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EXHIBIT 10.13
PRIVILEGEONE NETWORKS, L.L.C.
OPERATING AGREEMENT
THIS OPERATING AGREEMENT (this "Agreement") is entered into as of the
2nd day of February, 2000, by and among the parties identified on the signature
pages hereto.
EXPLANATORY STATEMENT
WHEREAS, PrivilegeOne Networks, L.L.C. (the "Company") was formed under
the laws of the State of Delaware on February 2, 2000;
WHEREAS, PrivilegeONE Networks, Inc., a Delaware corporation (the
"Corporation"), has transferred and assigned to the Company all of its business
and assets and the Company has assumed all of the liabilities of the
Corporation;
WHEREAS, the Corporation has assigned to the entities identified on
Exhibit A hereto the right to receive the membership Interests indicated by the
Percentages on such exhibit (which interests have been assigned in accordance
with the respective ownership interests such entities had in the Corporation);
and
WHEREAS, the parties hereto wish to confirm the admission, which for
all purposes shall be deemed effective as of February 2, 2000, of the parties
identified on Schedule A as members of the Company.
NOW, THEREFORE, for good and valuable consideration, the parties,
intending legally to be bound, agree as follows:
SECTION I
DEFINED TERMS
The following capitalized terms shall have the meanings specified in
this Section I. Other terms are defined in the text of this Agreement and,
throughout this Agreement, those terms shall have the meanings respectively
ascribed to them.
"Act" means the Delaware Limited Liability Company Act, 6 Del.
Codess.18-101 ET SEQ. as amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Interest
Holder, the deficit balance, if any, in the Interest Holder's Capital Account as
of the end of the applicable taxable year, after giving effect to the following
adjustments:
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(i) the deficit shall be decreased by the amounts which the
Interest Holder is obligated to restore under Section 4.4.2, or is deemed
obligated to restore under Regulation Section 1.704-2(g)(2) and (i)(5); and
(ii) the deficit shall be increased by the terms described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Adjusted Capital Contribution" means, as of any day, an Interest
Holder's total Capital Contributions less all amounts actually distributed to
the Interest Holder under Sections 4.1, 4.2 and 7.2. hereof. The amount of any
such distribution shall be decreased by the amount of Company liabilities
assumed by the Interest Holder or secured by any Company property distributed to
the Interest Holder. If any Interest is transferred in accordance with the terms
of this Agreement, the transferee succeeds to the Adjusted Capital Contributions
of the transferor to the extent the Adjusted Capital Contributions relate to the
Interest transferred.
"Affiliate" means, with respect to any Person (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the voting interests of such Person,
(ii) each Person that controls, is controlled by or is under common control with
each Person or any Affiliate of such Person, (iii) each of such Person's
officers, directors, joint venturers, members and partners, or (iv) such
Person's spouse, children, siblings and parents. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting interests, by contract or
otherwise.
"Agreement" means this Operating Agreement," as amended from time to
time.
"Board of Directors" means the board of directors of the Company as
established pursuant to Section 5.1 of this Agreement.
"Capital Account" means the account to be maintained by the Company for
each Interest Holder in accordance with the following provisions:
(i) an Interest Holder's Capital Account is credited with the
Interest Holder's Capital Contributions, the amount of any Company liabilities
assumed by the Interest Holder (or which are secured by Company property
distributed to the Interest Holder), the Interest Holder's allocable share of
Profits and any item of income or gain specifically allocated to the Interest
Holder under the provisions of Section IV; and
(ii) an Interest Holder's Capital Account is debited with the
amount of money and the fair market value of any Company property distributed to
the Interest Holder, the amount of any liabilities of the Interest Holder
assumed by the Company (or which are secured by property contributed by the
Interest Holder to the Company), the Interest Holder's allocable share of Losses
and any item of expense or loss specially allocated to the Interest Holder under
the provisions of Section IV.
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If any interest is transferred under this Agreement, the transferee
succeeds to the Capital Account of the transferor to the extent the Capital
Account is attributable to the transferred interest. It is intended that the
Capital Accounts of all Interest Holders be maintained in compliance with the
provisions of Regulation Section 1.704-1(b), and all provisions of this
Agreement relating to the maintenance of Capital Accounts are to be interpreted
and applied in a manner consistent with that Regulation.
"Capital Contribution" means the total amount of cash and the fair
market value of any other assets contributed (or deemed contributed under
Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by an Interest Holder,
net of liabilities assumed or to which the assets are subject.
"Capital Proceeds" means the gross receipts received by the Company
from a Capital Transaction.
"Capital Transaction" means any transaction not in the ordinary course
of business which results in the Company's receipt of cash or other
consideration other than Capital Contributions, including, without limitation,
proceeds of sales or exchanges or other dispositions of property not in the
ordinary course of business, financings, refinancings, condemnations, and
insurance proceeds for the destruction of assets used in the trade or business
of the Company.
"Cash Flow" means all cash funds derived from operations of the Company
(including interest received on reserves), less cash funds to pay current
operating expenses and to pay or establish reasonable reserves for future
expenses, debt payments, capital improvements, contingencies, and replacements
as determined by the Board of Directors. Cash Flow does not include Capital
Proceeds but is increased by the reduction of any reserve previously
established. Cash Flow is not reduced by noncash charges, including without
limitation, depreciation and amortization.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Company" means, the limited liability company formed in accordance
with this Agreement.
"GAAP" means generally accepted accounting principles.
"Interest" means an Interest Holder's share of the Profits and Losses
of, and the right to receive distributions from, the Company.
"Interest Holder" means any Person who holds an Interest, whether as a
Member or an unadmitted assignee of a Member.
"Interest Holder Minimum Gain" means an amount, with respect to each
Interest Holder Nonrecourse Liability, equal to the Minimum Gain that would
result if such Interest Holder Nonrecourse Liability were treated as a
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Nonrecourse Liability, determined in accordance with the provisions of
Regulation Section 1.704-2(i)(3).
"Interest Holder Nonrecourse Deduction" means for any fiscal year, the
net increase during the year in Interest Holder Minimum Gain attributable to the
Interest Holder Nonrecourse Liability reduced, but not below zero, by proceeds
of the liability (i) distributed during the year to the Interest Holder bearing
the economic risk of loss for the liability and (ii) that are both attributable
to the liability and allocable to an increase in the Interest Holder Minimum
Gain.
"Interest Holder Nonrecourse Liability" means any Company liability to
the extent the liability is nonrecourse (under Code Section 1001), and an
Interest Holder or person or entity related to an Interest Holder (under
Regulation Section 1.752-4(b)) bears the economic risk of loss, determined in
accordance with Regulation Section 1.704-2(b)(4).
"Member" means each Person signing this Agreement and any Person who
subsequently is admitted as a Member of the Company and agrees to be bound by
the terms of this Agreement.
"Membership Rights" means all of the rights of a Member in the Company,
including a Member's (i) Interest, (ii) right to inspect the Company's books and
records; and (iii) right to participate in the management of and vote on matters
relating to the Company, to the extent such rights exist.
"Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(b)(2) and 1.704-2(d). Minimum Gain shall be computed separately for each
Interest Holder in a manner consistent with the Regulations under Code Section
704(b).
"Negative Capital Account" means a Capital Account with a balance of
less than zero.
"Net Capital Proceeds" means the net cash proceeds received by the
Company from a Capital Transaction, less any portion thereof used to establish
reserves for Company expenses, obligations, and contingencies as determined by
the Board of Directors. Net Capital Proceeds shall include all principal and
interest payments on any debt obligation received by the Company in any Capital
Transaction.
"Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year
of the Company equals the net increase, if any, in the amount of Minimum Gain
during that taxable year, reduced, but not below zero, by the aggregate
distributions made during such year of the proceeds of a Nonrecourse Liability
that are allocable to an increase in Minimum Gain, determined in accordance with
Regulation Section 1.704-2(c).
"Nonrecourse Liability" means any liability of the Company with respect
to which no Interest Holder or person or entity related to an Interest Holder
has personal liability determined in accordance with Code Section 752 and the
Regulations promulgated thereunder.
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"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A, as amended from time to time, and as to an Interest
Holder who is not a Member, the Percentage of the Member whose Interest has been
acquired by such Interest Holder, to the extent the Interest Holder has
succeeded to that Member's Interest.
"Person" means and includes any individual, corporation. partnership,
association, limited liability company, trust, estate or other entity.
"Positive Capital Account" means a Capital Account with a balance
greater than zero.
"Profits" and "Losses" means, for each taxable year of the Company (or
other period for which Profits or Losses must be computed) the Company's taxable
income or loss determined in accordance with Code Section 703(a), with the
following adjustments:
(i) all items of income, gain, loss, deduction, or credit
required to be stated separately under Code Section 703(a)(1) are included in
computing taxable income or loss; and
(ii) any tax-exempt income of the Company, not otherwise taken
into account in computing Profits or Losses, is included in computing taxable
income or loss, and
(iii) any expenditures of the Company described in Code
Section 705(a)(2)(B) (or treated as such under Regulation Section
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing Profits
or Losses, are subtracted from taxable income or loss; and
(iv) gain or loss resulting from any taxable disposition of
Company property is computed by reference to the adjusted book value of the
property disposed of determined in accordance with Regulation Section
1.704-1(b)(2)(iv)(d) through (h), notwithstanding the fact that the adjusted
book value differs from the adjusted basis of the property for federal income
tax purposes; and
(v) in lieu of the depreciation, amortization or cost recovery
deductions allowable in computing taxable income or loss, there is taken into
account the depreciation computed based upon the adjusted book value of the
asset; and
(vi) notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section 4.4 hereof are not
taken into account in computing Profits or Losses.
"Promissory Note" means the promissory note dated January 27, 2000
issued to Xxxxxx, Inc. by the Corporation in the original principal amount of
$1,500,000, the obligations under which have been assumed by the Company, or any
extension thereof as may be agreed by the parties to the Promissory Note and
this Agreement.
"Regulations" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Representative" means each then current Board of Directors
representative.
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"Secretary of State" means the Office of the Delaware Secretary of
State.
"Statutory Event" means, with respect to any Member, the occurrence of
any event specified in Section 18-304 of the Act.
"Transfer" means, when used as a noun, any voluntary sale, assignment,
attachment, or other relinquishment and, when used as a verb, means, voluntarily
to sell, assign, or otherwise relinquish. A pledge, hypothecation, or grant of a
security interest, lien or other encumbrance or the voluntary act of doing any
of the foregoing does not constitute a Transfer.
SECTION II
FORMATION AND NAME; OFFICE; PURPOSE; TERM
2.1. ORGANIZATION. The Company has been organized as a limited
liability company pursuant to the Act and the provisions of this Agreement. The
Certificate of Formation, in the form attached as Exhibit B, has been executed
and filed for record with the Secretary of State.
2.2. NAME OF THE COMPANY. The name of the Company shall be
"PrivilegeOne Networks, L.L.C.". The Company may do business under that name and
under any other name or names the Board of Directors selects. If the Company
does business under a name other than that set forth in its certificate of
formation, then the Company shall file a certificate or registration of
alternate name as required by the Act.
2.3. PURPOSE. The Company is organized to develop customer loyalty
programs through the use of co-branded credit cards and for such other lawful
purposes for which limited liability companies may be formed under the Act, and
to do any and all things necessary, convenient, or incidental to that purpose.
2.4. TERM. The Company commenced its existence upon the filing of the
Certificate of Formation with the Secretary of State and shall continue its
existence in perpetuity unless its existence is terminated earlier pursuant to
Section VII of this Agreement.
2.5. REGISTERED OFFICE. The registered office of the Company in the
State of Delaware shall be located at 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx
00000, or at any other place within the State of Delaware which the Board of
Directors selects, or at such other location as the registered agent shall
determine in compliance with the Act.
2.6. REGISTERED AGENT. The name and address of the Company's registered
agent in the State of Delaware shall be The Corporation Trust Company, 0000
Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000.
2.7. MEMBERS. The name, present mailing address, taxpayer
identification number, and Percentage of each Member is set forth on Exhibit A.
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SECTION III
MEMBERS; CAPITAL; CAPITAL ACCOUNTS
3.1. INITIAL CAPITAL CONTRIBUTIONS. The Members hereby acknowledge that
the Corporation made a contribution of its business and assets, which had an
agreed value of $92,377.46 as of February 2, 2000, to the Company and that the
Members have succeeded to the Percentages and the Capital Contributions set
forth opposite their names and addresses on Exhibit A hereto.
3.2. ADDITIONAL CAPITAL CONTRIBUTION. No Member shall be required to
contribute any additional capital to the Company, and no Member shall have any
personal liability for any obligation of the Company.
3.3. NO INTEREST ON CAPITAL CONTRIBUTIONS. Interest Holders shall not
be paid interest on their Capital Contributions.
3.4. RETURN OF CAPITAL CONTRIBUTIONS. Except as otherwise provided in
this Agreement, no Interest Holder shall have the right to receive the return of
any Capital Contribution or any Capital Account balance.
3.5. FORM OF DISTRIBUTION. If an Interest Holder is entitled to receive
a return of a Capital Contribution or any other distribution, the Company, at
the discretion of the Board of Directors, may distribute cash, notes, property
or a combination thereof to the Interest Holder.
3.6. CAPITAL ACCOUNTS. A separate Capital Account shall be maintained
for each Interest Holder, in accordance with Code Section 704(b) and Regulation
Section 1.704-1(b).
3.7. CERTAIN ADJUSTMENTS. Capital Accounts will be adjusted to reflect
the fair market value of the existing Interest Holders' Capital Accounts upon
(i) the admission of a new Interest Holder, (ii) the making of any additional
Capital Contributions by an Interest Holder, (iii) the distribution to an
Interest Holder by the Company of Property other than money unless all Interest
Holders receive an individual interest in the distributed property in accordance
with their interest in the Company or (iv) the termination of the Company for
federal income tax purposes.
3.8. LOAN TO COMPANY. The parties hereto acknowledge and agree that
Xxxxxx, Inc. agreed to make advances to the Corporation under the Promissory
Note pursuant to, and subject to the terms set forth in, Section 5.2 of the
Stock Acquisition Agreement dated as of January 27, 2000 among Taytrowe Xxx
Xxxxxxxxx World Companies, Inc., the Corporation, Xxxxxx X. Xxxxxxxxx, Xxxxxx X.
Xxx Xxxxxxxxx, Xxxxxx X. Xxxxxx and Xxxxxx, Inc. (the "Stock Acquisition
Agreement"). The parties hereto agree that the Company shall inure to the rights
of and hereby assumes the repayment obligations of the Corporation under Section
5.2 of the Stock Acquisition Agreement and that any advances under the
Promissory Note shall hereinafter be made to the Company.
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SECTION IV
PROFIT, LOSS, AND DISTRIBUTIONS
4.1. DISTRIBUTION OF CASH FLOW.
4.1.1. Except as provided for in paragraph 4.1.2, there shall
be no distribution of Cash Flow until after the Promissory Note has been paid in
full.
4.1.2. If and to the extent that the Company is earning income
which will result in a Member being subject to income tax for income not
distributed by the Company but deemed to have been received by a Member for
federal or state tax purposes, a minimum distribution shall be made to the
Member in such amount and at such time as shall be sufficient to enable the
Member to meet the income tax liability arising or incurred as a result of
participation in the Company. Such minimum tax distributions shall be made on a
timely basis, in no event later than seventy-five (75) days after the end of the
Company's taxable year and, for quarterly, estimated tax payments of Members, at
least five (5) business days prior to each such estimated tax due date. For
purposes of this paragraph, each Member shall be responsible for communicating
to the Tax Matters Partner no later than sixty (60) days after the termination
of each quarter, the amount of the increase in such Member's tax liability
resulting from the imputation of income from the Company to the Member for the
relevant period. The Company agrees to provide to each Member information
pertaining to the Company necessary for the Member to compute such potential tax
liability.
4.1.3. After the Promissory Note has been paid in full, the
Company shall distribute to its Members, within 120 days after the end of each
fiscal year, an amount equal to sixty-five percent (65%) of its net income
earned during the prior year, after taxes, as determined in accordance with
GAAP.
4.1.4. Subject to the provisions of Section 4.1.2 and 4.1.3,
Cash Flow shall be distributed to the Interest Holders, at such times and in
such amounts as the Board of Directors shall determine and consistent with this
Agreement, as follows: (i) until their remaining Adjusted Capital Contributions
have been paid in full, in proportion to their Adjusted Capital Contributions,
and (ii) from and after payment in full of all remaining Adjusted Capital
Contributions, in proportion to their respective Percentages.
4.2. DISTRIBUTION OF CAPITAL PROCEEDS. Net Capital Proceeds shall be
distributed and applied by the Company in the following order and priority:
4.2.1. to the payment of debts and liabilities of the Company
then due and outstanding (including all debts due to any Interest Holder); then
4.2.2. the balance shall be distributed as follows:
4.2.2.1. to the Interest Holders in proportion to
their Adjusted Capital Contributions, until their remaining Adjusted Capital
Contributions have been paid in full;
4.2.2.2. the balance, to the Interest Holders in
accordance with their respective Percentages.
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4.3. ALLOCATION OF PROFITS AND LOSSES.
4.3.1. PROFITS. After giving effect to the special allocations
set forth in Section 4.4., Profits shall be allocated to the Interest Holders as
follows:
4.3.1.1. first, profits from Capital Transactions
will be allocated to those Interest Holders with Negative Capital Accounts in
proportion to the ratio of their Negative Capital Account balances to the total
of the Negative Capital Account balances until no Interest Holder has a Negative
Capital Account Balance;
4.3.1.2. second, profits from Capital Transactions to
those Interest Holders whose Adjusted Capital Contributions are in excess of
their Capital Accounts in accordance with the ratio of these excesses until all
excesses have been eliminated to cause each Interest Holder's Capital Account
balance to be in proportion to the Interest Holder's then respective Percentage;
4.3.1.3. third, all other profits among the Interest
Holders in proportion to their then respective Percentages.
4.3.2. LOSSES. After giving effect to the special allocations
set forth in Section 4.4, Losses shall be allocated to the Interest Holders as
follows:
4.3.2.1. first, to each Interest Holder with a
Positive Capital Account balance in proportion to each such Interest Holder's
Positive Capital Account balance until no Interest Holder has a Positive Capital
Account balance;
4.3.2.2. second, among the Interest Holders in
proportion to their respective Percentages.
4.3.3. RULES OF CONSTRUCTION. If there is insufficient profit
or loss to allocate to the Interest Holders pursuant to any subsection of 4.3.1
or 4.3.2 to cause each Interest Holder's Capital Account balance to equal the
entire Capital Account balance described in such subsection with respect to such
Interest Holder, the Profit or Loss available to be allocated among the Interest
Holders pursuant to said subsection shall be allocated in proportion to the
amounts thereof that would have been allocated to each Interest Holder pursuant
to such subsection if there had been sufficient amounts thereof to fully satisfy
the requirements of such subsection with respect to every Interest Holder.
4.4. REGULATORY ALLOCATIONS.
4.4.1. MINIMUM GAIN CHARGEBACK. Except as set forth in
Regulation Section 1.704-2(f), if, during any taxable year, there is a net
decrease in Minimum Gain, each Interest Holder, prior to any other allocation
under this Section 4.4., shall be specially allocated items of gross income and
gain for such taxable year (and, if necessary, subsequent taxable years) in an
amount equal to that Interest Holder's share of the net decrease of Minimum
Gain, computed in accordance with Regulation Section 1.704-2(g). Allocations of
gross income and gain under this Section 4.4.1 shall be made first from gain
recognized from the disposition of Company assets subject to Nonrecourse
Liabilities, to the extent of the Minimum Gain attributable to those assets, and
thereafter, from a pro-rata portion of the Company's other items of income and
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gain for the taxable year. It is the intent of the parties that any allocation
under this Section 4.4.1 shall constitute a "minimum gain chargeback" under
Regulation Section 1.704-2(f).
4.4.2. INTEREST HOLDER MINIMUM GAIN CHARGEBACK. Except as
otherwise provided in Regulation Section 1.704-2(i)(4), if, during any taxable
year, there is a net decrease in Interest Holder Minimum Gain attributable to an
Interest Holder Nonrecourse Liability during any taxable year, each Interest
Holder who has a share of the Interest Holder Minimum Gain attributable to such
Interest Holder Nonrecourse Liability shall be specially allocated items of
gross income and gain for such taxable year (and, if necessary, subsequent
taxable years) in an amount equal to that Interest Holder's share of the net
decrease in the Interest Holder Minimum Gain. This allocation shall be made
after the allocation under Section 4.4.1, and prior to any other allocation
under this Section 4.4. Allocations of gross income and gain under this Section
4.4.2 shall be made first from gain recognized from the disposition of the
Company assets subject to Interest Holder Nonrecourse Liabilities to the extent
of Interest Holder Minimum Gain attributable to those assets, and thereafter,
from a pro-rata portion of the Company's other items of income and gain for the
taxable year. It is the intent of the parties that any allocation under this
Section 4.4.2 shall constitute a "minimum gain chargeback" under Regulation
Section 1.704-2(i).
4.4.3. QUALIFIED INCOME OFFSET. If any Interest Holder
unexpectedly receives any adjustments, allocations, or distributions described
in Regulation Section 1.704-1 (b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5),
or Section 1.704-1(b)(2)(ii)(d)(6), items of gross income and gain shall be
specially allocated to each such Interest Holder in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of such Interest Holder as quickly as possible. An
allocation under this Section 4.4.3 shall be made only if and to the extent that
such Interest Holder would have an Adjusted Capital Account Deficit after all
other allocations provided for under this Section 4.4 have been tentatively made
as if this Section 4.4.3 were not in the Agreement.
4.4.4. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for a
taxable year or other period shall be specifically allocated among the Interest
Holders in accordance with their respective Percentages.
4.4.5. INTEREST HOLDER NONRECOURSE DEDUCTIONS. Any Interest
Holder Nonrecourse Deduction for any taxable year or other period shall be
specially allocated to the Interest Holder who bears the risk of loss with
respect to the Interest Holder Nonrecourse Liability to which the Interest
Holder Nonrecourse Deduction is attributable, as determined in accordance with
Regulation Section 1.704-2(b).
4.4.6. CODE SECTION 754 ADJUSTMENT. To the extent an
adjustment to the tax basis of any Company asset under Code Section 734(b) or
Code Section 743(b) is required, under Regulation Section 1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of the
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
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decreases basis), and the gain or loss shall be specially allocated to the
Interest Holders in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted under that Section of the Regulations.
4.4.7. CONTRIBUTED PROPERTY AND BOOK-UPS. In accordance with
Code Section 704(c) and the Regulations thereunder, as well as Regulation
Section 1.704-1(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect
to any property contributed (or deemed contributed) to the Company shall, solely
for tax purposes, be allocated among the Interest Holders so as to take account
of any variation between the adjusted basis of the property to the Company for
federal income tax purposes and its fair market value at the date of
contribution (or deemed contribution). If the adjusted book value of any Company
asset is adjusted as provided herein, subsequent allocations of income, gain,
loss, and deduction with respect to the asset shall take account of any
variation between the adjusted basis of the asset for federal income tax
purposes and its adjusted book value in the manner required under Code Section
704(c) and the Regulations thereunder. Allocations under this Section 4.4.7 are
solely for the purpose of federal, state, and local taxes, and shall not be
taken into account in determining any Interest Holder's Capital Account and
allocable share of Profits and Losses.
4.4.8. WITHHOLDING. All amounts required to be withheld under
Code Section 1446 or any other provision of federal, state or local law shall be
treated as amounts actually distributed to the affected Interest Holders for all
purposes under this Agreement.
4.5. LIQUIDATION AND DISSOLUTION.
4.5.1. If the Company is liquidated, the assets of the Company
shall be distributed in accordance with Section 7.2.
4.5.2. No Interest Holder shall be obligated to restore a
Negative Capital Account.
4.6. GENERAL.
4.6.1. Except as otherwise provided in this Agreement, the
timing and amount of all distributions shall be determined by the Board of
Directors.
4.6.2. If any assets of the Company are distributed in kind to
the Interest Holders, those assets shall be valued at their fair market value,
and any Interest Holder entitled to any interest in those assets shall receive
that interest as a tenant-in-common with all other Interest Holders so entitled.
Unless the Board of Directors otherwise agrees, the fair market value of the
assets shall be determined by an independent appraiser who shall be selected by
the Board of Directors. The Profit or Loss for each unsold asset shall be
determined as if the asset had been sold at its fair market value, and the
Profit or Loss shall be allocated as provided in Section 4.3 and shall be
properly credited or charged to the Capital Accounts of the Interest Holders
prior to the distribution of the assets.
4.6.3. All Profits and Losses shall be allocated and all
distributions shall be made to the Persons shown on the records of the Company
to have been Interest Holders as of the last day of the taxable year for which
the allocation or distribution is to be made. Notwithstanding the foregoing,
unless the Company's taxable year is otherwise separated into two or more short
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years, if there is a Transfer during the taxable year, the Profits and Losses
shall be allocated between the original Interest Holder and the successor on the
basis of the number of days each was an Interest Holder during the taxable year.
4.6.4. The Board of Directors is hereby authorized, upon the
advice of the Company's tax counsel, to amend this Section IV to comply with the
Code and the Regulations promulgated under Code Section 704(b); provided,
however, that no amendment shall materially affect distributions to an Interest
Holder without the Interest Holder's prior written consent.
SECTION V
MANAGEMENT; RIGHTS, POWERS, AND DUTIES
5.1. MANAGEMENT.
5.1.1. BOARD OF DIRECTORS. Subject to the Act or this
Agreement, the powers of the Company shall be exercised by or under the
authority of, and the business and affairs of the Company shall be managed by,
the Board of Directors who shall be responsible for the management and
operations of the Company and shall have all powers necessary to manage and
control the Company, to conduct its business, and to implement any decision of
the Members adopted pursuant to this Agreement. The initial Board of Directors
shall consist of three (3) Representatives. The number of Representatives
constituting the Board of Directors may be increased or decreased from time to
time by unanimous approval of the Members. Representatives shall be elected by
the Members as provided in Section 5.1.2. and each Representative so elected
shall hold office until his or her successor is duly elected and qualified or
until his or her earlier death, resignation, or removal. Any Representative may
resign at any time upon notice to the Company or may be removed with or without
cause, as provided in Section 5.1.2. Any vacancy occurring in the Board of
Directors shall be filled as provided in Section 5.1.2. A Representative need
not be an employee of a Member or a resident of the State of Delaware.
5.1.2. ELECTION AND REMOVAL OF REPRESENTATIVES.
Representatives shall be elected by Members by a plurality vote (based upon
Percentages voted by Members) at the annual meeting of Members to be held each
year pursuant to Section 5.2.1; provided, however, that (i) until the later of
the payment in full of the Promissory Note and December 31, 2004 (the "Control
Termination Date"), Xxxxxx, Inc. shall have the right to nominate for election a
majority of the Representatives, and (ii) after the Control Termination Date,
Xxxxxx, Inc. shall have the right to nominate a number of Representatives in
proportion to its Percentage.All of the Members hereby agree to vote in favor of
the election of the Xxxxxx, Inc. nominees as Representatives. Xxxxxx, Inc.
agrees that the other Members of the Company (the "Non-Xxxxxx Members") shall
collectively have the right to nominate the remaining Representatives in each
election of Representatives and agrees that it shall vote in favor of the
election of such nominees. Representatives who are nominees of Xxxxxx, Inc. may
be removed only by Xxxxxx, Inc. Representatives who are nominees of the
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Non-Xxxxxx Members may be removed only by a vote of the Non-Xxxxxx Members
holding a majority of the Percentages held by the Non-Xxxxxx Members. Any
vacancy in the Board of Directors shall be filled by the Member(s) who nominated
the Representative whose absence has caused the vacancy.
5.1.3. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware
(but within the contiguous United States) and at such times as the Board of
Directors may from time to time determine, and if so determined, notices thereof
need not be given. Any Representative shall have the right to appoint any person
to act on his or her behalf and in his or her place at any regular meetings of
the Board of Directors which he or she is unable to attend.
5.1.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time, whenever called by the Board of Directors or
requested by at least two Representatives, at such place or places within or
without the State of Delaware (but within the contiguous United States) as may
be stated in the notice of the meeting. Notice of the time and place of a
special meeting must be given by the Board of Directors at least 10 days before
the special meeting. The attendance of a Representative at any meeting shall
constitutes a waiver of notice of such meeting, except where a Representative
attends a meeting for the sole purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting. Any Representative shall have the right to appoint any person to act on
his or her behalf and in his or her place at any special meetings of the Board
of Directors which he or she is unable to attend.
5.1.5. MEETINGS BY TELEPHONE CONFERENCE. Unless otherwise
restricted by this Agreement or the Act, Representatives may participate in a
meeting of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 5.1.5. shall constitute presence in person at such meeting.
5.1.6. QUORUM; VOTE REQUIRED FOR ACTION. Except as may be
otherwise specifically provided by law or this Agreement, at all meetings of the
Board of Directors the presence of two thirds of the Representatives
constituting the entire Board of Directors shall constitute a quorum for the
transaction of business; provided, however, in order for a quorum to exist, at
least one Representative that has been nominated for election by Xxxxxx, Inc.
and one Representative nominated for election by the Non-Xxxxxx Members shall be
present. The vote of at least a majority of the Representatives who are present
at any meeting of the Board of Directors at which there is a quorum shall be the
act of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of Directors, the Representatives present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
5.1.7. SECRETARY OF MEETINGS. The Board of Directors may
appoint any person to act as secretary of a Board of Directors meeting.
5.1.8. ACTIONS OF THE BOARD BY CONSENT IN LIEU OF MEETING.
Unless otherwise restricted by this Agreement or the Act, any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
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without a meeting if all of the Representatives consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors.
5.1.9. NO REPRESENTATIVE COMPENSATION. Representatives who are
also employees of the Company or of any Member shall not receive compensation
for their services hereunder.
5.1.10. POWERS OF MEMBERS. Without limiting the generality of
Section 5.1.1., the unanimous approval of the Members shall be required before
any of the following acts involving the Company may be taken:
(a) any determination to call for any additional Capital
Contribution, or any authorization, issuance or creation
of, or increase of any Membership Rights or other
interests in the Company;
(b) admitting any additional Member;
(c) transferring all or substantially all of the assets of the
Company;
(d) any merger, consolidation or other business combination
with respect to the Company or the liquidation or
dissolution of the Company or the adoption of any plan
with respect to any such liquidation or dissolution;
(e) the Company making an assignment for the benefit of
creditors, filing a voluntary petition in bankruptcy,
filing a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any
statute, law or regulation, or seeking, consenting to or
acquiescing in the appointment by a court of a trustee,
receiver or liquidator of the Company or all or any
substantial part of its assets;
(f) submitting any application for the entry of a decree of
judicial dissolution of the Company under the Act;
(g) exercising any purchase option pursuant to Section
6.1.4.3.;
(h) indemnifying any employee, agent or any other Person,
except as specifically provided herein;
(i) entering into, amending, modifying or terminating a
contract with a term in excess of one year or involving
aggregate consideration (including assumed actual and
contingent liabilities) or receipts, or delivery or
receipt of goods or services having a value, in excess of
U.S. $25,000 over the term of such agreement, except as
such acts are in the ordinary course of the Company's
business;
(j) entering into, amending, modifying or terminating any
contract to acquire or transfer any asset, the fair market
value or aggregate consideration (including assumed actual
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and contingent liabilities) of which exceeds U.S. $25,000,
except as such acts are in the ordinary course of the
Company's business;
(k) filing any claim or lawsuit against any person or entity
where the amount claimed is greater than U.S. $10,000, or
(ii) settling any claim or lawsuit where the fair market
value of the settlement amount is greater than U.S.
$10,000;
(l) borrowing any principal amount in excess of U.S. $10,000,
incurring any contingent liability whatsoever in excess of
U.S. $10,000, lending or guarantying any third party
indebtedness, it being understood that such limitation
shall not be a limitation on the amount or type of trade
payables that may be incurred in the ordinary course of
business consistent in all respects with past practices by
the Company;
(m) executing or otherwise entering into, or amending,
modifying or terminating, any employment contract, or the
hiring or firing of any highly compensated person (defined
herein as a person whose annual base salary is U.S.
$80,000 or more) with or without cause;
(n) approving of the Company's annual operating budget, and
any material deviations therefrom, including setting or
amending the compensation level of any officer or other
similarly compensated person to the extent that any such
compensation level is not in accordance with the Executive
Incentive Pay Schedule developed by the Company and
annexed hereto as Exhibit D;
(o) incurring any lien on any assets of the Company, other
than purchase money liens on items the purchase of which
is not otherwise subject to approval hereunder;
(p) executing or otherwise entering into, or amending,
modifying or terminating any contract with an officer,
employee or Representative of the Company or a Member, an
Affiliate of a Member or a person related by blood or
marriage to an officer, employee or Representative of the
Company or a Member involving aggregate consideration
(including assumed actual and contingent liabilities) or
fair market value or actual or contingent liability in
excess of U.S. $10,000;
(q) approving of Member loans to or from the Company;
(r) amendment of this Agreement;
(s) the appointment or removal of any officer;
(t) amending the Company's certificate of formation;
(u) the adoption or modification of financial accounting
methods or principles (except those required by changes in
accounting industry standards or approved as consistent
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with GAAP as applied by such accounting firm), or any
decision not to audit the financial statements of the
Company; or
(v) any material change in the business of the Company.
Notwithstanding anything to the contrary set forth above, this Section
5.1.2. shall terminate with respect to paragraphs b, h, i, j , k, m and s after
such time as all amounts outstanding under the Promissory Note are repaid in
full and such Promissory Note is terminated. In addition, nothing contained
herein shall be deemed to require the approval of Xxxxxx, Inc. as a Member to
repay and/or terminate the Promissory Note.
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5.1.11. OFFICERS.
5.1.11.1. The Board of Directors may, from time to
time, employ or retain Persons as may be necessary or appropriate for the
conduct of the Company's business (subject to the supervision and control of the
Board of Directors), including employees, agents an other Persons who may be
designated as officers of the Company. Any number of offices may be held by the
same person. In its discretion, the Board of Directors may choose not to fill
any office for any period as it may deem advisable. Officers need not be
residents of the State of Delaware or Members. Any officers so designated shall
have such authority and perform such duties as the Board of Directors may, from
time to time, delegate to them by written resolution of the Board of Directors.
The Board of Directors may assign titles to particular officers. Each officer
shall hold office until he or she shall resign or shall have been removed in the
manner hereinafter provided. The salaries or other compensation, if any, of the
officers of the Company shall be fixed from time to time by the Board of
Directors.
5.1.11.2. Any officer may resign as such at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its receipt by the
Board of Directors. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation. Any officer
may be removed as such, either with or without cause at any time by the Board of
Directors. Designation of an officer shall not of itself create any contractual
rights or employment rights.
5.1.11.3. The officers, in the performance of their
duties as such, shall owe to the Company duties of loyalty and due care of the
type owed by the officers of a corporation to such corporation and its
shareholders under the laws of the State of Delaware.
5.1.11.4. The Board of Directors hereby appoints
Xxxxxx X. Xxxxxxxxx as President of the Company and Xxxxxx Xxxxxx as Senior
Financial Officer of the Company. All other offices shall remain vacant until
filled by the Board of Directors. The President shall be chief executive officer
of the Company. Subject only to the authority of the Board of Directors, the
President shall have general charge and supervision over, and responsibility
for, the business and affairs of the Company. Unless otherwise directed by the
Board of Directors, all other officers shall be subject to the authority and
supervision of the President. The President may enter into and execute in the
name of the Company contracts or other instruments in the regular course of
business or contracts or other instruments not in the regular course of business
which are authorized, either generally or specifically, by the Board of
Directors. The President shall have the power and duties of management usually
vested in the office of president of a business corporation. The Senior
Financial Officer shall have the duties and responsibilities customarily
assigned to a treasurer of a corporation.
5.1.12. INSURANCE. The Company shall maintain such
general property and liability insurance as is determined by theBoard of
Directors, consistent with industry practice.
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5.2. MEETINGS OF AND VOTING BY MEMBERS.
5.2.1. An annual meeting of Members shall be held each year on
a date selected by the Board of Directors to elect the Representatives. Annual
meetings of Members shall be held at the Company's principal place of business
or at any other place designated by the Board of Directors.
5.2.2. A special meeting of the Members may be called at any
time by the Board of Directors or by those Members holding at least twenty-five
percent (25%) of the Percentages then held by Members. Special meetings of
Members shall be held at the Company's principal place of business or at any
other place designated by the Board of Directors.
5.2.3. Not less than ten (10) nor more than sixty (60) days
before each meeting, the Board of Directors shall give written notice of the
meeting to each Member entitled to vote at the meeting. The notice shall state
the time, place, and purpose of the meeting. Notwithstanding the foregoing
provisions, each Member who is entitled to notice waives notice if before or
after the meeting the Member signs a waiver of the Notice which is filed with
the records of Members meetings, or is present at the meeting in person or by
proxy. Unless this Agreement provides otherwise, at a meeting of Members, the
presence in person or by proxy of Members holding not less than fifty-one
percent (51%) of the Percentages then held by Members constitutes a quorum. A
Member may vote either in person or by written proxy signed by the Member or by
his duly authorized attorney in fact.
5.2.4. Except as otherwise provided in this Agreement,
wherever this Agreement requires the approval of the Members, the affirmative
vote of members holding fifty-one percent (51%) or more of the Percentages then
held by Members shall be required to approve the matter.
5.2.5. In lieu of holding a meeting, the Members may vote or
otherwise take action by a written instrument indicating the consent of Members
holding at least fifty-one percent (51%) of the Percentages then held by
Members.
5.3. PERSONAL SERVICES.
5.3.1. No Member shall be required to perform services for the
Company solely by virtue of being a Member. Unless approved by the Board of
Directors or as otherwise set forth in a written agreement between the Company
and the Member, no Member shall perform services for the Company or be entitled
to compensation for services performed for the Company.
5.4. DUTIES OF PARTIES.
5.4.1. The Board of Directors shall devote such time to the
business and affairs of the Company as is necessary to carry out the duties of
the Board of Directors set forth in this Agreement.
5.4.2. Each Member understands and acknowledges that the
conduct of the Company's business may involve business dealings and undertakings
with Members and their Affiliates. In any of those cases, those dealings and
undertakings shall be at arm's length and on commercially reasonable terms.
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5.5. LIABILITY AND INDEMNIFICATION.
5.5.1. Each Person who at any time shall be, or shall have
been, a Representative or officer of the Company, or any Person who, while a
Member, Representative, officer, employee or agent of the Company, is or was
serving at the request of the Company as a member, manager, director, officer,
partner, employee or agent of another entity, shall be indemnified by the
Company as and to the fullest extent permitted by the provisions of Delaware law
or any successor statutory provisions, as from time to time amended. The
foregoing right of indemnification shall not be deemed exclusive of any other
rights to which one to be indemnified may be entitled as a matter of law or
under this Agreement, any other agreement, or by determination of the Board of
Directors, both as to any action in an official capacity and as to action in
another capacity while holding such office. Any repeal of this Section 5.5.1
shall be prospective only, and shall not adversely affect any right of
indemnification existing at the time of such repeal or modification or
thereafter arising as a result of acts or omissions prior to the time of such
repeal or modification. Notwithstanding the foregoing or any provision herein to
the contrary, no indemnification shall be provided, and the indemnification
rights contained in the provisions of this Section 5.5 shall not apply, with
respect to any conduct or action by any Person that constitutes insubordination,
misconduct, dereliction of duty, a violation of law or Company policies, breach
of fiduciary duty, or acts against the Company's interests.
5.5.2. Without limiting the provisions of Section 5.5.1,
subject to Section 5.5.4, the Company shall indemnify any Person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a Representative, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a member,
manager, director, officer, partner, employee or agent of another entity,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of an
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
5.5.3. Without limiting the provisions of Section 5.5.1,
subject to Section 5.5.4, the Company shall indemnify any Person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that he is or was a Representative or an
officer of the Company, or is or was serving at the request of the Company as a
member, manager, director, officer, partner, employee or agent of another
entity, against expenses (including attorneys' fees) judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
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interests of the Company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such Person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
5.5.4. Any indemnification under this Section 5.5 (unless
ordered by a court) shall be made by the Company as permitted by Delaware law or
as authorized in the specific case upon a determination that indemnification is
proper in the circumstances because it is permitted under Delaware law or the
applicable standards of conduct set forth in Section 5.5.2 or Section 5.5.3, as
the case may be, have been met.
5.5.5. INSURANCE. The Company may purchase and maintain
insurance on behalf of any individual who is or was a Member, Representative,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a Member, Representative, officer, employee or agent of the
Company against any liability asserted against him or her and incurred by him or
her in any such capacity or arising out of his or her status as such, whether or
not the Company would have the power or the obligation to indemnify him or her
against such liability under the provisions of this Section 5.5.
5.6. PREEMPTIVE RIGHT. The Company hereby grants to Xxxxxx, Inc. the
preemptive right to acquire additional Interests in the Company in the amount
necessary to maintain its Percentage in the Company if and whenever the Company
proposes to sell additional Interests in the Company. In the event the Company
proposes to sell additional Interests, it shall give Xxxxxx, Inc. written notice
of its intention, describing the general terms upon which the Company proposes
to sell the additional Interests, including the names of the proposed additional
Interest Holders. Xxxxxx, Inc. shall have fifteen (15) days from the date of
receipt of any such notice to agree to contribute (subject to receipt of any
final prospectus in compliance with the Securities Act) the amount of capital
necessary to maintain its Percentage; provided, that Xxxxxx may condition any
such agreement upon approval by its board of directors at its next meeting,
though in no event more than thirty (30) days after the date of such agreement.
In the event Xxxxxx, Inc. fails to exercise the preemptive right set forth
herein, the Company may sell the additional Interests as described in the
notice. In the event the Company has not completed the sale of the additional
Interests prior to one hundred twenty (120) days after the delivery of the
notice to Xxxxxx, Inc. in respect of such sale, the Company shall not thereafter
sell any additional Interests without first offering such Interests to Xxxxxx,
Inc. in the manner provided above. The preemptive right set forth herein is not
assignable except that it may be assigned by Xxxxxx, Inc. to a majority-owned
Affiliate of Xxxxxx, Inc. Xxxxxx, Inc. may exercise this preemptive right with
respect to all or any portion of the Interests Offered.
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SECTION VI
TRANSFERS OF INTERESTS AND WITHDRAWALS OF MEMBERS
6.1. TRANSFERS.
6.1.1. No Person may Transfer all or any portion of or any
interest or rights in the Person's Membership Rights or Interest unless the
following conditions ("Conditions of Transfer") are satisfied:
6.1.1.1. the Transfer will not require registration
of Interests or Membership Rights under any federal or state securities laws;
6.1.1.2. the transferee delivers to the Company a
written instrument agreeing to be bound by the terms of Section VI of this
Agreement;
6.1.1.3. the Transfer will not result in the
termination of the Company pursuant to Code Section 708;
6.1.1.4. the Transfer will not result in the Company
being subject to the Investment Company Act of 1940, as amended;
6.1.1.5. the transferor or the transferee delivers
the following information to the Company: (i) the transferee's taxpayer
identification number; and (ii) the transferee's initial tax basis in the
Transferred Interest; and
6.1.1.6. The transferor complies with the provisions
set forth in Section 6.1.4., except that any Transfer from Xxxxxx, Inc. to any
of its majority owned Affiliates need not comply with the provisions set forth
in Section 6.1.4.
6.1.2. If the Conditions of Transfer are satisfied, then a
Member or Interest Holder may Transfer all or any portion of that Person's
Interest. The Transfer of an Interest pursuant to this Section 6.1 shall not
result, however, in the Transfer of any of the transferor's other Membership
Rights, if any, and the transferee of the Interest shall have no right to: (i)
become a Member; or (ii) exercise any Membership Rights other than those
specifically pertaining to the ownership of an Interest.
6.1.3. Each Member hereby acknowledges the reasonableness of
the prohibition contained in this Section 6.1 in view of the purposes of the
Company and the relationship of the Members. The Transfer of any Membership
Rights or Interests in violation of the prohibition contained in this Section
6.1 shall be invalid, null and void, and of no force or effect. Any Person to
whom Membership Rights are attempted to be transferred in violation of this
Section shall not be entitled to vote on matters coming before the Members,
participate in the management of the Company, receive distributions from the
Company or have any other rights in or with respect to the Membership Rights.
6.1.4. RIGHTS OF FIRST AND SECOND OFFER.
6.1.4.1. If an Interest Holder (a "Transferor")
desires to Transfer all or any portion of, or any interest or rights in, the
Transferor's Interest (the "Transferor Interest"), the Transferor shall provide
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each other Interest Holder (each a "Remaining Interest Holder and, collectively,
the "Remaining Interest Holders) and the Company with written notice of such
desire (the "Transfer Notice"). The Transfer Notice shall describe the
Transferor Interest, identify the proposed transferee and state the proposed
purchase price. Such Transfer Notice shall also contain the Transferor's
warranty that the Transferor is acting in good faith and that the information
contained in the Transfer Notice is correct to the best of the Transferor's
knowledge. Upon receipt of the Transfer Notice, the Remaining Interest Holders
shall have the option to purchase (at the price set forth in the Transfer
Notice) all or any portion of the Transferor Interest. Each Remaining Interest
Holder desiring to purchase all or any portion of the Transferor Interest shall
provide the Transferor with written notice of such desire (which notice shall
set forth the portion of the Transferor Interest which such Remaining Interest
Holder desires to purchase and if such Remaining Interest Holder is a Member,
the Percentage then held by such Remaining Interest Holder) within ten (10) days
of receipt of the Transfer Notice. Upon expiration of such ten day period, the
Transferor shall determine (pursuant to Section 6.1.4.2. below) the portion of
the Transferor Interest which may be purchased by the Remaining Interest Holders
electing to purchase all or a portion of the Transferor Interest (collectively
the "Remaining Purchasing Interest Holders" and, individually, a "Remaining
Purchasing Interest Holder") and deliver to each Remaining Purchasing Interest
Holder written notice setting forth the portion of the Transferor Interest which
each such Interest Holder may purchase, the purchase price and a closing date
for such purchase.
6.1.4.2. The portion of the Transferor Interest which
a Remaining Purchasing Interest Holder shall be entitled to purchase shall be
determined by multiplying the percentage represented by the Transferor Interest
by a fraction, the numerator of which shall be equal to the Percentage held by
the Remaining Purchasing Interest Holder as a Member and the denominator of
which shall be equal to the Percentage held by all of the Remaining Purchasing
Interest Holders who are Members.
6.1.4.3. If the Remaining Purchasing Interest Holders
purchase less than all of the Transferor Interest, the Transferor shall promptly
provide the Company with written notice of that portion of the Transferor
Interest remaining available for purchase. The Company shall then have the
option of purchasing such remaining portion of the Transferor Interest at the
price set forth in the Transfer Notice. To exercise its option, the Company must
provide written notice of the portion of the Transferor Interest the Company
desires to purchase to the Transferor within ten (10) days of receipt of the
notice from the Transferor regarding the availability of a portion of the
Transferor Interest for purchase.
6.1.4.4. Any closing pursuant to this Section 6.1.4.
shall take place within thirty (30) days of delivery of the Transferor Notice.
The closing on any purchase pursuant to Section 6.1.4.3 shall take place either
contemporaneously with or as soon after the completion of any closing pursuant
to Section 6.1.4.1 as is practicable, which date shall in no event be later than
forty-five (45) days after the delivery of the Transferor Notice.
6.1.4.5. In the event that all of the Transferor
Interest is not purchased either by Remaining Interest Holders or the Company,
then the Transferor may make a bona fide Transfer of the remaining portion of
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such Transferor Interest, subject to the terms, conditions, and restrictions of
this Agreement, to the prospective purchaser named in the Transferor Notice,
such Transfer to be made only in strict accordance with the terms therein stated
and only for a period of ninety (90) days following the completion of any
closing pursuant to Sections 6.1.4.1 or 6.1.4.3 (the "Free Transfer Period").
The prospective purchaser who acquires any portion of the Transferor Interest
pursuant to this Section 6.1.4.5 shall hold such portion subject to all the
terms, conditions, and restrictions of this Agreement. However, if the
Transferor shall fail to make such Transfer within the ninety (90) day period
provided for hereinabove, all such Interests not Transferred shall again become
subject to the terms and conditions of this Agreement.
6.1.4.6. Any Transfer of any portion of the
Transferor Interest made after the last day of the Free Transfer Period or
without strict compliance with the terms, provisions and conditions of Section
6.1.4 and the other terms, provisions, and conditions of this Agreement, shall
be null, void, and of no force or effect.
6.1.5. TAG-ALONG RIGHTS. In the event that (i) Interest
Holders holding a majority of the Percentages then held by Members (hereinafter
the "Majority Interest Holders") elect to Transfer all of the Interests that
they hold to a third party purchaser, and (ii) neither the Company nor any of
the Interest Holders holding the remaining minority of the Percentages then held
by Members (each a "Minority Interest Holder" and collectively, the "Minority
Interest Holders") exercise their rights to acquire such Interests pursuant to
Section 6.1.4 of this Agreement, then, if any of the Minority Interest Holders
shall so direct in writing to the Majority Interest Holders, the Majority
Interest Holders shall, as a condition of the Transfer of their Interests to the
prospective purchaser, require that the prospective purchaser purchase from the
Minority Interest Holders providing such notice all of the Interests in the
Company then held by such Minority Interest Holders, on the same terms and
conditions as are applicable to the prospective purchase of the Interests from
the Majority Interest Holders. Written notice of the Interest Holder's rights
under this Section 6.1.5 shall be provided to the Majority Interest Holders
within ten (10) days of the expiration of the options granted to the Remaining
Interest Holders pursuant to Section 6.1.4.
6.2. VOLUNTARY WITHDRAWAL. No Member shall have the right or power to
effect a voluntarily withdrawal from the Company.
6.3. EFFECT OF STATUTORY EVENT. THE OCCURRENCE OF A STATUTORY EVENT
SHALL NOT, UNLESS OTHERWISE MANDATED BY APPLICABLE LAW, CAUSE A MEMBER TO CEASE
TO BE A MEMBER.
SECTION VII
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
7.1. EVENTS OF DISSOLUTION. The Company shall be dissolved upon the
happening of any of the following events:
7.1.1. upon the unanimous written agreement of all of the
Members;
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7.1.2. upon the entry of a decree of judicial dissolution
under the Act;
7.1.3. the determination of the Board of Directors to dissolve
the Company.
7.2. PROCEDURE FOR WINDING UP. If the Company is dissolved, the Board
of Directors shall wind up its affairs. On winding up of the Company, the assets
of the Company shall be distributed as follows:
first, to creditors, including Members who are creditors, to the extent
otherwise permitted by law, in satisfaction of liabilities of the Company, other
than liabilities for which reasonable provision has been made and liabilities of
the type referred to in the next two paragraphs;
second, those amounts deemed necessary by the Board of Directors for
any contingent liabilities or obligations of the Company will be set aside as a
reserve for contingent liabilities to be distributed at such time and in such
manner hereunder as the Board of Directors will determine in its sole
discretion;
third, to Interest Holders and former Members who have received a
Withdrawal Notice pursuant to Section 6.4.2, for unpaid distributions to which
they become entitled prior to dissolution or withdrawal, as applicable;
fourth, to Interest Holders and Members who have received a Withdrawal
Notice pursuant to 6.4.2 but not yet received the Withdrawal Purchase Price; and
fifth to Interest Holders in proportion to their remaining Capital
Account balances after taking into account all contributions, distributions and
allocations for all periods.
7.3. FILING OF A CERTIFICATE OF CANCELLATION. If the Company is
dissolved, the appropriate officers of the Company shall promptly file a
certificate of cancellation with the Secretary of State and take such other
actions as may be necessary to terminate the Company.
SECTION VIII
BOOKS, RECORDS, ACCOUNTING, AND TAX ELECTIONS
8.1. BANK ACCOUNTS. All funds of the Company shall be deposited in a
bank account or accounts opened in the Company's name. The President, subject to
the review and approval of the Board of Directors, shall determine the
institution or institutions at which the accounts will be opened and maintained,
the types of accounts, and the Persons who will have authority with respect to
the accounts and the funds therein.
8.2. BOOKS AND RECORDS.
8.2.1. The Senior Financial Officer of the Company shall keep
or cause to be kept complete and accurate books and records of the Company and
supporting documentation of the transactions with respect to the conduct of the
Company's business. The records shall include, but not be limited to: (i)
complete and accurate information regarding the state of the business and
financial condition of the Company; (ii) a copy of the certificate of formation
and operating agreement, all amendments to the certificate of formation and
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operating agreement, and all executed copies of any written powers of attorney
pursuant to which the operating agreement, any certificate, and all amendments
thereto have been executed; (iii) a current list of the names and last known
business, residence, or mailing addresses of all Members and the dates they
became Members; (iv) the Company's federal, state, and local tax returns; (v)
any Certificate of Agreed Value; and (vi) true and full information regarding
the amount of cash, and a description and statement of the agreed value of any
other property or services, contributed by each Member and which each Member has
agreed to contribute in the future.
8.2.2. The books and records shall be maintained in accordance
with sound accounting practices and shall be available at the Company's
principal office for examination by any Member or the Member's duly authorized
representative at any and all reasonable times during normal business hours.
8.2.3. Any request for information shall be in writing, and
shall state the purpose therefor. Each Member shall reimburse the Company for
all costs and expenses incurred by the Company in connection with the Member's
inspection and copying of the Company's books and records.
8.3. ANNUAL ACCOUNTING PERIOD. The annual accounting period of the
Company shall be its taxable year. The Company's taxable year shall be selected
by Xxxxxx, Inc., subject to the requirements and limitations of the Code. The
Company's independent certified public accountants shall be selected by Xxxxxx,
Inc.
8.4. REPORTS.
8.4.1. ANNUAL REPORTS. The Senior Financial Officer of the
Company shall cause to be delivered to each Member, within twenty (20) days
after the end of each fiscal year, an annual report containing a balance sheet
as of the end of the Company's fiscal year and statements of income, Member's
equity and cash flows for the year then ended, each of which shall be audited by
independent certified public accountants, as selected pursuant to Section 8.3
hereof.
8.4.2. QUARTERLY REPORTS. Within fifteen (15) days after the
end of each quarter of each fiscal year, the Senior Financial Officer of the
Company shall cause to be delivered to each Member a quarterly report containing
a balance sheet as of the end of such quarter and a statement of income for such
quarter, each of which may be unaudited but which shall be certified by the
Senior Financial Officer of the Company as fairly presenting the financial
position of the Company at the end of such quarter and results of operations of
the Company for such quarter and as having been prepared in accordance with the
accounting methods followed by the Company for federal income tax purposes and
otherwise in accordance with GAAP applied on a basis substantially consistent
with that of the Company's audited financial statements (subject to normal year
end adjustments).
8.4.3. MONTHLY REPORTS. Within twenty (20) days after the end
of each month of each fiscal year, the Senior Financial Officer of the Company
shall cause to be delivered to each Member a monthly report containing a balance
sheet as of the end of such month and a statement of income for such month, each
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of which may be unaudited but which shall be certified by the Senior Financial
Officer of the Company as fairly presenting the financial position of the
Company at the end of such month and results of operations of the Company for
such month and as having been prepared in accordance with the accounting methods
followed by the Company for federal income tax purposes and otherwise in
accordance with GAAP applied on a basis substantially consistent with that of
the Company's audited financial statements (subject to normal year end
adjustments).
8.4.4. TAX INFORMATION. Within one-hundred-twenty (120) days
of the end of each fiscal year, the Senior Financial Officer of the Company will
cause to be delivered to each Member all information necessary for the
preparation of such Member's federal income tax returns, including a statement
showing such Member's share of income, gains, losses, deductions and credits for
such year for federal income tax purposes and the amount of any distributions
made to or for the account of such Member pursuant to this Agreement.
8.5. TAX MATTERS PARTNER. Taytrowe Xxx Xxxxxxxxx World Companies, Inc.
shall be the tax matters partner for the Company ("Tax Matters Partner"). The
Tax Matters Partner shall have all powers and responsibilities provided in Code
Section 6221, ET SEQ. The Tax Matters Partner shall keep all Members informed of
all notices from government authorities which may come to the attention of the
Tax Matters Partner. The Company shall pay and be responsible for all reasonable
third-party costs and expenses incurred by the Tax Matters Partner in performing
those duties. A Member shall be responsible for any costs incurred by the Member
with respect to any tax audit or tax-related administrative or judicial
proceeding against any Member, even though it relates to the Company. The Tax
Matters Partner shall not compromise any dispute with the Internal Revenue
Service without the approval of the Members.
8.6. TAX ELECTIONS. The Tax Matters Partner shall have the authority to
make all Company elections permitted under the Code that the Board of Directors
deems necessary or advisable, including, without limitation, elections of
methods of depreciation and elections under Code Section 754. The decision to
make or not make an election shall be reserved to the Board of Directors.
SECTION IX
GENERAL PROVISIONS
9.1. ASSURANCES. Each Member shall execute all such certificates and
other documents and shall do all such filing, recording, publishing and other
acts as the Board of Directors deems appropriate to comply with the requirements
of law for the formation and operation of the Company and to comply with any
laws, rules, and regulations relating to the acquisition, operation, or holding
of the property of the Company.
9.2. NOTIFICATIONS. Any notice, demand, consent, election, offer,
approval, request, or other communication (collectively a "Notice") required or
permitted under this Agreement must be in writing and either delivered
personally or sent by overnight courier service of national reputation, or by
certified or registered mail, postage prepaid, return receipt requested. Any
Notice to be given hereunder by the Company shall be given by the Board of
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Directors. A Notice addressed to an Interest Holder, a Member, or a
Representative must be addressed to the Interest Holder, Member, or
Representative at such person or entity's last known address on the records of
the Company. A Notice to the Company must be addressed to the Company's
principal office. A Notice delivered personally will be deemed given only when
acknowledged in writing by the person to whom it is delivered. A Notice that is
sent by overnight courier service of national reputation will be deemed given
the day after it is accepted by such service in good order for delivery the next
day. A Notice that is sent by mail will be deemed given three (3) business days
after it is mailed. Any party may designate, by Notice to all of the others, a
substitute address or addressees for Notices; and, thereafter, Notices to such
party are to be directed to such substitute address or addressees.
9.3. SPECIFIC PERFORMANCE. The parties recognize that irreparable
injury will result from a breach of any provision of this Agreement and that
money damages will be inadequate to remedy fully the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
9.4. START-UP RIGHT OF FIRST REFUSAL. In the event that the Company or
any Member other than Xxxxxx, Inc. (a "Non-Xxxxxx Party") decides to form any
type of entity for any purpose (hereinafter a "Start-Up") and the capital
contribution to such Start Up will not be provided exclusively by the Company,
the Company and/or any Non-Xxxxxx Party, as the case may be, shall offer Xxxxxx,
Inc. in writing the opportunity to invest its capital in such Start-Up. The
Company and the Non-Xxxxxx Party agree that they shall provide Xxxxxx, Inc. with
copies of such business plans, copyrights, patents, trademarks, licenses,
agreements and other documents as Xxxxxx, Inc. shall require to properly
evaluate an investment in any Start-Up. The Company and the Non-Xxxxxx Party
further agree that they shall not solicit or accept any other potential
investors in such Start-Up unless and until Xxxxxx, Inc. shall have notified
them in writing that it either (a) decided not to invest in the Start-Up or (b)
decided to invest in the Start-Up but would be unable to provide all of the
capital desired. The right of first refusal granted under this Section 9.4 to
Xxxxxx, Inc. shall expire with respect to an offered opportunity if Xxxxxx, Inc.
does not provide written Notice of its intent to accept the opportunity within
thirty (30) days of the receipt by Xxxxxx, Inc. of the written offer.
9.5. COMPLETE AGREEMENT. This Agreement, including the exhibits and
attachments hereto, constitutes the complete and exclusive statement of the
agreement among the Members, and supersedes all prior written and oral
statements, including any prior representation, statement, condition, or
warranty. Except as expressly provided otherwise herein, this Agreement may not
be amended without the written consent of all of the Members.
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9.6. APPLICABLE LAW. All questions concerning the construction,
validity, and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement shall be governed by the internal law,
excluding the law of conflicts, of the State of Delaware.
9.7. HEADINGS. The headings herein are inserted as a matter of
convenience only, and do not define or limit the scope of this Agreement or the
intent of the provisions hereof.
9.8. BINDING PROVISIONS. This Agreement is binding upon, and inures to
the benefit of, the parties hereto and their respective, successors and
permitted assigns.
9.9. SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall
be considered severable; and if, for any reason any provision or provisions
herein are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or otherwise affect those
portions of this Agreement which are valid.
9.10. ESTOPPEL CERTIFICATE. Each Member shall, within ten (10) days
after receipt of a written request by any Member, deliver to the requesting
Member a certificate stating, to the Member's knowledge, that: (a) this
Agreement is in full force and effect; (b) this Agreement has not been modified
except by any instrument or instruments identified in the certificate; and (c)
there is no default hereunder by the requesting Member, or if there is a
default, the nature and extent thereof. If such certificate is not received
within the aforesaid ten (10) day period, the Board of Directors shall cause the
execution and delivery of the certificate on behalf of the requested Member,
without qualification, pursuant to the power of attorney granted in Section 5.6.
9.11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which, when
taken together, shall constitute one and the same document. The signature of any
party to any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
TAYTROWE XXX XXXXXXXXX WORLD COMPANIES, INC.
By:
----------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: President
XXXXXX, INC.
By:
----------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: President
3DTHINK, INC.
By:
----------------------------------
Name:
Title:
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EXHIBIT A
PRIVILEGEONE NETWORKS, L.L.C.
OPERATING AGREEMENT
LIST OF MEMBERS, CAPITAL, AND PERCENTAGES
Name and Address Capital Contribution Percentage
---------------- -------------------- ----------
Taytrowe Xxx Xxxxxxxxx World Companies, Inc. $34,179.66 37%
00 Xxx Xxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
(Taxpayer I.D. No.: 00-0000000)
Xxxxxx, Inc. $35,103.43 38%
000 Xxxx Xxxx Xxxx
Xxxxx 000
Xxx Xxxx, XX 00000-0000
(Taxpayer I.D. No.: 22-243361)
3D THINK, INC. $23,094.37 25%
00 Xxx Xxxx Xxxx
Xxxx Xxxxxxxxx, XX 00000
(Taxpayer I.D. No.: 00-0000000)
31
EXHIBIT B
CERTIFICATE OF FORMATION
OF
PRIVILEGEONE NETWORKS, L.L.C.
[Omitted]
32
EXHIBIT C
EXECUTIVE INCENTIVE PAY SCHEDULE
[Omitted]
