; and
(d) Thereafter, to the Members pro rata in proportion to
their respective Ownership Percentages.
5.2 Regulatory Allocations. Notwithstanding the foregoing provisions of this
Article 5, the following special allocations shall be made in the following
order of priority:
5.2.1 If there is a net decrease in Company Minimum Gain during a
Company taxable year, then each Member shall be allocated items of Company
income and gain for such taxable year (and, if necessary, for subsequent years)
in an amount equal to such Member's share of the net decrease in Company Minimum
Gain, determined in accordance with Regulations Section 1.704-2(g)(2). This
Paragraph 5.2.1 is intended to comply with the minimum gain chargeback
requirement of Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
5.2.2 If there is a net decrease in Member Minimum Gain
attributable to a Member Nonrecourse Debt during any Company taxable year, each
Member who has a share of the Member Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-
2(i)(5), shall be specially allocated items of Company income and gain for such
taxable year (and, if necessary, subsequent years) in an amount equal to such
Member's share of the net decrease in Member Minimum Gain attributable to such
Member Nonrecourse Debt, determined in a manner consistent with the provisions
of Regulations Section 1.704-2(g)(2). This Paragraph 5.2.2 is intended to comply
with the partner nonrecourse debt minimum gain chargeback requirement of
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
5.2.3 If any Member unexpectedly receives an adjustment,
allocation, or distribution of the type contemplated by Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of income and gain shall be allocated
to all such Members (in proportion to the amounts of their respective Adjusted
Capital Account Deficits) in an amount and manner sufficient to eliminate the
Adjusted Capital Account Deficit of such Member as quickly as possible. It is
intended that this Paragraph 5.2.3 qualify and be construed as a "qualified
income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d).
5.2.4 If the allocation of Net Loss to a Member as provided in
Paragraph 5.1 hereof would create or increase an Adjusted Capital Account
Deficit, there shall be allocated to such Member only that amount of Net Loss as
will not create or increase an Adjusted Capital Account Deficit. The Net Loss
that would, absent the application of the preceding sentence, otherwise be
allocated to such Member shall be allocated to the other Members in accordance
with their relative Economic Interests, subject to the limitations of this
Paragraph 5.2.4.
5.2.5 To the extent that an adjustment to the adjusted tax basis
of any Company Asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Member in complete
20
liquidation of its Membership Interests in the Company, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Members in accordance with their Economic Interests in the Company in the event
that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to
whom such distribution was made in the event that Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
5.2.6 The Nonrecourse Deductions for each taxable year of the Company
shall be allocated to the Members in proportion to their respective Ownership
Percentages.
5.2.7 The Member Nonrecourse Deductions shall be allocated each year to
the Member that bears the economic risk of loss (within the meaning of
Regulations Section 1.752-2) for the Member Nonrecourse Debt to which such
Member Nonrecourse Deductions are attributable.
5.2.8 The allocations set forth in Paragraphs 5.2.1, 5.2.2, 5.2.3, 5.2.4,
5.2.5, 5.2.6 and 5.2.7 hereof (the "Regulatory Allocations") are intended to
----------------------
comply with certain requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Paragraph 5.1.2 or 5.1.3, the Regulatory
Allocations shall be taken into account in allocating other items of income,
gain, loss and deduction among the Members so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to
each Member shall be equal to the net amount that would have been allocated to
each such Member if the Regulatory Allocations had not occurred.
5.3 Tax Allocations.
5.3.1 Except as provided in Paragraph 5.3.2 hereof, for income tax
purposes under the Code and the Regulations each Company item of income, gain,
loss and deduction shall be allocated among the Members as its correlative item
of book income, gain, loss or deduction is allocated pursuant to this Article 5.
5.3.2 Tax items with respect to Company Assets that are contributed to
the Company with a Gross Asset Value that varies from its basis in the hands of
the contributing Member immediately preceding the date of contribution shall be
allocated among the Members for income tax purposes pursuant to Regulations
promulgated under Code Section 704(c) so as to take into account such variation.
The Company shall account for such variation under any method approved under
Code Section 704(c) and the applicable Regulations as chosen by the Board,
including, without limitation, the "traditional method" as described in
Regulations Section 1.704-3(b). If the Gross Asset Value of any Company Asset is
adjusted pursuant to Paragraph 2.30, subsequent allocations of income, gain,
loss and deduction with respect to such Company Asset shall take account of any
variation between the adjusted basis of such Company Asset for federal income
tax purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations promulgated thereunder under any method approved
under Code Section 704(c) and the applicable Regulations as chosen by the Board.
Allocations pursuant to this Paragraph 5.3.2 are solely for purposes of federal,
state and local taxes and shall not affect, or in any way be taken into account
in computing, any Member's Capital Account or share of Net Profits, Net Losses
and any other items or distributions pursuant to any provision of this
Agreement.
21
5.4 Other Provisions.
5.4.1 For any fiscal year during which any part of a Membership Interest
is transferred between Members or to another Person, the portion of the Net
Profits, Net Losses and other items of income, gain, loss, deduction and credit
that are allocable with respect to such part of a Membership Interest shall be
apportioned between the transferor and the transferee under any method allowed
pursuant to Section 706 of the Code and the applicable Regulations as determined
by the Board.
5.4.2 In the event that the Code or any Regulations require allocations
of items of income, gain, loss, deduction or credit different from those set
forth in this Article 5, the Board is hereby authorized to make new allocations
in reliance on the Code and such Regulations, and no such new allocation shall
give rise to any claim or cause of action by any Member.
5.4.3 For purposes of determining a Member's proportional share of the
Company's "excess nonrecourse liabilities" within the meaning of Regulations
Section 1.752-3(a)(3), each Member's interest in profits shall be in proportion
to the Ownership Percentage of such Member.
5.4.4 The Members acknowledge and are aware of the income tax
consequences of the allocations made by this Article 5 and hereby agree to be
bound by the provisions of this Article 5 in reporting their shares of Net
Profits, Net Losses and other items of income, gain, loss, deduction and credit
for federal, state and local income tax purposes.
ARTICLE 6
---------
OPERATIONS
----------
6.1 Management.
6.1.1 Except as otherwise expressly provided in this Agreement or
required by applicable law, the Board shall have sole and complete charge and
management of all the affairs and business of the Company, in all respects and
in all matters. The Board or any individual Director to whom the Board has
delegated specific authority shall be agents of the Company's business, and the
actions of the Board or such Director taken in such capacity and in accordance
with this Agreement shall bind the Company. Except as otherwise expressly
provided in this Agreement, the Members shall not participate in the control of
the Company, and shall have no right, power or authority to act for or on behalf
of, or otherwise bind, the Company. Except as expressly provided in this
Agreement or required by any non-waivable provisions of applicable law, Members
shall have no right to vote on or consent to any other matter, act, decision, or
document involving the Company or its business.
6.1.2 Except as otherwise expressly provided in this Agreement, the Board
shall have full, exclusive and complete discretion to manage and control the
business and affairs of the Company, to make all decisions affecting the
business and affairs of the Company and to take all such actions as it deems
necessary, appropriate, convenient or incidental to accomplish the purposes and
direct the affairs of the Company. The Board shall have the sole power and
authority to bind the Company, except as otherwise expressly provided in this
Agreement and/or to the extent that such power is expressly delegated in writing
to officers of the Company or any
22
other Person by the Board, and such delegation shall not cause the Board to
cease to be the Board of the Company.
6.1.3 The Board shall also have the exclusive right, power and
authority, in the management of the business and affairs of the Company, to do
or cause to be done any and all acts, at the expense of the Company, deemed by
the Board to be necessary, appropriate, convenient or incidental to effectuate
the business of the Company. Without limiting the generality of the foregoing,
the Board shall have full and complete power and authority, without the approval
of any Member and, with respect to clauses (a) through (d), in the ordinary
course of the business of the Company:
(a) to conduct any business, and exercise any rights and powers,
permitted of a limited liability company organized under the laws of the state
of Delaware, in any state, territory, district or foreign country;
(b) subject to the terms and conditions of the Operating
Agreements and Paragraph 6.2.1, to acquire by purchase, lease, contribution or
otherwise, and/or to otherwise own, hold, operate, maintain, improve, lease,
sell, convey, mortgage, transfer or dispose of any property or other assets
(real or personal, tangible or intangible);
(c) subject to Paragraph 6.2.1, and the terms and conditions of
the Operating Agreements, to negotiate, enter into, perform, modify, extend,
terminate, amend, waive, renegotiate and/or carry out any contracts and
agreements;
(d) subject to Paragraph 6.2.1, to lend money, to invest and
reinvest its funds, and to take and hold real and/or personal property for the
payment of funds so loaned or invested;
(e) to xxx and be sued, complain and defend, and participate in
administrative, judicial and other proceedings, in the name of, and behalf of,
the Company;
(f) to pay, collect, compromise, arbitrate or otherwise adjust or
settle any and all claims or demands of or against the Company, in such amounts
and upon such terms and conditions, provided that the foregoing do not
materially prejudice a Member;
(g) subject to Paragraph 6.2.1, (a) to, from time to time, employ,
engage, hire or otherwise secure or terminate the services of such Persons,
including any Member or Assignee, or any Persons related thereto or Affiliates
thereof, and (b) to, from time to time, appoint such officers and agents of the
Company as the Board deems necessary or advisable, define and modify, from time
to time, such officers' and agents' duties, and fix and adjust, as appropriate,
such officers' and agents' compensation;
(h) subject to Paragraph 6.6, to cause the Company to indemnify
any Person in accordance with, and to the fullest extent permitted by,
applicable law, and to obtain, for or on behalf of the Company, any and all
types of insurance;
23
(i) subject to Paragraph 6.2.1, to borrow money and issue
evidences of indebtedness necessary, convenient or incidental to the business of
the Company, and secure the same by mortgage, pledge or other lien on any
Company Assets or other assets of the Company;
(j) to prepare, execute, file, record, publish and deliver any and
all instruments, documents or statements necessary or convenient to effectuate
any and all actions that the Board is authorized to take on behalf of the
Company;
(k) subject to Paragraph 6.2.1(i), to merge the Company with, or
consolidate the Company with or into, any other corporation, partnership,
limited liability company or other business entity (as defined in Section
18-209(a) of the Act) (whether domestic or foreign);
(l) subject to Paragraph 6.2.1, to deal with, or otherwise engage
in business with, or provide services to and receive compensation therefor from,
any Person who has provided or may in the future provide services to, lend money
to, sell property to, or purchase property from the Company, the Members or any
Affiliate of the Members; and
(m) to establish and maintain Reserves for such purposes and in
such amounts as the Board deems appropriate from time to time.
6.1.4 Subject to the provisions of Paragraph 6.2, the Board may commence
a voluntary case on behalf of, or an involuntary case against, the Company under
a chapter of Title 11 U.S.C. by the filing of a "petition" (as defined in 11
U.S.C. 101(42)) with the United States Bankruptcy Court. The unanimous approval
of the Board shall be required in connection with the commencement of such a
voluntary bankruptcy. Any such petition filed by any Member or other Person
shall be deemed an unauthorized and bad faith filing and all parties to this
Agreement shall use their best efforts to cause such petition to be dismissed.
6.1.5 The Company, and any member of the Board on behalf of
the Company, may enter into and perform the Capital Contribution
Agreement without any further act, vote or approval of any Member
notwithstanding any other provision of this Agreement (including, without
limitation, Paragraph 6.2 hereof), the Act or other applicable law. Any
member of the Board is hereby authorized to enter into and perform on
behalf of the Company the documents described in the immediately
preceding sentence, but such authorization shall not be deemed a
restriction in the power of the Board to enter into other documents on
behalf of the Company to the extent provided for in this Agreement.
Subject to the terms of this Agreement, the Board may authorize any
Person (including, without limitation, any Member or Officer (as defined
below) to enter into and perform any other document on behalf of the
Company.
6.2 Limitations on Authority of Board.
6.2.1 Notwithstanding any contrary provision of this Agreement, without
either the approval of a Majority in Interest or the unanimous approval of the
Board, the Board shall not have the authority to:
(a) Amend this Agreement or the operating agreement of XX.xxx or
any other Subsidiary of the Company or create any additional Subsidiary of the
Company or of XX.xxx;
24
(b) Appoint or remove the executive officers of the Company or XX.xxx
or any other Subsidiary of the Company (including, without limitation, a
President and/or Chief Executive Officer);
(c) Establish or modify the compensation of the executive officers
referred to in subparagraph (b) above;
(d) Cause the Company or XX.xxx or any other Subsidiary of the Company
to enter into any new agreement, or to materially amend the terms of any
existing agreement, with Retail Sponsor or ONRP or an Affiliate of any of the
foregoing;
(e) Approve the annual operating budget, including spending, of the
Company or XX.xxx or any other Subsidiary of the Company;
(f) Admit any Person or an Additional Member or admit any Person as a
member, partner, shareholder or other equity holder in XX.xxx or any other
Subsidiary of the Company;
(g) Pledge the assets of the Company or XX.xxx or any other Subsidiary
of the Company;
(h) Approve any Terminating Capital Transaction;
(i) Merge the Company with, or consolidate the Company with or into,
any other corporation, partnership, limited liability company or other business
entity (as defined in Section 18-209(a) of the Act) (whether domestic or
foreign);
(j) Borrow money or issue evidences or guarantees of indebtedness;
(k) Commence a voluntary cause on behalf of, or an involuntary case
against, the Company under a chapter of Title 11 U.S.C. by the filing of a
"petition" (as defined in 11 U.S.C. 101 (42)) with the United States Bankruptcy
Court;
(l) Except as expressly provided for herein, declare, set aside or pay
any dividend or make any other distribution of cash or property, or redeem,
repurchase or make any similar payments in connection with the retirement of any
Membership Interests; or
(m) Dissolve the Company.
6.2.2 Notwithstanding any contrary provision of this Agreement, without the
written consent of all Members, the Board shall not have the authority to:
(a) Do any act in contravention of the Agreement; or
(b) Knowingly perform any act that would subject any Member to
liability for the debts, liabilities or obligations of the Company or any other
Member.
25
6.2.3 Each Member shall be entitled to one vote for each (a) Voting
Preferred Interest and (b) Voting Common Interest held by such Member on any
matter submitted to the Members for approval. Non-Voting Common Interests and
Non-Voting Preferred Interests shall not be entitled to vote on any matter.
Members holding Voting Common Interests and Voting Preferred Interests shall
vote together as one class on all matters. The voting rights of any additional
classes of interests in the Company created after the date hereof shall be
determined by a Majority in Interest.
6.3 Reliance By Third Parties. Any Person dealing with the Company or the Board
may rely upon a certificate signed by the Board as to:
(a) the identity of the Board or any Member of the Company;
(b) the existence or non-existence of any fact or facts which
constitute a condition precedent to acts by the Board or in any other manner
germane to the affairs of the Company;
(c) the Persons who are authorized to execute and deliver any
instrument or document for or on behalf of the Company; or
(d) any act or failure to act by the Company or as to any other
matter whatsoever involving the Company or any Member.
6.4 Compensation of Directors.
6.4.1 The Directors shall not receive any fees for its services in
administering the officers of the Company.
6.4.2 The Directors shall be entitled to reimbursement on a monthly basis
from the Company for all out-of-pocket costs and expenses incurred by them, in
their reasonable discretion and in accordance with policies and procedures
adopted by the Board from time to time, for or on behalf of the Company.
6.5 Records and Reports.
6.5.1 The Board shall cause to be kept, at the principal place of
business of the Company, or at such other location as the Board shall reasonably
deem appropriate, full and proper ledgers, other books of account, and records
of all receipts and disbursements, other financial activities, and the internal
affairs of the Company for at least the current and past four fiscal years.
6.5.2 The Board shall also cause to be sent to each Member of the
Company, the following:
(a) within ninety (90) days following the end of each fiscal year
of the Company, a report that shall include all necessary information required
by the Members for preparation of its federal, state and local income or
franchise tax or information returns,
26
including each Member's share of Net Profits, Net Losses and any other items of
income, gain, loss and deduction for such fiscal year; and
(b) a copy of the Company's federal, state and local income tax or
information returns for each fiscal year, concurrent with the filing of such
returns.
6.5.3 Members may, for purposes reasonably related to their Membership
Interests, examine and copy (at their own cost and expense) the books and
records of the Company at all reasonable business hours.
6.6 Indemnification and Liability.
6.6.1 The Company shall indemnify and hold harmless each member of the
Board and all officers, employees, agents and Affiliates of the Company
(individually, an "Indemnitee") to the full extent permitted by law from and
----------
against any and all losses, claims, demands, costs, damages, liabilities, joint
and several, expenses of any nature (including reasonable attorneys' fees and
disbursements), judgments, fines, settlements and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which the Indemnitee may be involved, or
threatened to be involved as a party or otherwise, relating to the performance
or nonperformance of any act concerning the activities of the Company, if (a)
the Indemnitee acted in good faith and in a manner it reasonably believed to be
in, or not contrary to, the best interests of the Company, (b) the Indemnitee's
conduct did not constitute gross negligence or willful misconduct and (c) the
Indemnitee's conduct is not based upon or attributable to the receipt by the
Indemnitee of a personal benefit to which the Indemnitee is not entitled. The
termination of an action, suit or proceeding by judgment, order, settlement, or
upon a plea of nolo contendere or its equivalent, shall not, in and of itself,
create a presumption or otherwise constitute evidence that the Indemnitee acted
in a manner contrary to that specified in clauses (a) or (b) above.
6.6.2 Expenses incurred by an Indemnitee in defending any claim, demand,
action, suit or proceeding subject to this Paragraph 6.6 shall be advanced by
the Company prior to the final disposition of such claim, demand, action, suit,
or proceeding upon receipt by the Company of a written commitment by or on
behalf of the Indemnitee to repay such amount if it shall be determined that
such Indemnitee is not entitled to be indemnified as authorized in this
Paragraph 6.6.
6.6.3 Any indemnification provided hereunder shall be satisfied solely
out of the assets of the Company, as an expense of the Company. No Member shall
be subject to personal liability by reason of these indemnification provisions.
6.6.4 The provisions of this Paragraph 6.6 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of any
other Person.
6.6.5 Neither the Board nor the officers of the Company shall be liable
to the Company or to a Member for any losses sustained or liabilities incurred
as a result of any act or omission of the Board or any such officer if (a) the
act or failure to act of the Board or such officer was in good faith and in a
manner it reasonably believed to be in, or not contrary to, the best interests
of the Company, (b) the conduct of the Board or such officer did not constitute
gross negligence or
27
willful misconduct and (c) the Indemnitee's conduct is not based upon or
attributable to the receipt by the Indemnitee of a personal benefit to which the
Indemnitee is not entitled.
6.6.6 To the extent that any Director or any officer of the Company
(each, a "Responsible Party") has, at law or in equity, duties (including,
-----------------
without limitation, fiduciary duties) to the Company or any Member or other
Person bound by the terms of this Agreement, such Responsible Parties shall not
be liable to the Company, any Member, or any such other Person for its good
faith reliance on the provisions of this Agreement so long as such Responsible
Parties act in accordance with this Agreement and exercise such standard of care
applicable to a director or any officer, as applicable, of a corporation
incorporated in the State of Delaware. The provisions of this Agreement, to the
extent, if any, that they restrict the duties of a Responsible Party otherwise
existing at law or in equity, are agreed by all parties hereto to replace such
other duties to the greatest extent permitted under applicable law.
6.6.7 Whenever a Responsible Party is required or permitted to make a
decision, take or approve an action, or omit to do any of the foregoing (a) in
its discretion, (b) under a similar grant of authority or latitude or (c)
without an express standard of behavior (including, without limitation,
standards such as "reasonable" or "good faith"), then such Responsible Party
shall be subject to the standard of care applicable to a director or any
officer, as applicable, of a corporation incorporated in the State of Delaware.
6.7 Removal and Withdrawal of Directors.
6.7.1 A Director may not be removed as a Director at any time except (a)
by the Person that designated such Director or (b) for cause. For purposes of
this Paragraph 6.7.1, "cause" shall mean a finding by a majority of the Board
that the Director has engaged in conduct that is fraudulent, disloyal, criminal
or injurious to the Company, including, without limitation, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her service,
or that the Director has disclosed trade secrets or confidential information of
the Company to any Persons not entitled to receive such information. Upon (i)
the removal of a Director pursuant to this Paragraph 6.7.1, (ii) the withdrawal
of a Director pursuant to Paragraph 6.7.2, or (iii) the death or Incapacity of a
Director, the Member that designated such Director shall be entitled to
designate a replacement Director.
6.7.2 Any Director may withdraw as a Director at any time without the
prior consent of any Person by providing the Board written notice thereof.
6.8 Other Activities. Subject to the provisions of this Article and Paragraph
10.1 (and any employment or other agreement with the Company or XX.xxx to which
such Member may be a party), any members of the Board may engage or invest in,
and devote their time to, any other business venture or activity of any nature
and description (independently or with others), including, without limitation,
the business of Retail Sponsor and ONRP, as applicable, whether or not such
other activity may be deemed or construed to be in competition with the Company.
Neither the Company nor any other Member shall have any right by virtue of this
Agreement or the relationship created hereby in or to such other venture or
activity of any Member (or to the income or proceeds derived therefrom), and the
pursuit thereof, shall not be deemed wrongful or
28
improper. Notwithstanding the foregoing, the Board shall devote such time to the
Company as it deems reasonably necessary for the proper performance of its
obligations and duties hereunder.
6.9 Officers. The Board may select natural persons who are agents or employees
of the Company to be designated as officers of the Company (the "Officers"),
--------
with such titles as the Board shall determine. Any number of offices may be held
by the same person. Any such Officer chosen by the Board shall be a "manager"
(within the meaning of the Act) of the Company. The Board may choose a "Chairman
of the Board," a "President," a "Vice President," a "Secretary," a "Treasurer"
and such other Officers as it shall deem necessary who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board. The salaries of all Officers shall
be fixed in a manner prescribed by the Board. The Officers shall hold office
until their successors are chosen and qualify. Any Officer elected or appointed
by the Board may be removed at any time by the affirmative vote of a majority of
the Board. Any vacancy occurring in any office of the Company shall be filled by
the Board.
6.10 The Chairman of the Board. The Chairman of the Board shall be elected from
among the Directors. The Chairman shall preside at all meetings of the Members
and of the Board as provided herein.
6.11 The President. The President shall be the chief executive officer of the
Company, shall have general active management of the business of the Company and
shall see that all orders and resolutions of the Board are carried into effect.
The President shall execute bonds, mortgages and other contracts, except where
required or permitted by law to be otherwise signed and executed and except
where signing and execution thereof shall be expressly delegated by the Board to
some other Officer or except as otherwise permitted in Paragraph 6.11. In the
absence of the Chairman or in the event of the Chairman's inability to act, the
President shall perform the duties of the Chairman.
6.12 The Vice President. In the absence of the President or in the event of the
President's inability to act, the Vice President, if any, (or in the event there
be more than one Vice President, the Vice Presidents in the order designated by
the Board, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents, if any, shall perform such other duties and have
such other powers as the Board may from time to time prescribe.
6.13 The Secretary and Assistant Secretary. The Secretary shall attend all
meetings of the Board and all meetings of the Members and record all the
proceedings of the meetings of the Members and of the Board in a book to be kept
for that purpose. The Secretary shall give, or cause to be given, notice of all
meetings of the Members and Board, and shall perform such other duties as may be
prescribed by the Board or the President, under whose supervision the Secretary
shall be. The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there be no such
determination, then in order of their election) shall, in the absence of the
Secretary or in the event of the Secretary's inability to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
29
6.14 The Treasurer and Assistant Treasurer. The Treasurer shall have the custody
of the Company funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board. The Treasurer
shall disburse the funds of the Company as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the President or the
Board (when the Board so requires) an account of all of the Treasurer's
transactions and of the financial condition of the Company. The Assistant
Treasurer, or if there shall be more than one, the Assistant Treasurers in the
order determined by the Board (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of the Treasurer's inability to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the Board may from time to time prescribe.
6.15 Officers as Agents. The Officers, to the extent of their powers set forth
in this Agreement, are agents of the Company for the purpose of the Company's
business, and the actions of the Officers taken in accordance with such powers
shall bind the Company.
ARTICLE 7
---------
TRANSFERS OF Interests; RIGHT OF FIRST REFUSAL
----------------------------------------------
7.1 Transfers. No Member or Assignee may make any Membership Interest Transfer
of all or any portion of its Membership Interest (or beneficial interest
therein) without the prior written consent of a Majority in Interest, which
consent may be given or withheld in a Majority in Interests' sole and absolute
discretion, for a period of three years commencing on the Effective Date.
7.1.1 No Member shall make any Membership Interest Transfer or Permitted
Transfer except as specifically permitted under the terms of this Agreement. Any
Membership Interest Transfer or attempted Membership Interest Transfer not in
accordance herewith shall be null and void and of no force or effect.
7.1.2 Prior to an IPO, ONRP may not Transfer its Membership Interests, in
whole or in part, to another Person which derived 10% or more of its
consolidated revenues (as measured in the most recent full fiscal year) from the
sale of products in the Same Category.
7.1.3 Subject to Paragraphs 7.1.1 or 7.1.2 and to the following sentence,
any Member may make a Transfer of Membership Interests which constitutes a
Permitted Transfer. Notwithstanding anything else contained herein to the
contrary, any Membership Interests Transferred pursuant to this Agreement
(including in a Permitted Transfer) shall nevertheless remain subject to the
provisions of this Agreement, and the transferee (if not already a Party) of any
such Membership Interests which remain subject to the provisions of this
Agreement shall execute and deliver to each Party, as a condition precedent to
such Transfer, documents reasonably satisfactory to the Company confirming that
it agrees to be bound by the terms of this Agreement in the same manner as its
transferor, except as otherwise specifically provided in this Agreement.
30
7.1.4 The Company generally will not request an opinion of counsel with
respect to a Transfer by any Member to one of its Affiliates, provided that such
Member delivers to the Company such certificates executed by an officer of such
Member as the Company shall reasonably request that such Transfer is exempt from
the registration requirements of the Securities Act.
7.1.5 The provisions of this Paragraph 7.1 shall terminate on the day
which is 180 days after the date on which an IPO is consummated, except for
Paragraph 7.1.2 above which shall terminate on the date on which the IPO is
consummated.
7.2 Right of First Refusal.
7.2.1 In the event any Member (an "Offering Member") desires to make a
---------------
Membership Interest Transfer, it must first deliver written notice thereof (an
"Offer Notice") to the Company and the other Members. The Offer Notice must
------------
contain a full description of the proposed Membership Interest Transfer,
including, without limitation, the type of Membership Interest Transfer, the
number of Membership Interests to be Transferred (the "Affected Membership
-------------------
Interests"), the proposed per Membership Interest purchase price and terms of
---------
payment for the Affected Membership Interests, the proposed date of such
Transfer and the identity of the proposed transferee, and must be accompanied by
a copy of the proposed transferee's offer to acquire the Affected Membership
Interests. An Offer Notice shall constitute the Offering Member's binding
agreement to sell the applicable number of Affected Membership Interests to each
of the other Members and the Company on the terms and conditions specified
therein.
7.2.2 Each of the other Members shall have twenty (20) days after its
receipt of the Offer Notice to elect, by delivering a written acceptance to the
Offering Member and the Company (an "ROFR Acceptance Notice"), to purchase up to
its ROFR Allotment of the Affected Membership Interests; provided, however, in
the event any such other Member specifies a number of Affected Membership
Interests in excess of its ROFR Allotment, such other Member shall be deemed to
have specified its ROFR Allotment and such excess Affected Membership Interests
shall be treated as Additional ROFR Membership Interests (as defined below). The
ROFR Acceptance Notice shall also specify the aggregate number of additional
Affected Membership Interests, if any, which such other Member would agree to
purchase ("Additional ROFR Membership Interests") in the event any of such other
------------------------------------
Members fail to subscribe for their respective ROFR Allotments of the Affected
Membership Interests. Upon such an occurrence, the Offering Member shall
apportion the unsubscribed ROFR Allotments of the other Members among those
Members whose ROFR Acceptance Notices specified (or was deemed to specify) an
amount of Additional ROFR Membership Interests on a pro rata basis among such
Members in accordance with the number of Additional ROFR Membership Interests
specified by all such Members in their ROFR Acceptance Notices. A ROFR
Acceptance Notice shall constitute a Member's binding agreement (subject to any
closing conditions specified in the Offer Notice or otherwise specifically
provided for in Paragraph 7.2.4 below) to purchase the number of Affected
Membership Interests set forth therein (including any Additional ROFR Membership
Interests) on the terms and conditions specified in the Offer Notice.
7.2.3 In the event the Members do not exercise their option to purchase all
of the Affected Membership Interests in accordance herewith, the Company shall
have the option (but
31
not the obligation) to purchase all (but not less than all) of the remaining
Affected Membership Interests by delivering a written acceptance to the Offering
Member within 10 days after receipt of the ROFR Acceptance Notices (the "Cutoff
------
Date"). The Offering Member shall have no obligation to sell any Affected
----
Membership Interests to the other Members or to the Company pursuant to this
Paragraph 7.2 unless all of the Affected Membership Interests have been
subscribed for in accordance with Paragraph 7.2.2 above and this Paragraph
7.2.3.
7.2.4 With respect to any purchase of Affected Membership Interests
pursuant to Paragraphs 7.2.2 and 7.2.3 above, the purchase price for the
Affected Membership Interests and the other terms of transfer shall be as set
forth in the Offer Notice. The closing of such Transfer shall take place at the
Company's principal office at 10:00 a.m. local time on the tenth (10th) business
day after the Offering Member receives its last written acceptance pursuant to
this Paragraph 7.2 (or, if applicable, on the third business day following the
date on which any required governmental approvals for such Transfer are obtained
or the expiration of any waiting period under the HSR Act), or at such other
place, time or date as the Offering Member and the purchaser(s) of Affected
Membership Interests (the "Purchasers") mutually agree. At the closing, the
----------
Offering Member shall deliver to each Purchaser its confirmation that it has
transferred the Affected Membership Interests free and clear of any and all
pledges, liens, claims, security interests or other encumbrances (other than
restrictions imposed by this Agreement) and the Purchaser shall pay to the
Offering Member the consideration set forth in the Offer Notice in accordance
with the terms described therein. In the event any Purchaser fails to obtain any
such required governmental consent or approval (or the expiration of any waiting
period under the HSR Act) prior to the 60th day following the Cutoff Date (or
such later date as may be agreed to by the Offering Member), after having
attempted in good faith, using commercially reasonable efforts, to obtain such
consent or approval (or such expiration), such Purchaser shall be released from
its obligation to purchase any Affected Membership Interests in excess of the
amount for which such governmental consent or approval is required (or which
could be purchased without any filing under the HSR Act). Such excess Membership
Interests shall be reallocated as Additional ROFR Membership Interests pursuant
to the provisions of Paragraphs 7.2.2 and 7.2.3 above.
7.2.5 Subject to the provisions of Paragraphs 7.2.2 and 7.2.3, in the event
that all of the Affected Membership Interests are not purchased pursuant to this
Paragraph 7.2, the Offering Member shall be free to Transfer the Affected
Membership Interests in strict accordance with the terms set forth in the Offer
Notice at any time within sixty (60) days after the Cutoff Date (the "Transfer
--------
Period Termination Date"), provided that if the Offering Member has executed a
-----------------------
definitive agreement for the sale of all of the Affected Membership Interests
within thirty (30) days after the Cutoff Date, then the Offering Member shall be
entitled to extend the Transfer Period Termination Date for up to an additional
thirty (30) days to effect the closing of such sale, or, if any required
governmental approval (or expiration of any waiting period) has not been
obtained by such date, to such date (not more than 120 days after the Cutoff
Date) as may be required for any necessary governmental approvals (or expiration
of any waiting period) for such Transfer to be obtained. In the event that the
Offering Member does not sell or otherwise dispose of all of such Affected
Membership Interests in the manner set forth in the immediately preceding
sentence prior to the Transfer Period Termination Date, the right of first
refusal provided for in this Paragraph 7.2 shall continue to be applicable to
any subsequent disposition of such Membership Interests.
32
7.2.6 The provisions of this Paragraph 7.2 shall terminate on the day on
which an IPO is consummated.
7.3 Further Restrictions. Notwithstanding any contrary provision in this
Agreement, any otherwise permitted Transfer shall be null and void if:
(a) such Transfer would cause a termination of the Company for
federal income tax purposes;
(b) such Transfer would, in the written opinion of counsel to the
Company, cause the Company to cease to be classified as a partnership for
federal income tax purposes;
(c) such Transfer requires the registration of such Transferred
Membership Interests pursuant to any applicable federal or state securities
laws;
(d) such Transfer causes the Company to become a "publicly traded
partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the
Code;
(e) such Transfer subjects the Company to regulation under the
Investment Company Act of 1940, the Investment Advisers Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended;
(f) such Transfer results in a violation of applicable laws;
(g) such Transfer causes the revaluation or reassessment of the
value of any Company Asset resulting in any material federal, state or local tax
liability;
(h) such Transfer is made to any Person who lacks the legal right,
power or capacity to own such Membership Interest; or
(i) the Company does not receive original copies of (i) any
instruments of Transfer and (ii) such Assignee's consent to be bound by this
Agreement as an Assignee, in each case in form and substance satisfactory to the
Board (as determined in the Board's sole and absolute discretion).
7.4 Rights of Assignees. Until such time, if any, as a transferee of any
permitted Transfer pursuant to this Article 7 is admitted to the Company as a
Substitute Member pursuant to Paragraph 7.7: (a) such transferee shall be an
Assignee only, and only shall receive, to the extent Transferred, the
distributions and allocations of income, gain, loss, deduction, credit, or
similar item to which the Member which Transferred its Membership Interests
would be entitled, and (b) such Assignee shall not be entitled or enabled to
exercise any other rights or powers of a Member, such other rights remaining
with the transferring Member. In such a case, the transferring Member shall
remain a Member even if he has transferred his entire Membership Interest, in
whole or in part, in the Company to one or more Assignees. In the event any
Assignee desires to make a further assignment of any Membership Interest in the
Company, such Assignee shall be subject to all of the provisions of this
Agreement to the same extent and in the same manner as any Member desiring to
make such an assignment.
33
7.5 Admissions, Withdrawals and Removals. No Person shall be admitted to the
Company as a Member except in accordance with Paragraph 3.4 (in the case of
Persons obtaining an interest in the Company directly from the Company) or
Paragraph 7.7 (in the case of transferees of a Permitted Transfer of a
Membership Interest in the Company from another Person). Except as otherwise
specifically set forth in Paragraphs 7.8 or upon the admission of a Substitute
Member pursuant to Paragraph 7.6, no Member shall be entitled to resign or
withdraw from being a Member of the Company without the written consent of a
Majority in Interest, which consent may be given or withheld at its sole and
absolute discretion. No Member shall be subject to removal. No admission,
withdrawal or removal of a Member shall, in and of itself, cause the dissolution
of the Company. Any purported admission or resignation which is not in
accordance with this Agreement shall be null and void.
7.6 Payment Upon Resignation of Member. If any Member resigns from the Company
with the consent of a Majority in Interest (other than pursuant to Paragraph
7.8) then such Member automatically shall receive from the Company a payment
equal to the Member's Capital Account balance as adjusted as of the effective
date of the written election of resignation (the "Termination Payment"). The
-------------------
Termination Payment shall be paid on the effective date of the written
resignation. If any Member attempts to resign from the Company (other than
pursuant to Paragraph 7.8) without the consent of a Majority in Interest or the
remaining Members, then, notwithstanding the last sentence of Paragraph 7.5, a
Majority in Interest may, in its sole and absolute discretion, permit such
resignation (without waiving, in any manner, any other rights available to it or
the Company at law or in equity and in addition to, and not in lieu of, any
other remedies to which it or the Company may be entitled), provided that such
resigning Member shall not be entitled to any Termination Payment or any other
compensation whatsoever in consideration for its terminated Membership Interest,
such Membership Interest shall be cancelled and such resigning Member shall have
no further rights or interests in the Company. Notwithstanding anything to the
foregoing in this Paragraph 7.6, if ONRP resigns from the Company without the
consent of all of the Members prior to November 15, 1999, ONRP shall make the
Follow-On Subscription payment upon its withdrawal.
7.7 Admission of Assignees as Substitute Members.
7.7.1 An Assignee shall become a Substitute Member only if all of the
requirements of this Article 7 have been met and when each of the following
conditions are satisfied:
(a) the assignor of the Membership Interests transferred sends
written notice to the Board requesting the admission of the Assignee as a
Substitute Member and setting forth the name and address of the Assignee, the
Membership Interest transferred, and the effective date of the Transfer;
(b) the Board consents in writing to such admission, which consent
may be given or withheld in the Board's sole and absolute discretion; and
(c) the Board receives from the Assignee (i) such information
concerning the Assignee's financial capacities and investment experience as may
reasonably be requested by the Board, and (ii) (x) copies of any instruments of
Transfer, (y) such Assignee's consent to be bound by this Agreement as a
Substitute Member, in each case in form and substance
34
satisfactory to the Board (as determined in the Board's sole and absolute
discretion), and (z) the assignment agreement shall contain a covenant that the
Assignee will not take any direct or indirect action affecting the Membership
Interests held by it which would cause any of the effects specified in Sections
7.3(a) through (h) above.
7.7.2 Upon the admission of any Substitute Member, Exhibit A shall be
amended to reflect the name, address, Membership Interests and Ownership
Percentage of such Substitute Member and to eliminate or adjust, if necessary,
the name, address, Membership Interests and Ownership Percentage of the
predecessor of such Substitute Member.
7.8 Resignation of Members. If a Member has transferred all of its Membership
Interests to one or more Assignees, then such Member shall resign from the
Company if and when all such Assignees have been admitted as Substitute Members
in accordance with this Agreement.
7.9 Conversion of Membership Interest. Upon the Incapacity of a Member, such
Incapacitated Member shall be entitled to receive only the allocations and
distributions attributable to the Member's Membership Interest in the Company,
if any, but shall not be entitled to any other rights of a Member. Such
Incapacitated Member (or its executor, administrator, trustee or receiver, as
applicable) shall thereafter be deemed an Assignee for all purposes hereunder
unless the Member of such Membership Interest is admitted as a Substitute Member
pursuant to Paragraph 7.7.
7.10 Compliance With IRS Safe Harbor. The Board shall monitor the transfers of
interests in the Company to determine (i) if such interests are being traded on
an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code, and (ii)
whether additional transfers of interests would result in the Company being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the Internal Revenue Service setting forth safe harbors under which interests
will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code)
(the "Safe Harbors"). The Board shall take all steps reasonably necessary or
------------
appropriate to prevent any trading of interests or any recognition by the
Company of transfers made on such markets and, except as otherwise provided
herein, to ensure that at least one of the Safe Harbors is met.
ARTICLE 8
---------
CONVERSION AND EXCHANGE OF INTERESTS
------------------------------------
8.1 Conversion of Preferred Interests. Each Member that holds Voting Preferred
Interests or Non-Voting Preferred Interests may, at the election of such Member,
convert all or any part of such Preferred Interests into an equal number of
Voting Common Interests or Non-Voting Common Interests, as applicable. If any
Member elects to convert Preferred Interests into Common Interests pursuant to
this Paragraph 8.1, such Member shall deliver a written notice to the Company
specifying the number of Preferred Interests to be converted into Common
Interests. Upon receipt of such notice by the Company, the Board will take all
actions as may be
35
necessary to reflect such conversion of Interests on the books and records of
the Company, including, without limitation, on Exhibit A attached hereto.
8.2 Restrictions on Conversion of Interests. No Member shall have the right to
convert (a) Common Interests into Preferred Interests, (b) Non-Voting Preferred
Interests into Voting Common Interests, (c) Non-Voting Preferred Interests into
Voting Preferred Interests or (d) Non-Voting Common Interests into Voting Common
Interests.
8.3 Corporate Conversion.
8.3.1 It is the intent of the Members that in the event the Board
determines to cause XX.xxx or another Subsidiary of the Company to pursue a
public offering of equity securities which is expected to constitute an IPO (the
"Converting Subsidiary"), the Converting Subsidiary will be reorganized as a
---------------------
corporation incorporated under the laws of the State of Delaware in accordance
with the provisions of this Paragraph 8.3. The Members acknowledge that there is
no specific date by which the Company anticipates causing XX.xxx or another
Subsidiary of the Company to consummate a Corporate Conversion (as defined
below) and/or an IPO.
8.3.2 In connection with an IPO by the Converting Subsidiary, the Board
and each of the Members agree to take such actions as may be reasonably
necessary to cause the Converting Subsidiary to be reorganized (by merger,
conversion or otherwise) as, or its assets and liabilities to be contributed to,
a newly-formed Delaware corporation which, immediately prior to such
reorganization, has no material assets or liabilities (any such transaction
being referred to herein as a "Corporate Conversion"), and that upon such
--------------------
Corporate Conversion, the Delaware corporation succeeding to the Converting
Subsidiary's assets and liabilities (the "Conversion Corporation") shall succeed
----------------------
to and specifically assume all of the rights, obligations, benefits and
liabilities of the Converting Subsidiary and shall be deemed the successor of
the Converting Subsidiary for all purposes under the Capital Contribution
Agreement. Subject to Paragraph 8.3, upon the occurrence of any such Corporate
Conversion, the membership interests of the Converting Subsidiary shall, to the
extent feasible based on the advice of the underwriters, be converted into, or
exchanged for, on a one-for-one basis, shares of super-voting common stock of
the Conversion Corporation; provided, however, that if the amount a holder would
receive upon a liquidation is less than the liquidation amount as set forth in
the operating agreement of the Conversion Corporation with respect to such
converted preferred interests and common interests of the Conversion
Corporation, then the Board of Directors of the Conversion Corporation shall
adjust the conversion ratio for the common interests to provide that the holders
thereof shall receive less than one share per converted common interest to the
extent necessary to preserve the amount that a holder of the preferred interests
would receive upon a liquidation of the Converting Subsidiary.
8.3.3 Conversion Procedures. The Company shall promptly notify each Member
of its intention to effect a Corporate Conversion of the Converting Subsidiary,
which notice shall specify the manner in which such Corporate Conversion is to
take place, together with a description of the anticipated tax treatment and
consequences of such Corporate Conversion.
8.3.4 The parties acknowledge and agree that the Corporate Conversion
should be accomplished in a tax free transaction, or if such tax free
transaction is not reasonably available,
36
in the most tax efficient manner possible. In the event that (i) any Member
reasonably believes that the structure selected by the Board to effect the
Corporate Conversion would result in the incurrence of tax liability by the
Member in connection with such Corporate Conversion and (ii) such Member
believes that a different structure for such Corporate Conversion would result
in the incurrence of lesser tax liability, then the Company agrees to act in
good faith and in the best interests of the Members in revising the proposed
structure of such Corporate Conversion so as to minimize such tax liability.
8.3.5 Following notice of a proposed Corporate Conversion, the Converting
Subsidiary and each Member shall use their respective commercially reasonable
efforts to seek and obtain any required governmental consents and approvals and
to make all filings required under the HSR Act (to the extent the Board or such
Member reasonably determines such filings are necessary in connection with the
Corporate Conversion) and cause the termination or expiration of the waiting
period applicable thereto; provided, that no Member shall be required, as a
condition of the receipt of any such consent or approval or expiration of any
such waiting period, to agree to dispose of any of its assets or any equity
interest in the Converting Subsidiary.
8.4 Exchange of Interests.
8.4.1 In the event of an IPO by XX.xxx or another subsidiary of the
Company (the "Issuer"), each Member may at the time of the IPO or thereafter, at
------
the election of such Member, exchange all or any part of such Member's
Membership Interests (whether voting, non-voting, common or preferred) for
equity securities of the Issuer of the kind sold by the Issuer in such offering
which are held by (or are issuable upon conversion of any securities held by)
the Company (the "Issuer Securities"), subject to the provisions of Paragraph
-----------------
8.4.2. The number of Issuer Securities to be received in exchange for such
Member's Membership Interest shall be equal to the Ownership Percentage
represented by the Membership Interests to be exchanged multiplied by the total
number of Issuer Securities then held by the Company. If any Member elects to
exchange Membership Interests for Issuer Securities pursuant to this Paragraph
8.4, such Member shall deliver a written notice to the Company specifying the
number of Membership Interest to be exchanged. Upon receipt of such notice by
the Company, the Board will take all actions as may be necessary to reflect such
exchange (and the reduction of the exchanging Member's Ownership Percentage) on
the books and records of the Company, including, without limitation, on Exhibit
A attached hereto. Any Member electing to exchange Membership Interest for
Issuer Securities pursuant to this Paragraph 8.4 at the time of an IPO shall
receive registration rights with respect to such equity securities such that the
Issuer shall register such converted member shares for resale as promptly as the
Board deems practicable, and to the extent that such Interests have not vested
at such time, will file a subsequent registration on form S-3 when the Board
deems practicable after vesting. The consummation of any exchange pursuant to
this Paragraph 8.4 shall be subject to receipt by the Company of all documents
in a form reasonably satisfactory to the Company which in the opinion of the
Company's counsel are necessary or advisable to complete such exchange.
8.4.2 Upon consummation of any exchange of Membership Interests pursuant
to Paragraph 8.4.1, the exchanging Member's Membership Interests shall, to the
extent exchanged, be canceled. If a Member has exchanged all of its interests
for Issuer Securities, then such Member shall withdraw from the Company. Any
such cancellation of Membership Interests
37
and/or withdrawal from the Company shall be acknowledged in writing in a form
reasonably acceptable to the Company by the applicable Member.
8.4.3 Notwithstanding any provision contained in Paragraph 8.4.1, no
Member shall have the right to exchange any of such Member's Membership
Interests for Issuer Securities if such exchange would result in the Company
owning less than 51% of the outstanding voting rights of the Issuer. In the
event that more than one Member desires to exchange Membership Interests
pursuant to this Paragraph 8.4, and the result of such exchanges would result in
the Company owning less than 51% of the outstanding voting rights of the Issuer,
then the number of Membership Interests to be exchanged by each Member shall be
as follows: each Member may exchange up to an amount equal to the maximum number
of Membership Interests which can be exchanged without reducing the Company's
ownership of voting rights in the Issuer below 51% ("Maximum Allowed Exchange")
------------------------
multiplied by the Member's Ownership Percentage, provided that if the preceding
formula is applied and the total number of Interests which the Members desire to
be exchanged thereby are less than the Maximum Allowed Exchange, then the
Members may exchange additional Interests in the amount of such shortfall in
accordance with their Ownership Percentage.
8.4.4 In the event that any Member's acquisition of Issuer Securities may
not be effected because the waiting period under the HSR Act has not expired,
then such Member shall be entitled to request, instead of the Issuer Securities,
non-voting common stock of the Converting Subsidiary ("Non-Voting Stock");
----------------
provided, however, that the terms of such Non-Voting Stock shall provide that
(i) such Non-Voting Stock would convert (on a share for share basis) into Issuer
Securities, upon the expiration of the waiting period under the HSR Act or the
Transfer to any third party whose ownership of Issuer Securities does not
require any consent, approval or filing (or where such has been obtained), (ii)
such Non-Voting Stock would be subject to adjustments such that, upon
conversion, a holder would receive such cash, securities or other property as it
would have been entitled had such holder received Issuer Securities, (iii) the
Conversion Corporation would not effect any stock split, stock dividend or
recapitalization affecting the Issuer Securities unless a corresponding stock
split, stock dividend or recapitalization were effected with respect to the Non-
Voting Stock and (iv) the Issuer Securities and Non-Voting Stock would otherwise
have identical terms and conditions, except that the holders of Non-Voting Stock
would not be entitled to vote on matters presented to stockholders except as
otherwise provided under Delaware law.
8.4.5 Lock-Up. Each Member agrees, if so requested by the Company and an
-------
underwriter of securities of the Issuer, not to sell, grant any option or right
to buy or sell, or otherwise transfer or dispose of in any manner, whether in
privately-negotiated or open-market transactions, any Issued Securities in the
Issuer or other securities of the Issuer held by it during the 180-day period
following the effective date of a registration statement filed pursuant to the
IPO.
38
ARTICLE 9
---------
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
--------------------------------------------------------
9.1 Limitations. The Company may be dissolved, liquidated, and terminated only
pursuant to the provisions of this Article 9, and the parties hereto do hereby
irrevocably waive, to the fullest extent permitted by applicable law, any and
all other rights they may have to cause a dissolution of the Company (including,
without limitation, pursuant to Section 18-801(a)(3) of the Act) or a sale or
partition of any or all of the Company Assets.
9.2 Exclusive Causes. The following and only the following events shall cause
the Company to be dissolved:
(a) the occurrence of a Terminating Capital Transaction;
(b) by the election of a Majority in Interest;
(c) the entry of a decree of judicial dissolution under Section 18-
802 of the Act; or
(d) the termination of the legal existence of the last remaining
member of the Company or the occurrence of any other event which
terminates the continued membership of the last remaining member of
the Company in the Company in accordance with Paragraph 6.2.1(m)
unless the business of the Company is continued in a manner permitted
by this Agreement or the Act.
Any dissolution of the Company other than as provided in this Paragraph 9.2
shall be a dissolution in contravention of this Agreement.
9.3 Effect of Dissolution. The dissolution of the Company shall be effective on
the day on which the event occurs giving rise to the dissolution, but the
Company shall not terminate until it has been wound up and its assets have been
distributed as provided in Paragraph 9.5 of this Agreement. Notwithstanding the
dissolution of the Company, prior to the termination of the Company, the
business of the Company and the affairs of the Members, as such, shall continue
to be governed by this Agreement.
9.4 No Capital Contribution Upon Dissolution. Each Member shall look solely to
the assets of the Company for all distributions with respect to the Company, its
Capital Contribution thereto, its Capital Account and its share of Net Profits
or Net Losses, and shall have no recourse therefor (upon dissolution or
otherwise) against any other Member. Accordingly, if any Member has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which the liquidation occurs), then such Member shall have no obligation to make
any Capital Contribution with respect to such deficit, and such deficit shall
not be considered a debt owed to the Company or to any other person for any
purpose whatsoever.
39
9.5 Liquidation.
9.5.1 Upon dissolution of the Company, the Board shall act as the
"Liquidator" of the Company. The Liquidator shall liquidate the assets of the
Company, and after allocating (pursuant to Article 5 of this Agreement) all
income, gain, loss and deductions resulting therefrom, shall, subject to the
rights and preferences of any classes of interests approved by the Board and
issued by the Company from time to time, apply and distribute the proceeds
thereof as follows:
(a) First, to the payment of the obligations of the Company, to the
expenses of liquidation, and to the setting up of any Reserves for contingencies
which the Board may consider necessary; and
(b) Thereafter, to the Members in proportion to the positive
Capital Account balances in the Members' respective Capital Accounts determined
after giving effect to all contributions and distributions for all periods, and
after taking into account all Capital Account adjustments for the Company
taxable year during which the liquidation occurs by the end of the taxable year
in which such liquidation occurs, or, if later, within 90 days after the date of
the liquidation.
9.5.2 Notwithstanding Paragraph 9.5.1 of this Agreement, in the event that
the Board determines that an immediate sale of all or any portion of the Company
Assets would cause undue loss to the Members, the Board, in order to avoid such
loss to the extent not then prohibited by the Act, may either defer liquidation
of and withhold from distribution for a reasonable time any Company Assets
except those necessary to satisfy the Company's debts and obligations, or
distribute the Company Assets to the Members in kind.
ARTICLE 10
----------
EXCLUSIVITY; NON-SOLICITATION
-----------------------------
10.1 Exclusivity. Except through the Company and XX.xxx, neither Retail Sponsor
nor ONRP (nor any of their respective Permitted Transferees who are Members)
will, directly or indirectly, establish or acquire any equity interest in, or
provide support or services to, any other online business which (either alone or
when combined with its Affiliates or sponsoring "bricks and mortar" retailer),
at the time such interest is acquired or such support or services are agreed to
be provided, derives a majority of its consolidated revenues from the retail
sale of (a) products in the Same Category, or (b) products targeted to children
age 12 and under and also offers products in the Same Category if such products
in the Same Category constitute more than 10% of its consolidated revenues,
unless such business agrees to limit its online offering of products in the same
categories as those sold by XX.xxx to less than 10% of the total number of SKU's
offered by such business to its online customers, or (c) other products and also
offers products in the Same Category if such products in the Same Category
constitute more than 20% of its consolidated revenues, unless such business
agrees to limit its online offering of products in the same categories as those
sold by XX.xxx to less than 20% of the total number of SKU's offered by such
business to its online customers. The Members acknowledge that the provisions of
the preceding sentence are applicable to Retail Sponsor and ONRP and their
respective Subsidiaries
40
but not to any other Affiliate of either of them (to the extent that any such
Affiliate is not directly or indirectly controlled by ONRP with respect to any
such investment or services). The foregoing provisions shall not be deemed to
prohibit Retail Sponsor or any of its Subsidiaries from acquiring any other
"bricks and mortar" business which has an ownership interest in an online
business which Retail Sponsor would otherwise be prohibited from acquiring
pursuant to the provisions of this Paragraph; provided, however, that the
exception provided in this sentence shall only be operative if, following any
such acquisition, any such online business which has been so acquired is either
(i) dissolved or otherwise terminated or (ii) conducted exclusively through the
Company or XX.xxx.
10.2 Change of Business Model. The Company agrees that it will not, and will not
permit XX.xxx or any of its other Subsidiaries to change its primary business
model to one other than a model primarily focused on the online sale of products
in the Same Category, without the prior written consent of each of ONRP and the
Retail Sponsor. ONRP agrees not to permit any other .com Company to change its
primary business model to a model that is primarily focused on the online sale
of products in the Same Category, without the prior written consent of the
Company.
10.3 Non-Solicitation. For so long as it holds any Membership Interest in the
Company and for a one-year period thereafter, each of Retail Sponsor and ONRP
agrees that it shall not, directly or indirectly, hire, solicit or attempt to
solicit the services or business of any employee of the other party or XX.xxx,
or any of the other Retailers or .com Companies, without the prior written
consent of the other party. ONRP will require each of the other Retailers and
.com Companies to enter into equivalent agreements with respect to XX.xxx and
Retail Sponsor.
ARTICLE 11
----------
MISCELLANEOUS
-------------
11.1 Appointment of Board as Attorney-in-Fact.
11.1.1 Each Member, including each Additional Member, by its execution of
this Agreement, irrevocably constitutes and appoints the Board or any individual
Director to whom the Board has delegated specific authority (only to the extent
of such authority), as its true and lawful attorney-in-fact with full power and
authority in its name, place and stead to execute, acknowledge, deliver, swear
to, file and record at the appropriate public offices such documents as may be
necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(a) All certificates and other instruments (including counterparts
of this Agreement), and all amendments thereto, which the Board deems
appropriate or convenient to form, qualify, continue or otherwise operate the
Company as a limited liability company (or other entity in which the Members
will have limited liability comparable to that provided in the Act), in the
jurisdictions in which the Company may conduct business or in which such
formation, qualification or continuation is, in the opinion of the Board,
necessary or desirable to protect the limited liability of the Members.
41
(b) All amendments to this Agreement adopted in accordance with the
terms hereof, and all instruments which the Board deems appropriate or
convenient to reflect a change or modification of the Company in accordance with
the terms of this Agreement.
(c) All conveyances of Company Assets, and other instruments which
the Board reasonably deems necessary in order to complete a dissolution, winding
up and termination of the Company pursuant to this Agreement.
11.1.2 The appointment by all Members of the Board or any individual
Director to whom the Board has delegated specific authority, as attorney-in-fact
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Members under this Agreement will be relying upon the
power of the Board to act as contemplated by this Agreement in any filing and
other action by it on behalf of the Company, shall survive the Incapacity of any
Person hereby giving such power, and the transfer or assignment of all or any
portion of the Membership Interest of such Person in the Company, and shall not
be affected by the subsequent Incapacity of the principal; provided, however,
that in the event of the assignment by a Member of all of its Membership
Interest in the Company, the foregoing power of attorney of an assignor Member
shall survive such assignment only until such time as the Assignee shall have
been admitted to the Company as a Substitute Member and all required documents
and instruments shall have been duly executed, filed and recorded to effect such
substitution.
11.2 Amendments.
11.2.1 Each Additional Member and Substitute Member shall become a
signatory hereto by signing such number of counterpart signature pages to this
Agreement, a power of attorney to the Board, and such other instruments, in such
manner, as the Board shall determine. By so signing, each Additional Member and
Substitute Member, as the case may be, shall be deemed to have adopted and to
have agreed to be bound by all of the provisions of this Agreement.
11.2.2 Other than amendments specifically authorized herein, no amendment
to this Agreement or to the operating agreement of any Subsidiary of the Company
may be made without the consent a Majority in Interest.
11.2.3 In addition to other amendments authorized herein, amendments may
be made to this Agreement from time to time by the Board, without the consent of
any Member: (a) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Agreement that are not inconsistent with the provisions of this Agreement; (b)
to delete or add any provision of this Agreement required to be so deleted or
added by any federal or state official, which addition or deletion is deemed by
such official to be for the benefit or protection of all of the Members; and (c)
to take such actions as may be necessary (if any) to insure that the Company
will be treated as a partnership for federal income tax purposes.
11.2.4 In making any amendments, there shall be prepared and filed by, or
for, the Board such documents and certificates as may be required under the Act
and under the laws of any other jurisdiction applicable to the Company.
42
11.3 Accounting and Fiscal Year. Subject to Code Section 448, the books of the
Company shall be kept on such method of accounting for tax and financial
reporting purposes as may be determined by the Board. The fiscal year of the
Company shall end on the Saturday nearest January 31/st/ of each year.
11.4 Meetings. A meeting of the Members shall be held at least once a year. At
any time, and from time to time, the Board and/or a holder of at least 25% of
the Voting Interests may call meetings of the Members. Each Member may authorize
any other Person (whether or not such other Person is a Member) to act for it or
on its behalf on all matters in which the Member is entitled to participate.
Each proxy must be signed by the Member or such Member's attorney-in-fact.
11.4.1 Manner of Giving Notice.
(a) A notice of meeting shall specify the place, day and hour of
the meeting and any other information required by any provision of the Act,
or this Agreement.
(b) When a meeting is adjourned, it shall not be necessary to
give any notice of the adjourned meeting or of the business to be
transacted at an adjourned meeting, other than by announcement at the
meeting at which the adjournment is taken, unless the adjournment is for
more than 60 days or the Members or the Board fix a new record date for the
adjourned meeting in which event notice shall be given in accordance with
Paragraphs 11.4.2 or 11.4.3, as applicable.
11.4.2 Notice of Meetings of Directors.
Notice of every meeting of the Board shall be given to each
Director by telephone or in writing not less than two (2) nor more than
forty-five (45) days prior to the date of such meeting before the time at
which the meeting is to be held. Every such notice shall state the time and
place of the meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board need be specified in a notice of the
meeting.
11.4.3 Notice of Meetings of Members.
Written notice of every meeting of the Members shall be given to
each Member of record entitled to vote at the meeting at least ten (10)
days prior to the day named for a meeting called to consider a merger,
consolidation or sale of all or substantially all of the assets of the
Company or five (5) days prior to the day named for the meeting in any
other case. If the Board neglects or refuses to give notice of a meeting,
the person or persons calling the meeting may do so.
11.4.4 Waiver Notice.
(a) Whenever any written notice is required to be given under the
provisions of the Act or this Operating Agreement, a waiver thereof in writing,
signed by the person or persons entitled to the notice, whether before or after
the time stated therein, shall be deemed
43
equivalent to the giving of the notice. Neither the business to be transacted
at, nor the purpose of, a meeting need be specified in the waiver of notice of
the meeting.
(b) Attendance of a person at any meeting shall constitute a waiver
of notice of the meeting except where a person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting was not lawfully called or convened.
11.4.5 Exception to Requirement of Notice.
Whenever any notice or communication is required to be given to any
person under the provisions of the Act or this Operating Agreement or by the
terms of any agreement or other instrument or as a condition precedent to taking
any Company action and communication with that person is then unlawful, the
giving of the notice or communication to that person shall not be required.
11.4.6 Use of Conference Telephone and Similar Equipment.
Any Director may participate in any meeting of the Directors, and
any Member may participate in any meeting of the Members, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.
11.4.7 Consent in Lieu of Meeting.
(a) Any action required or permitted to be taken at a meeting of
the Board or the Members may be taken without a meeting if, prior or subsequent
to the action, written consents describing the action to be taken are signed by
each Director or Member, respectively, entitled to vote thereon.
(b) Any action required or permitted to be taken at a meeting of
the Board or Members may be taken without a meeting if, prior or subsequent to
the action, written consents describing the action to be taken are signed by the
minimum number of Directors or Members that would be necessary to authorize the
action at a meeting at which all Directors or Members entitled to vote thereon
were present and voting. The consents shall be filed with the Directors. Prompt
notice of the taking of the Company action without a meeting by less than
unanimous written consent shall be given to those Members who have not consented
in writing.
11.4.8 Organization.
At every meeting of the Members or Board, the Chairman, if there be
one, or, in the case of vacancy in office or absence of the Chairman, one of the
following officers, if there be any, present in the order stated: the vice
chairman, the Chief Executive Officer, president, the vice presidents in their
order of rank and seniority, or a person chosen by vote of the Members or
Directors present, shall act as chairman of the meeting. The Secretary, if there
be one, or, in the absence of the secretary, an assistant secretary, if there be
one, or, in the absence of both the
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secretary and assistant secretaries, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting.
11.4.9 Quorum.
Five of the Directors of the Company then in office shall be
necessary to constitute a quorum for the transaction of business at any meeting
of the Board. A Majority in Interest shall be necessary to constitute a quorum
for the transaction of business at any meeting of the Members.
11.5 Entire Agreement. This Agreement and the Capital Contribution Agreement
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof and fully supersedes any and all prior or contemporaneous
agreements or understandings between the parties hereto pertaining to the
subject matter hereof.
11.6 Further Assurances. Each of the parties hereto does hereby covenant and
agree on behalf of itself, its successors, and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish, and
deliver such other instruments, documents and statements, and to take such other
action as may be required by law or reasonably necessary to effectively carry
out the purposes of this Agreement.
11.7 Notices. Any notice, consent, payment, demand, or communication required or
permitted to be given by any provision of this Agreement shall be in writing and
shall be (a) delivered personally to the Person or to an officer of the Person
to whom the same is directed, or (b) sent by facsimile or registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
if to the Company, to the Company at the address set forth in Paragraph 1.3
hereof, or to such other address as the Company may from time to time specify by
notice to the Members; if to a Member, to such Member at the address set forth
in Exhibit A, or to such other address as such Member may from time to time
specify by notice to the Company. Any such notice shall be deemed to be
delivered, given and received for all purposes as of: (i) the date so delivered,
if delivered personally, (ii) upon receipt, if sent by facsimile, or (iii) on
the date of receipt or refusal indicated on the return receipt, if sent by
registered or certified mail, return receipt requested, postage and charges
prepaid and properly addressed.
11.8 Tax Matters.
11.8.1 The Retail Sponsor shall be designated and shall operate as "tax
matters partner" (as defined in Code Section 6231), to oversee or handle matters
relating to the taxation of the Company until the end of the full tax year after
the date of this Agreement. For all subsequent tax years of the Company, the
"tax matters partner" shall be designated by the Majority in Interest. The tax
matters partner shall not extend the statute of limitations on behalf of the
Company, submit any written material to any taxing authority, settle or offer to
settle any controversy, select the Company's choice of litigation forum in a tax
controversy, or take any other action in its capacity as a tax matters partner
without the consent of the Board. The tax matters partner shall keep the Board
fully advised of the progress of any audit and shall supply the Board with
copies of any written communications received from the Internal Revenue Service
or other taxing authority relating to any audit within ten (10) days of receipt
hereof, and
45
shall at least ten (10) business days prior to submitting any materials to the
Internal Revenue Service, or other taxing authority, provide such materials to
the Board. The tax matters partner shall be reimbursed by the Company for any
reasonable expenses incurred in its capacity as a tax matters partner.
11.8.2 The Member designated as "tax matters partner" may make all
elections for federal income and all other tax purposes (including, without
limitation, pursuant to Section 754 of the Code).
11.8.3 Income tax returns of the Company shall be prepared by such
certified public accountant(s) as the Board shall retain at the expense of the
Company.
11.9 Jurisdiction. Each Member hereby submits to the jurisdiction of any state
or federal court sitting in the state of Delaware in any action arising out of
or relating to this Agreement or the transactions contemplated therein.
11.10 Governing Law. This Agreement, including its existence, validity,
construction, and operating effect, and the rights of each of the parties
hereto, shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to otherwise governing principles of conflicts
of law.
11.11 Construction. This Agreement shall be construed as if all parties prepared
this Agreement.
11.12 Captions - Pronouns. Any titles or captions contained in this Agreement
are for convenience only and shall not be deemed part of the text of this
Agreement. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural as appropriate.
11.13 Binding Effect. Except as otherwise expressly provided herein, this
Agreement shall be binding on and inure to the benefit of the Members, their
heirs, executors, administrators, successors and all other Persons hereafter
holding, having or receiving an interest in the Company, whether as Assignees,
Substitute Members or otherwise.
11.14 Severability. In the event that any provision of this Agreement as applied
to any party or to any circumstance, shall be adjudged by a court to be void,
unenforceable or inoperative as a matter of law, then the same shall in no way
affect any other provision in this Agreement, the application of such provision
in any other circumstance or with respect to any other party, or the validity or
enforceability of the Agreement as a whole.
11.15 Confidentiality. Each party agrees that all Confidential Information is
the confidential property of the disclosing party. The party receiving such
Confidential Information shall: (a) limit access to any Confidential Information
of the other party received by it to its employees, contractors, consultants and
agents who have a need-to-know in connection with the performance of such
party's duties and obligations under this Agreement; (b) advise its employees,
contractors, consultants and agents having access to the Confidential
Information of the confidential nature thereof and of the obligations set forth
in this Agreement and similarly bind them in writing; (c) safeguard all
Confidential Information using a reasonable degree of
46
care, but not less than that degree of care used by it in safeguarding its own
similar information or material; and (d) not disclose any Confidential
Information of the other party received by it to third parties otherwise than in
conformity with the provisions of this Agreement. Confidential Information shall
not include information the receiving party can document (i) was or has become
readily publicly available without restriction through no fault of the receiving
party or its employees or agents; (ii) is received without restriction from a
third party lawfully in possession of such information and lawfully empowered to
disclose such information; or (iii) was rightfully in possession of the
receiving party without restriction prior to its disclosure by the other party.
A party may disclose Confidential Information of the other party to the extent
required to be disclosed under applicable law or by a governmental order,
decree, regulation, rule or process (provided that the receiving party gives
written notice to the disclosing party as far in advance as reasonably possible
prior to disclosure and the receiving party reasonably cooperates in seeking to
dispute such disclosure and/or receive confidential treatment for the disclosed
information). Each party acknowledges that the breach by any party of its
obligations pursuant to this Section 11.15 will result in irreparable injury to
the other parties, and in such event the exact amount of damages is now and will
be difficult to ascertain and the remedies at law for any such failure would not
be reasonable or adequate compensation. Accordingly, each Member agrees that, in
addition to any other remedy that may be available at law, in equity or
hereunder, the Company shall be entitled to injunctive relief, without posting a
bond or other security, to enforce or prevent any violation of this Paragraph
11.15 by it.
11.16 Counterparts. This Agreement may be executed in any number of multiple
counterparts, each of which shall be deemed to be an original copy and all of
which shall constitute one agreement, binding on all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ONLINE RETAIL PARTNERS INC.
By:___________________________
Name: ________________________
Title: _______________________
ZANY BRAINY, INC.
By:___________________________
Name: ________________________
Title: _______________________
