AMENDED AND RESTATED OPERATING AGREEMENT PZENA INVESTMENT MANAGEMENT, LLC (A Delaware Limited Liability Company) Organized as of November 27, 1995 Restated as of January 3, 1996 Amended and Restated as of January 3, 2005 Further Amended and Restated...
Exhibit 10.1
FINAL
AMENDED AND RESTATED
OPERATING AGREEMENT
OPERATING AGREEMENT
PZENA INVESTMENT MANAGEMENT, LLC
(A Delaware Limited Liability Company)
Organized as of
November 27, 1995
November 27, 1995
Restated as of
January 3, 1996
January 3, 1996
Amended and Restated as of
January 3, 2005
January 3, 2005
Further Amended and Restated as of
January 3, 2006
January 3, 2006
Further Amended and Restated as of
December 31, 2006,
as amended as of March 31, 2007
December 31, 2006,
as amended as of March 31, 2007
Further Amended and Restated as of
October 30, 2007
October 30, 2007
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I GENERAL PROVISIONS | 1 | |||||||
1.01. | Formation, Continuation and Name |
1 | ||||||
1.02. | Principal Place of Business; Registered Office |
2 | ||||||
1.03. | Purposes and Powers |
2 | ||||||
1.04. | Organization |
3 | ||||||
1.05. | Classes and Sub-Classes of Members |
3 | ||||||
1.06. | Classes of Units |
3 | ||||||
1.07. | Register of Members |
4 | ||||||
1.08. | Certain Definitions |
4 | ||||||
1.09. | Construction |
11 | ||||||
ARTICLE II CAPITALIZATION | 11 | |||||||
2.01. | Contributions |
11 | ||||||
2.02. | Additional Capital Contributions |
12 | ||||||
2.03. | Members and the Executive Committee Not Liable |
12 | ||||||
2.04. | Capital Accounts |
12 | ||||||
ARTICLE III INCOME AND LOSSES; ALLOCATION; DISTRIBUTIONS | 13 | |||||||
3.01. | Allocation of Company Income and Loss |
13 | ||||||
3.02. | Tax Allocations |
14 | ||||||
3.03. | Distributions |
15 | ||||||
3.04. | Tax Distributions |
15 | ||||||
3.05. | Restrictions on Distributions |
15 | ||||||
3.06. | Withholding |
15 | ||||||
3.07. | Indemnification and Reimbursement for Payments on Behalf of a Member |
15 | ||||||
ARTICLE IV COSTS AND EXPENSES | 16 | |||||||
4.01. | Operating Costs |
16 | ||||||
ARTICLE V MEMBERS | 16 | |||||||
5.01. | Liability of Members |
16 | ||||||
5.02. | Management of Business |
16 | ||||||
5.03. | Withdrawal |
17 |
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Page | ||||||||
5.04. | Substitute Member |
17 | ||||||
5.05. | Power of Attorney |
18 | ||||||
5.06. | Voting |
18 | ||||||
5.07. | Non-Solicitation/Non Compete |
19 | ||||||
5.08. | Confidentiality; Work for Hire |
21 | ||||||
5.09. | New Class B Members and Issuance of Class B Units |
23 | ||||||
5.10. | Investment Representations of Members |
23 | ||||||
5.11. | Relationship With the Managing Member |
24 | ||||||
ARTICLE VI TRANSFER OF UNITS | 27 | |||||||
6.01. | Transfer of Units |
27 | ||||||
6.02. | Vesting and Forfeiture of Units |
28 | ||||||
6.03. | Drag Along Rights |
30 | ||||||
ARTICLE VII MANAGING MEMBER; EXECUTIVE COMMITTEE; OFFICERS | 31 | |||||||
7.01. | Powers of the Managing Member |
31 | ||||||
7.02. | Executive Committee |
32 | ||||||
7.03. | Administrative Officers |
32 | ||||||
7.04. | Binding Company |
33 | ||||||
7.05. | Reliance by Third Parties |
33 | ||||||
7.06. | Duties of Managing Member, the Executive Committee and Employee
Members |
33 | ||||||
7.07. | Liability of Managing Member and the Executive Committee |
34 | ||||||
7.08. | Indemnification, Reliance and Fiduciary Duty |
34 | ||||||
ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY | 36 | |||||||
8.01. | Dissolution |
36 | ||||||
8.02. | Liquidation |
36 | ||||||
ARTICLE IX RESERVES UPON DISSOLUTION | 37 | |||||||
9.01. | Reserves |
37 | ||||||
9.02. | Distribution of Reserves |
37 | ||||||
ARTICLE X ACCOUNTING | 37 | |||||||
10.01. | Accounts of the Company |
37 | ||||||
10.02. | Annual Reports to Members |
38 | ||||||
10.03. | Tax Returns and Tax Elections |
38 |
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Page | ||||||||
10.04. | No Further Rights to Books and Records
|
39 | ||||||
ARTICLE XI MISCELLANEOUS | 39 | |||||||
11.01. | Amendments
|
39 | ||||||
11.02. | Severability
|
40 | ||||||
11.03. | Notices
|
40 | ||||||
11.04. | No Waiver
|
41 | ||||||
11.05. | Copy on File
|
41 | ||||||
11.06. | Governing Law
|
41 | ||||||
11.07. | Binding Effect
|
41 | ||||||
11.08. | Entire Agreement
|
41 | ||||||
11.09. | Other Activities
|
41 | ||||||
11.10. | Further Assurances
|
41 | ||||||
11.11. | Counterparts
|
41 | ||||||
11.12. | Table of Contents and Captions Not Part of Agreement
|
42 | ||||||
11.13. | Waiver of Right to Partition
|
42 | ||||||
ARTICLE I GENERAL PROVISIONS | 2 | |||||||
1.01. | General. |
2 | ||||||
1.02. | Certain Definitions.
|
2 | ||||||
ARTICLE II EXCHANGE | 3 | |||||||
2.01. | Exchange Dates; Exchange Notices
|
3 |
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2.02
|
Permissible Exchanges by Class B Members | |||||
2.03.
|
Exchange Request. | 6 | ||||
2.04.
|
Closing Date | 6 | ||||
2.05.
|
Closing Conditions | 7 | ||||
2.06.
|
Closing Deliveries. | 8 | ||||
2.07.
|
Expenses. | 8 | ||||
2.08.
|
Termination of Class B Membership; Cancellation of Class B Units; Issuance of Class A Units. | 8 | ||||
2.09.
|
Tax Treatment. | 8 |
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2.10. Amendments. |
9 | |||
ANNEX A
Instrument of Transfer |
1 | |||
Exhibit A – 2006 Plan
Exhibit B – Exchange Rights of Class B Members
Exhibit C – Registration Rights Agreement
Exhibit B – Exchange Rights of Class B Members
Exhibit C – Registration Rights Agreement
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This Amended and Restated Operating Agreement made as of November 27, 1995, restated as of
January 3, 1996, further amended and restated as of January 3, 2005, further amended and restated
as of January 3, 2006, further amended and restated as of December 31, 2006, further amended as of
March 31, 2007, and further amended and restated as of October 30, 2007 by and among Pzena
Investment Management, Inc., a Delaware corporation (“Pzena Inc.”), and each other person
that executes and delivers a counterpart of this Agreement and is included in the Register of
Members. Capitalized terms used herein without definition have the meanings set forth in Section
1.08.
WHEREAS, Pzena Investment Management, LLC was formed on November 27, 1995 pursuant to and in
accordance with the Delaware Limited Liability Company Act (6 Del. C. § 18-101, et seq.) (the
“Act”);
WHEREAS, the obligations of the Members are governed pursuant to a certain Amended and
Restated Operating Agreement of Pzena Investment Management, LLC, dated as of December 31, 2006, as
amended as of March 31, 2007 (as so amended, the “2006 Operating Agreement”);
WHEREAS, the Members desire to amend and restate the 2006 Operating Agreement on the terms
herein provided; and
NOW, THEREFORE, in consideration of the agreements and covenants set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby amend and restate the 2006 Operating Agreement in its entirety on the
foregoing and following terms and conditions:
1.01. Formation, Continuation and Name. The Company has been formed under the laws of the
State of Delaware. The Managing Member and the other Members hereby agree to continue the Company
under and pursuant to the terms of the Act and agree further that the rights, duties and
obligations of the Members shall be as provided in the Act except as otherwise provided in this
Agreement. The name of the Company shall be Pzena Investment Management, LLC, provided
that the Managing Member shall have the right to change the name of the Company, upon written
notice to each of the Members.
1.02. Principal Place of Business; Registered Office. The principal office of the Company
shall be maintained at 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx, 00000, or at such
other location as the Managing Member may designate from time to time. The registered office of
the Company shall be 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxx of Xxx Xxxxxx, Xxxxxxxx 00000. The
name of the registered agent at that address is The Corporation Trust Company.
1.03. Purposes and Powers. The purpose of the Company shall be to manage investment
portfolios for, and provide investment advice to, investors of all kinds, including individuals,
endowments, trusts and estates, charitable foundations, partnerships, corporations, mutual funds,
investment funds and other investment companies, and tax-exempt funds such as pension and
profit-sharing plans, to engage in any and all businesses and activities similar to, related to or
which will enhance any of the foregoing and to engage in any other lawful act or activity for which
limited liability companies may be formed under the Act. In furtherance of the aforesaid purposes,
the Company shall have authority to do all things necessary or convenient for the accomplishment
thereof, alone or with others, as principal or agent, including, without limiting the foregoing,
the following:
(a) invest in and trade, for and on behalf of itself or its advisory clients, equity or debt
securities, or options, convertible securities, interest-bearing or interest rate sensitive
marketable securities (including those issued or guaranteed by any Governmental or Regulatory
Authority of the United States or instrumentalities of any Governmental or Regulatory Authority of
the United States), derivative securities of all kinds, currency and commodities contracts,
options, futures and forward contracts with respect to any of the foregoing, and any other
instruments which are traded in normal channels of trading for securities and commodities (all of
the foregoing sometimes referred to herein as “Securities”), and to vote such Securities,
solicit the voting of such Securities and to otherwise engage with respect to such Securities in
transactions in connection with mergers, consolidations, acquisitions, transfers of assets, tender
offers, exchange offers, recapitalizations, liquidations, or other similar transactions;
(b) to hold all or any part of the assets, property or funds of the Company in cash or cash
equivalents;
(c) to borrow or obtain credit from time to time, including for the purpose of financing
transactions in Securities, to secure the payment of any such indebtedness or credit by mortgage,
pledge, conveyance or assignment in trust, of the whole or any part of the assets or property of
the Company, whether at the time owned or thereafter acquired, to enter into repurchase agreements
and to buy, sell, pledge or otherwise dispose of any evidence of such indebtedness or obligation;
(d) to lend any of its assets, property or funds, including any Securities, either with or
without security;
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(e) to select brokers and dealers for its clients and to open, maintain and close accounts
with such brokers, including margin accounts;
(f) to open, maintain and close bank accounts and draw checks and other orders for the payment
of money;
(g) to engage accountants, solicitors, custodians, attorneys and any and all other agents,
employees or assistants, both professional and nonprofessional, and to compensate them for such
services;
(h) to file statements and forms under the Advisers Act and other applicable regulatory Laws;
(i) to xxx, prosecute, settle or compromise all claims against third parties, to compromise,
settle or accept judgment in respect of claims against the Company and to execute all documents and
make all representations, admissions and waivers in connection therewith; and
(j) to enter into, make and perform all other contracts, indemnifications, guarantees,
agreements and undertakings of any kind as the Managing Member may deem necessary, appropriate,
advisable or incident to carrying out the purpose of the Company.
1.04. Organization. The Company was organized upon the filing of its certificate of
formation in the Office of the Secretary of State of Delaware on November 27, 1995, and the Company
shall continue until the occurrence of an act or event specified in Section 8.01 hereof.
1.05. Classes and Sub-Classes of Members. The Company shall have two classes of Members:
(a) the Managing Member and (b) the Class B Members. The Class B Members shall be comprised of
three sub-classes: (a) Employee Members; (b) Permitted Transferees of Employee Members; and (c)
Non-Employee Members. The Employee Member sub-class shall be comprised of two groups: (a) Initial
Managing Principals and (b) Ordinary Employee Members. The Ordinary Employee Member group shall be
comprised of two sub-groups: (a) 1% Employee Members and (b) other Ordinary Employee Members.
1.06. Classes of Units. The Company shall have two classes of Units: (a) Class A Units,
which shall be held by the Managing Member and only by the Managing Member; and (b) Class B Units,
which shall be held by the Class B Members and only by the Class B Members. The Class B Units may
be vested or unvested and, except as expressly provided herein, any reference to Class B Units
shall be a reference to vested and unvested Class B Units. Except as provided in this Agreement,
(i) vested and unvested Class B Units shall share equally in rights to allocations and
distributions by the Company; (ii) vested Class B Units may be exchanged pursuant to Exhibit B and
unvested Class B Units may not be so exchanged; (iii) unvested Class
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B Units shall vest pursuant to the provisions of Section 6.02; and (iv) vested and unvested Class B
Units may be forfeited by a Class B Member under the circumstances and in the number set forth in
this Agreement.
1.07. Register of Members. The Managing Member shall maintain and modify, or cause to be
maintained and modified, a register (the “Register of Members”) that sets forth (a) the
name and address of each Member; (b) the class and, if applicable, sub-class of each Member; (c)
with respect to a Permitted Transferee of an Employee Member, the name of such Employee Member; (d)
with respect to any unvested Class B Units, the number and date of issuance of each tranche of
Units issued or awarded to such Member; (e) the vesting provisions, if any, applicable to each such
tranche (which vesting provisions may be specified by reference to other documents held with the
records of the Company); and (f) such other information as the Managing Member may deem to be
appropriate. In connection with any modification, the Managing Member or an Administrative Officer
designated by the Managing Member shall duly execute a copy of the Register of Members maintained
in accordance with this Agreement. Absent manifest error, a duly executed Register of Members
shall be conclusive evidence as to the information contained therein.
1.08. Certain Definitions. For the purposes of this Agreement, the following terms have
the following meanings:
“2006 Operating Agreement” has the meaning set forth in the recitals hereto.
“Accounting Period” shall mean, as the context may require: (a) the period commencing
on the date of this Agreement and ending on December 31 of the same year; (b) any subsequent twelve
(12) month period beginning on January 1 and ending on December 31 and (c) any portion of the
period described in clauses (a) or (b) for which the Company is required or elects to allocate
items of Company Income and Company Loss, or any other items of Company income, gain, loss or
deduction pursuant to this Agreement.
“Act” has the meaning set forth in the recitals hereto.
“Administrative Officer” has the meaning set forth in Section 7.03 hereof.
“Advisers Act” shall mean the Investment Advisers Act of 1940, as amended.
“Affiliate(s)” shall mean, with respect to any Person, any other Person that directly,
or through one (1) or more intermediaries, controls or is controlling, controlled by, or under
common control with, such Person. For the purposes of this definition, the term “control” and its
corollaries shall mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership of voting
securities, contract, as trustee or executor or otherwise.
4
“Agreement” shall mean this Amended and Restated Operating Agreement, including each
schedule and exhibit hereto, as amended, supplemented or restated from time to time,
provided that the Register of Members shall not be a part of this Agreement.
“Business Day” shall mean any day on which commercial banks located in New York, New
York are not required or authorized by Law to remain closed.
“Capital Account(s)” has the meaning set forth in Section 2.04(a) hereof.
“Capital Contribution(s)” shall mean the contribution made by a Member to the capital
of the Company from time to time pursuant to Section 2.01 or 2.02 hereof.
“Capital Percentage” shall mean, with respect to a Member, as of any determination
date, a percentage, expressed as a fraction the numerator of which is the Capital Account balance
of such Member and the denominator of which is the aggregate Capital Accounts balances of all
Members.
“Cause” shall mean, with respect to an Employee Member, (a) such Employee Member’s
being charged or indicted for a felony involving the Company Group’s business, or being convicted
of any other felony (or guilty plea, or nolo contendere plea in connection therewith), (b) such
Employee Member’s willfully and materially defrauding the Company Group, or (c) such Employee
Member’s committing a willful and material breach of such Employee Member’s obligations to protect
the Company Group’s confidential information, such Employee Member’s obligation of loyalty to the
Company Group or such Employee Member’s obligation to comply with the Company Group’s Code of
Ethics or any other compliance regulations, policies or procedures, (d) the gross negligence or
willful misconduct of such Employee Member in the performance of such Employee Member’s duties
which gross negligence or willful misconduct has the purpose, or the reasonably likely effect, of
causing material harm to the Company Group, or (e) such Employee Member fails to maintain in good
standing any and all licenses, registrations or other permits necessary for the performance of his
duties hereunder. For purposes of the definition of Cause, “materially,” and “material” shall mean
damages caused to the Company Group in excess of $100,000 or any significant damage to the
reputation of the Company Group.
“Chairman” shall mean the chairman of the Board of Directors of the Managing Member
or, if no Person shall hold such title, the senior most executive officer of the Managing Member,
whether designated as the chief executive officer, the president or otherwise.
“Chief Compliance Officer” has the meaning set forth in Section 7.03(b) hereof.
“Class A Share(s)” shall mean share(s) of Class A common stock of the Managing Member.
“Class A Unit(s)” shall mean those Unit(s) in the Company held by the Managing Member.
“Class B Share(s)” shall mean share(s) of Class B common stock of the Managing Member.
5
“Class B Member(s)” shall mean those Person(s) that have executed and delivered a
counterpart of this Agreement and are named in the Register of Members as Class B Members.
“Class B Stockholders Agreement” shall mean the Class B Stockholders’ Agreement, dated
as of the date hereof, by and among the Managing Member and holders of Class B Shares, as amended
or modified from time to time.
“Class B Unit(s)” shall mean those Unit(s) in the Company held by Class B Member(s).
“Client” shall mean, for purposes of Section 5.07(b) hereof, any Person who, in its
own name or through an Affiliate, has assets under management of at least $5,000,000 with the
Company Group and any Person with an account of $5,000,000 or more in any mutual fund or other
collective investment vehicle advised or subadvised by the Company Group as of the date of
cessation of the Employee Member’s employment, or, in either such case, within any time within six
(6) months prior to the date of cessation and any other Person who was solicited (in person or by
phone) by the Company Group for the purpose of placing assets under management within six (6)
months before such termination (a “Prospect”), except that such Prospect shall cease to be
a Client hereunder if such Prospect does not actually place assets under the Company Group’s
management within six (6) months after the termination of the Employee Member’s employment with the
Company Group.
“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to
time (or any succeeding Law), and the Treasury Regulations promulgated pursuant thereto.
References to sections of the Code shall include amended or successor provisions thereto.
“Company” shall mean this limited liability company.
“Company Group” shall mean the Managing Member, the Company and any Person controlled
by the Managing Member or the Company.
“Company Income” and “Company Loss”, for any period, shall mean, respectively,
the profits, income, gain, credit, deduction or loss determined by the Company in accordance with
GAAP. In the event that the Gross Asset Value of any Company asset is adjusted pursuant to
subparagraphs (c) or (d) of the definition of Gross Asset Value, the amount of such adjustment will
be treated as an item of Company Income (if the adjustment increases the Gross Asset Value of the
asset) or Company Loss (if the adjustment decreases the Gross Asset Value of the Asset) from the
disposition of such asset, and shall be taken into account in determining Company Income and
Company Loss.
“Confidential Information” has the meaning set forth in Section 5.08(a) hereof.
“Covered Person” shall mean the Managing Member, each Member, each officer and
director of the Managing Member, each Executive Committee member, the Chief Compliance Officer and
any Administrative Officer.
“Disabling Conduct” has the meaning set forth in Section 7.08(a) hereof.
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“Employee Member” shall mean a Member who is or was at any time employed by the
Company Group.
“Equity Proceeds” has the meaning set forth in Section 5.11(e)(i) hereof.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
“Executive Committee” has the meaning set forth in Section 7.02 hereof.
“Fiscal Year” shall mean the calendar year.
“GAAP” shall mean generally accepted accounting principles in the United States as in
effect at the time any applicable financial statements were prepared.
“Governmental or Regulatory Authority” shall mean any instrumentality, subdivision,
court, administrative agency, commission, official or other authority of the United States or any
other country or any state, province, prefect, municipality, locality or other government or
political subdivision thereof, or any quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental or quasi-governmental authority.
“Gross Asset Value” shall mean, with respect to any asset of the Company, such asset’s
adjusted basis for federal income tax purposes, except as follows:
(a) the initial aggregate Gross Asset Values of the assets of the Company as of the date of
this Agreement shall be as set forth on the books and records of the Company;
(b) the initial Gross Asset Value of any asset contributed by a Member to the Company will be
the gross fair market value of such asset, as determined by the Managing Member in its sole
discretion;
(c) the Gross Asset Value of all Company assets will be adjusted to equal their respective
gross fair market values, as determined by the Managing Member in its sole discretion, immediately
prior to: (i) the contribution of more than a de minimis amount of assets to the Company by a new
or an existing Member as consideration for an Interest; (ii) the distribution by the Company to a
Member of more than a de minimis amount of Company assets as consideration for the Interest of such
Member; (iii) the issuance, forfeiture (or redemption) of more than a de minimis amount of Units
after the date of this Agreement; (iv) the liquidation of the Company within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g); and (v) such other times as the Managing Member
may determine in its sole discretion; provided, that adjustments pursuant to clauses (i), (ii) and
(iii) of this sentence will be made only if the Managing Member, in its sole discretion, determines
that such adjustments are necessary or appropriate to reflect the relative economic interests of
the Members in the Company;
7
(d) the Gross Asset Value of any Company asset distributed to any Member will be adjusted so
as to equal the gross fair market value of such asset on the date of distribution, as determined by
the Managing Member, in its sole discretion, and any increase or decrease required to effect such
adjustment will be treated as an item of Company Income or Company Loss, as applicable; and
(e) if the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraph
(b), (c) or (d) above, such Gross Asset Value will thereafter be adjusted by the depreciation taken
into account with respect to such asset for purposes of computing Company Income and Company Loss.
“Initial Managing Principal” shall mean each of Xxxxxxx X. Xxxxx, Xxxx X. Xxxxx, A.
Rama Krishna and Xxxxxxx X. Xxxxxx.
“Interest(s)” when used in reference to an interest in the Company, shall mean the
entire ownership interest of a Member in the Company at any particular time.
“Investment Advisory Service” shall mean any services that involve (1) the management
of an investment account or fund (or portions thereof or a group of investment accounts or funds),
(2) the giving of advice with respect to the investment and/or reinvestment of assets or funds (or
any group of assets or funds), or (3) otherwise acting as an “investment adviser” within the
meaning of the Advisers Act (whether or not required to be registered under such act), and
performing activities related or incidental thereto, provided that “Investment Advisory
Services” shall exclude any service in respect of which no compensation or economic benefit is
provided directly or indirectly to any person in respect of such service.
“Law” shall mean any statute, law, ordinance, rule or regulation of any Governmental
or Regulatory Authority.
“Legal Representative(s)” shall mean any and all executors, administrators,
committees, guardians, conservators or trustees, in bankruptcy or otherwise, of a Member.
“Lien” shall mean a mortgage, pledge, hypothecation, right of others, claim, security
interest, encumbrance, easement, right of way, restriction on the use of real property, title
defect, title retention agreement, voting trust agreement, option, right of first refusal, lien,
charge, license to third parties, lease to third parties, restriction on transfer or assignment, or
other restriction or limitation of any nature or irregularities in title.
“Majority In Interest of the Class B Members” shall mean, as of the time of
determination, Class B Members holding more than 50% of the issued and outstanding Class B Units at
such time.
“Managing Member” shall mean Pzena Inc. and any other successor of Pzena Inc.
8
“Member(s)” shall mean each of those Persons identified on the Register of Members as
the Managing Member and Class B Members for so long they own Interests and any Person who becomes a
substitute Member in accordance with Section 5.04 hereof.
“Non-Compete Period” shall mean (a) with respect to an Initial Managing Principal, the
period from the date of this Agreement through the third anniversary of the date of termination of
employment of such Initial Managing Principal with the Company Group, (b) with respect to a 1%
Member, the period from the date of this Agreement through the end of the Non-Compete Period
applicable to such 1% Member as set forth in Section 5.07(f) and (c) with respect to an Employee
Member other than an Initial Managing Principal or a 1% Member, the period from the date of this
Agreement through the date of termination of employment of such Employee Member with the Company
Group.
“Non-Employee Member” shall mean a Class B Member that is not (a) an Employee Member
or (b) a Permitted Transferee of an Employee Member.
“Non-Solicitation Period” shall mean (a) with respect to an Initial Managing
Principal, the period from the date of this Agreement through the third anniversary of the date of
termination of employment of such Initial Managing Principal with the Company Group and (b) with
respect to any other Member, the period from the date of this Agreement through the eighteenth
month anniversary of the date of termination of employment of such other Member with the Company
Group.
“1% Member” shall mean, at the time of determination, (a) with respect to an Employee
that is employed by the Company Group, an Employee Member holding, together with Units transferred
by such Employee Member to, and held by, his or her Permitted Transferees, not less than 1% of all
outstanding Units of the Company at such time and (b) with respect to an Employee Member that was,
but is no longer, employed by the Company Group, an Employee Member holding, together with Units
transferred by such Employee Member to, and held by, his or her Permitted Transferees, not less
than 1% of all outstanding Units of the Company on the date of termination of employment of such
Employee Member so long as, pursuant to Section 5.07(f), (i) the Managing Member elects to treat
such Employee Member as a 1% Member and (ii) the Company Group satisfies its payment obligations to
such 1% Member.
“Ordinary Employee Member” shall mean an Employee Member other than an Initial
Founding Principal.
“Permitted Transferee” shall mean, with respect to an Employee Member, any Person to
whom such Employee Member (or, in the case of a subsequent Transfer, a Permitted Transferee of such
Employee Member) transferred Class B Units pursuant to the terms of this Agreement,
provided that (a) neither the Company nor the Managing Member shall be designated as a
Permitted Transferee of an Employee Member following a Transfer of Class B Units to the Company or
the Managing Member, as the case may be, and (b) the Managing Member and such Employee Member may
agree in writing that a transferee of such Employee Member shall be designated as an Employee
Member or a Non-Employee Member rather than as a Permitted Transferee of such Employee Member.
9
“Person(s)” shall mean any individual, partnership (whether general or limited), joint
venture, corporation, limited liability company, trust, an incorporated organization and a
Governmental or Regulatory Authority or other entity.
“Plan” shall mean (a) the 2006 Plan or (b) any other equity incentive plan that may
hereinafter be adopted by the Company.
“Prime Rate” shall mean U.S. prime rate published in The Wall Street Journal on the
business day immediately prior to the date of determination.
“Pzena Inc.” has the meaning set forth in the preamble hereto.
“Register of Members” has the meaning set forth in Section 1.07 hereof.
“Registration Rights Agreement” shall mean the Resale and Registration Rights
Agreement, dated as of the date hereof, by and between Pzena Inc. and the Persons who, on or
following such date, may become parties to such agreement.
“Securities” has the meaning set forth in Section 1.03(a) hereof.
“Selling Holders” has the meaning set forth in Section 6.03 hereof.
“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
“Sharing Percentage” shall mean, with respect to any Member, a percentage, expressed
as a fraction the numerator of which is the number of Units held by such Member and the denominator
of which is the aggregate number of Units held by all Members.
“Super Majority In Interest of the Class B Members” shall mean, as of the time of
determination, Class B Members holding more than 66 2/3% of the issued and outstanding Class B
Units at such time.
“Tax Allowance Amount” shall mean, with respect to any Member for any fiscal quarter
of the Company, an amount equal to the product of: (i) the highest combined federal and applicable
state and local tax rate applicable to any Member in respect of the taxable income and taxable loss
of the Company in respect of such fiscal quarter, taking into account the deductibility of state
and local taxes for federal income tax purposes, times (ii) an amount equal to the remainder of (a)
such Member’s share of the estimated net taxable income allocable to such Member arising from its
ownership of an interest in the Company calculated through such fiscal quarter minus (b) the sum of
(1) any net losses (for income tax purposes) of the Company for prior Fiscal Years and such fiscal
quarter that are allocable to such Member that were not previously utilized in the calculation of
the Tax Allowance Amounts in a prior Fiscal Year and (2) the amount of all prior distributions
(including distributions of Tax Allowance Amounts) for such Fiscal Year, all as determined by the
Managing Member.
“Transfer” shall mean, as a noun, any voluntary or involuntary transfer, sale,
assignment, pledge, hypothecation, creation of a security interest or other disposition and, as a
verb,
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voluntarily or involuntarily to transfer, sell, assign, pledge, hypothecate, grant a security
interest in or otherwise dispose of.
“2007 Plan” shall mean the Pzena Investment Management, Inc. Equity and Incentive
Plan, as hereafter amended, modified or supplemented, and any other successor incentive plan.
“2006 Plan” shall mean the Pzena Investment Management, LLC 2006 Equity Incentive Plan
in the form attached hereto as Exhibit A, as hereafter amended, modified or supplemented.
“Unit(s)” shall mean the Class A Units and the Class B Units (whether or not vested).
“Works” has the meaning set forth in Section 5.08(g) hereof.
1.09. Construction. For the purposes of this Agreement (a) any reference in this Agreement
to gender shall include all genders; (b) any words imparting the singular number only shall include
the plural and visa versa; (c) the terms “herein,” “hereinafter,” “hereof,” “hereby” and
“hereunder” and words of similar import refer to this Agreement as a whole (including all of the
exhibits and schedules hereto) and not merely to a subdivision in which such words appear unless
the context otherwise requires; (d) the word “including” or any variation thereof means “including,
without limitation” and shall not be construed to limit any general statement that it follows to
the specific or similar items or matters immediately following it; (e) any reference in this
Agreement to “dollars” or ($) shall mean United States dollars; (f) the word “or” shall not be
exclusive; (g) all references to any period of days shall be deemed to be to the relevant number of
calendar days unless otherwise specified; (h) all references to an “employee” of the Company Group
shall include any natural person that provides personal services to any member of the Company
Group, whether or not such natural person is treated as a “partner” (rather than as an employee)
for tax and tax withholding purposes; (i) any reference in this Agreement to “writing” or
comparable expressions includes a reference to facsimile transmissions or comparable means of
communication; and (j) references to any statute or statutory provision shall include a reference
to that statute or statutory provision as amended, consolidated or replaced from time to time
(whether before or after the date of this Agreement) and include subordinate legislation made under
the relevant statute or statutory provision.
2.01. Contributions.
(a) The Managing Member and each Class B Member identified on the Register of Members has the
number of Units of such designation as set forth opposite such Member’s name and each has been duly
admitted to the Company. The Company shall also set forth in its books and records Capital
Contributions made by each Member.
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(b) At the time of admittance as a Class B Member, each Person being so admitted shall have
its name and the number of Units being granted to such Class B Member upon admittance, including
any conditions, adjustments or special provisions determined by the Managing Member to be
applicable to such Class B Member, added to the Register of Members and shall have its Capital
Contributions, if any, recorded in the books and records of the Company. The Managing Member may
admit Class B Members and issue Class B Units for contributions, or on terms and conditions
determined by the Managing Member in its sole discretion, it being expressly understood and agreed
among the Class B Members that such contribution and such terms and conditions may be different
from the corresponding terms and conditions for other Class B Members.
(c) No Member shall be entitled to the return of its Capital Contributions at any particular
time.
2.02. Additional Capital Contributions. No Member shall be obligated to make any
additional Capital Contributions. In addition, no Member shall be permitted to make additional
Capital Contributions of cash or property without the express permission of the Managing Member,
which permission may be withheld for any or no reason.
2.03. Members and the Executive Committee Not Liable. None of the Managing Member, any
other Member or any member of the Executive Committee shall be liable for any obligation or
liability of the Company or for distribution, return or payment of all or any portion of the
Capital Contributions or any additions to the Capital Accounts of any Member (or successor,
assignee or transferee), it being expressly agreed that any such distribution, return or payment as
may be made at any time, or from time to time, shall be made solely from the assets (which shall
not include any right of contribution from the Managing Member, any Member or any member of the
Executive Committee) of the Company.
2.04. Capital Accounts.
(a) A separate capital account (a “Capital Account”) shall be maintained for each
Member on the books of the Company.
(b) The Capital Account for each Member will be maintained in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv) and the following provisions:
(1) to such Member’s Capital Account there will be credited such Member’s Capital
Contributions, such Member’s distributive share of Company Income and other items of income
or gain specially allocated hereunder, and the amount of any Company liabilities that are
assumed by such Member or that are secured by any Company assets distributed to such
Member;
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(2) to such Member’s Capital Account there will be debited the amount of cash and the
Gross Asset Value of any other property of the Company distributed to such Member pursuant
to any provision of this Agreement, such Member’s distributive share of Company Losses and
other items of loss, expense and deduction specially allocated hereunder, and the amount of
any liabilities of such Member that are assumed by the Company or that are secured by any
property contributed by such Member to the Company;
(3) in determining the amount of any liability for purposes of this subsection (b),
there will be taken into account Section 752(c) of the Code and any other applicable
provisions of the Code and the Treasury Regulations; and
(4) such Member’s Capital Account will be appropriately adjusted to take into account
any adjustments to the Gross Asset Value of Company assets in accordance with the
definition of the term “Gross Asset Value” set forth in Section 1.08.
(c) After the date of this Agreement, in the event that all or a portion of any Interest in
the Company is Transferred (other than pursuant to the granting of a Lien) in accordance with the
terms of this Agreement, the transferee will succeed to the Capital Account of the transferor to
the extent such Capital Account relates to the portion of the Interest so Transferred, except to
the extent otherwise agreed by the transferor, the transferee and the Managing Member.
(d) No Member shall be entitled to receive any interest on or in respect of any amount
credited to his/her/its Capital Account.
(e) Except as otherwise provided in this Agreement, no Member shall have the right to receive
a return of any portion of its Capital Account.
(a) Subject to Sections 3.01(b) and 3.02 hereof, Company Income and Company Loss for each
Accounting Period shall be allocated to and among all Members pro rata, based on their respective
Sharing Percentages as of the first day of such Accounting Period. Each Member’s Capital Account
balance shall be adjusted at the end of each Accounting Period by an amount equal to such
allocations.
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(b) Notwithstanding Section 3.01(a), at such time as the Company makes any adjustments
pursuant to clause (c) of the definition of Gross Asset Value, Company Income and Company Loss
shall be allocated among the Members as follows:
(1) First, to the Members in such proportions and such amounts, as determined
by the Managing Member, as shall be necessary to cause the Capital Percentage of each
Member to equal (or to be closer to) the Sharing Percentage of such Member; and
(2) Second, to all Members in proportion to their respective Sharing
Percentages.
(c) For purposes of determining the Company Income, Company Loss, or any other items allocable
to any Accounting Period, Company Income, Company Loss and any such other items will be determined
on a daily, monthly or other basis (but no less frequently than once annually), as determined by
the Managing Member using any permissible method described in Code Section 706 and the Treasury
Regulations thereunder; provided that Company Income, Company Loss, and such other items will be
allocated at such times as the Gross Asset Values of the Company are adjusted pursuant to
subparagraph (c) of the definition of Gross Asset Value in Article I.
3.02. Tax Allocations.
(a) Allocations for Income Tax Purposes. The income, gains, losses, deductions and
credits of the Company shall be allocated for federal, state and local income tax purposes among
the Members, pro rata based on their Sharing Percentage. If any Interest is transferred, or is
increased or decreased by reason of the admission of a new Member or otherwise, during any
Accounting Period, each item of income, gain, loss, deduction, or credit of the Company for such
Accounting Period allocable may be allocated based on any method consistent with Section 706(d) of
the Code, in the sole discretion of the Managing Member.
(b) Section 704(c) Allocations. Notwithstanding any other provision in this Section
3.02, in accordance with Code Section 704(c) and the Treasury Regulations promulgated thereunder,
income, gain, loss, and deduction with respect to any property contributed to the capital of the
Company shall, solely for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal income tax
purposes and its fair market value on the date of contribution. Allocations pursuant to this
Section 3.02(b) are solely for purposes of federal, state and local taxes. As such, they shall not
affect or in any way be taken into account in computing a Member’s Capital Account or share of
Company Income, Company Loss, or other items or distributions pursuant to any provisions of this
Agreement.
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3.03. Distributions. Subject to applicable Law and any limitations contained elsewhere in
this Agreement, distributions of all capital, earnings, income and other distributable items from
the Company (a) shall be made at such times as the Managing Member shall determine from time to
time and (b) shall be made to Members pro rata in proportion to their respective Units.
Distributions may take the form of cash, securities or other property, as determined by the
Managing Member.
3.04. Tax Distributions. Notwithstanding Section 3.03 hereof, on or before the date that
estimated income taxes are required to be paid, the Managing Member shall determine the Tax
Allowance Amount for each Member in respect of such quarter. Upon such determination, the Company
shall distribute each Member’s Tax Allowance Amount to such Member. All such distributions shall
have priority over any distributions pursuant to Section 3.03 hereof. Amounts distributed pursuant
to this Section 3.04 shall be treated as distributions for all purposes of this Agreement and shall
be offset against and reduce subsequent distributions made pursuant to Section 3.03.
3.05. Restrictions on Distributions. Notwithstanding the provisions of Sections 3.03 and
3.04 hereof to the contrary, no distribution shall be made to the Members if such distribution
would (i) violate any contract or agreement to which the Company is then a party or any Law then
applicable to the Company, (ii) have the effect of rendering the Company insolvent or (iii) result
in the Company having net capital lower than that required by applicable Law. Without limiting the
generality of the foregoing, the Company shall not make a distribution to a Member to the extent
that at the time of the distribution, after giving effect to the distribution, the aggregate of the
liabilities of the Company and liabilities for which the recourse of creditors is limited to
specified property of the Company, exceed the fair value of the assets of the Company (including,
without limitation, the fair value of the Company’s goodwill), except that the fair value of
property that is subject to a liability for which the recourse of creditors is limited shall be
included in the assets of the Company only to the extent that the fair value of that property
exceeds that liability.
3.06. Withholding. Each Member hereby authorizes the Company to withhold and to pay to any
appropriate taxing authority any taxes payable by the Company as a result of such Member’s
participation in the Company; if and to the extent that the Company shall be required to withhold
and pay any such taxes, such Member shall be deemed for all purposes of this Agreement to have
received a payment from the Company in the amount of the sum withheld as of the time such
withholding is required to be paid to any appropriate taxing authority, which payment shall be
deemed to be a distribution to such Member to the extent that the Member is then entitled to
receive a distribution.
3.07. Indemnification and Reimbursement for Payments on Behalf of a Member. If the Company
is required by law to make any payment to a Governmental or Regulatory Entity that is specifically
attributable to a Member or a Member’s status as such (including federal withholding taxes, state
or local personal property taxes and state or local unincorporated business taxes), then such
Member shall indemnify the Company in full for the entire amount
15
paid (including interest, penalties and related expenses). A Member’s obligation to indemnify the
Company under this Section 3.07 shall survive termination, dissolution, liquidation and winding up
of the Company, and for purposes of this Section 3.07, the Company shall be treated as continuing
in existence. The Company may pursue and enforce all rights and remedies it may have against each
Member under this Section 3.07, including instituting a lawsuit to collect such indemnification,
with interest calculated at a rate equal to Prime Rate plus 2% (but not in excess of the highest
rate per annum permitted by law).
4.01. Operating Costs. The Company shall (i) pay, or cause to be paid, all costs, fees,
operating expenses and other expenses of the Company (including the costs, fees and expenses of
attorneys, accountants or other professionals and the compensation of all personnel providing
services to the Company) incurred in pursuing and conducting, or otherwise related to, the
activities of the Company, and (ii) in the sole discretion of the Managing Member, reimburse the
Managing Member or any member of the Executive Committee, any Administrative Officer, or any
Company employee for any out-of-pocket costs, fees and expenses incurred by them in connection
therewith. In light of the fact that the Managing Member is the managing member of the Company and
provides a means through which Class B Members may exchange their Class B Units for securities of
the Managing Member, the Managing Member may cause the Company to pay or bear all expenses of the
Managing Member, including, without suggesting any limitation of any kind, costs of securities
offerings not borne directly by Class B Members, Board of Directors compensation and meeting costs,
cost of periodic reports to its stockholders, litigation costs and damages arising from litigation,
accounting and legal costs and franchise taxes, provided that, without limiting the right
of the Managing Member to receive distributions pursuant to Sections 3.03 and 3.04, the Company
shall not pay or bear any income tax obligations of the Managing Member pursuant to this Section
4.01.
5.01. Liability of Members. Except as otherwise provided by the Act or herein, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall
be solely the debts, obligations and liabilities of the Company, and the Members shall not be
obligated personally for any such debt, obligation or liability of the Company solely by reason of
being a member of the Company.
5.02. Management of Business. The business, property and affairs of the Company shall be
managed under the exclusive direction of the Managing Member, which may from time to time delegate
duties and authority in accordance with this Agreement to the Executive Committee, to the
Administrative Officers or to others to act on behalf of the Company. The Class B Members, in
their capacity as members of the Company, shall not take part in the management or control of
16
the Company. No Class B Member shall transact any business for the Company, and none may bind or
obligate the Company, unless specifically authorized by the Managing Member or the Executive
Committee to do so as part of the delegation of duties to such Class B Member as an Administrative
Officer.
5.03. Withdrawal. The Managing Member may not withdraw or resign from the Company. Except
as otherwise provided herein, a Class B Member may not withdraw or resign from the Company without
the prior written consent of the Managing Member; provided, that at such time as a Class B Member
no longer owns any Units, such Class B Member shall cease to be a member of the Company. The
resignation or cessation of membership of a Class B Member shall not dissolve the Company.
5.04. Substitute Member.
(a) No Class B Member shall have the right to substitute in his place a purchaser, assignee,
transferee, donee, heir, legatee, distributee, or other recipient of interests of such Class B
Member (other than in compliance with the provisions of Section 5.04(b) hereof), provided that any
purchaser, assignee, transferee, donee, heir, legatee, distributee or other recipient of interests
shall be admitted to the Company as a substitute Class B Member with, and only with, the consent of
the Managing Member, which consent may be granted or withheld in the sole discretion of the
Managing Member. Any such consent by the Managing Member shall be binding and conclusive without
the consent of the Class B Members.
(b) No Person shall become a substitute Class B Member until such Person shall have satisfied
the following requirements: (i) such Person shall, by written instrument in form and substance
reasonably satisfactory to the Managing Member, make representations and warranties to each
nontransferring Member (w) with respect to the capacity, power and authority of the transferee to
accept and adopt the terms and provisions of this Agreement, (x) that the execution, delivery and
performance of this Agreement by the transferee does not require any consent or approval and does
not violate any agreement to which the transferee is a party, (y) that the transferee has not
committed any act which could serve as a basis for (I) denial, suspension or revocation of the
registration of any investment adviser, including the Company, under Section 203(e) of the Advisers
Act or Rule 206(4)-4(b) thereunder, or for disqualification of any investment adviser, including
the Company, as an investment adviser to a registered investment company pursuant to Sections 9(a)
or 9(b) of the Investment Company Act of 1940, (II) precluding the Company from acting as a
fiduciary by operation of Section 411 of the Employee Retirement Income Security Act of 1974, as
amended, or (III) the Company failing to qualify as a Qualified Professional Asset Manager within
the meaning of Prohibited Transaction Exemption 84-14, and (z) that are otherwise determined by the
Managing Member as necessary or desired by the Company in order to comply with securities Laws, and
(ii) such Person accepts and adopts the terms and provisions of this Agreement pursuant to a
written instrument acceptable to the Managing Member in its sole discretion.
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(c) For the purpose of allocating Company Income and Company Losses, a Person with respect to
whom the Managing Member has given consent as provided in Section 5.04(a) hereof shall be treated
as having become, and shall appear in the records of the Company as, a Member on the date of the
Transfer to such Person.
5.05. Power of Attorney. Each of the Class B Members hereby constitutes and appoints the
Managing Member his true and lawful representative and attorney-in-fact in his name, place and
xxxxx, with full power of substitution, to make, execute, sign, acknowledge and file with respect
to the Company:
(a) all instruments which the Managing Member deems appropriate to reflect any duly adopted
amendment, change or modification of the Company’s Certificate of Formation or this Agreement in
accordance with the terms of this Agreement;
(b) any amendment to this Agreement and all such other instruments, documents and
certificates, which may from time to time be required by the laws of the State of Delaware, the
United States of America (including tax laws and regulations), or any other jurisdiction in which
the Company shall determine to do business, or any political subdivision or agency thereof, to
effectuate, implement, continue and defend the valid and subsisting existence of the Company as a
limited liability company and to be treated as a partnership for tax purposes;
(c) all applications, certificates, certifications, reports or similar instruments or
documents required to be submitted by or on behalf of the Company to any Governmental or Regulatory
Authority or to any securities or commodities exchange, board of trade, clearing corporation or
association or similar institution or to any other self-regulatory organization or trade
association; and
(d) all papers which may be deemed necessary or desirable by the Managing Member to effect the
dissolution and liquidation of the Company if approved in accordance with the terms of this
Agreement;
provided, that no such representative and attorney-in-fact shall have any right, power or authority
to amend or modify this Agreement when acting in such capacity. The foregoing Power of Attorney is
hereby declared to be a power coupled with an interest and irrevocable, and shall not be revoked by
the death of a Class B Member and shall extend to such Class B Member’s Permitted Transferees.
5.06. Voting. The Class B Units shall have no voting or consent rights except as set forth
in Sections 6.03, 7.01(b), 8.01(a) and 11.01. If a vote, consent or approval of the Class B
Members is required by this Agreement, then each such Class B Member shall have one vote for each
Class B Unit held by such Class B Member. Except as otherwise expressly provided for
18
herein, (i) the Class B Members hereby consent to the exercise by the Managing Member of all such
powers and rights conferred on each Class B Member by the Act with respect to the management and
control of the Company and (ii) if a vote, consent or approval of the Class B Members is required
by the Act or other applicable Law with respect to any act to be taken by the Company or matter
considered by the Managing Member, each Class B Member agrees that it shall be deemed to have
consented to or approved such act or voted on such matter in accordance with the actions of the
Managing Member on such act or matter.
5.07. Non-Solicitation/Non Compete.
(a) In consideration of the Class B Units granted and to be granted to the Employee Members
from time to time by the Company, each Employee Member agrees that during the entire term of the
Non-Compete Period applicable to such Employee Member, such employee shall not, directly or
indirectly, whether as an officer, director, owner, partner, investor, member, adviser,
representative, consultant, agent, employee, co-venturer or otherwise, provide Investment Advisory
Services, except in the performance of his duties with the Company Group, or engage, or assist
others to engage, in whole or in part, in any business in competition with the business of the
Company Group.
(b) In consideration of the Class B Units granted and to be granted to the Employee Members
from time to time by the Company Group, each Employee Member agrees that during the entire term of
the Non-Solicitation Period applicable to such Employee Member, such Employee Member shall not,
directly or indirectly (other than in the course of performing his duties to the Company Group) (i)
solicit the hiring of or hire any employee of the Company Group or any Person who, within the prior
six months had been an employee of the Company Group, assist in, or encourage such hiring by any
Person or encourage any such employee to terminate or alter his relationship with the Company
Group; (ii) in competition with the Company Group, solicit, seek, induce, pursue in any way, or
accept a business relationship of any kind with, any Person who is a Client of the Company Group,
including by way of indirect or sub-advisory arrangements (such obligation to include the duty of
the Employee Member to decline any such offered business activity even if unsolicited); (iii)
otherwise solicit, encourage or induce any Client to terminate or reduce its business or
relationship with the Company Group; or (iv) otherwise take any action or have any communication
with any Person which purpose is, or the reasonably likely effect of which could be, to cause any
such Client to terminate, alter, reduce, modify or restrict in any way its relationship or business
with the Company Group.
(c) In the event that the Employee Member, upon notice from the Company of an inadvertent
breach of Section 5.07(b) by such Employee Member, promptly pays to the Company all fees and other
compensation that are earned by such Employee Member during the Non-Solicitation Period in
connection with such breach, such inadvertent breach shall not be treated as a breach resulting in
a forfeiture of Class B Units pursuant to Section 6.02(b)(2) or (3).
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(d) Each Employee Member acknowledges and agrees that the covenants set forth in this Section
5.07 are reasonable and necessary for the protection of the Company. Each Employee Member further
agrees that irreparable injury will result to the Company in the event of any breach of any of the
terms of Section 5.07, and that in the event of any actual or threatened breach of any of the
provisions contained in Section 5.07, the Company will have no adequate remedy at Law. Each
Employee Member accordingly agrees that in the event of any actual or threatened breach by such
Employee Member of any of the provisions contained in this Section 5.07, the Company shall be
entitled to seek such injunctive and other equitable relief as may be deemed necessary or
appropriate by a court of competent jurisdiction, without the necessity of showing actual monetary
damages and without posting any bond or other security.
(e) If any court of competent jurisdiction shall at any time deem the term of any particular
restrictive covenant contained in this Section 5.07 too lengthy or the geographic scope too
extensive, the other provisions of this Section 5.07 shall nevertheless stand, the Non-Compete
Period and the Non-Solicitation Period applicable to such Employee Member shall be deemed to be the
longest period permissible by applicable Law under the circumstances and the geographic scope shall
be deemed to comprise the largest territory permissible by applicable Law under the circumstances.
The court in each case shall reduce the Non-Compete Period, the Non-Solicitation Period and/or
geographic scope to permissible duration or size.
(f) During the six (6) month period following the termination of employment of a 1% Member
with the Company Group, the Managing Member may, in its sole discretion, elect to cause the Company
Group to provide base and bonus compensation to such 1% Member at the same rate and the same time
as it was then compensating such 1% Member, provided that the bonus component of such
compensation applicable to such six (6) month period shall equal 50% (subject to reduction pursuant
to the last sentence of this Section 5.07(f)) of the annual bonus earned by such 1% Member most
recently prior to such termination of employment and shall be paid in cash promptly following the
end of such six (6) month period. In the event the Managing Member elects to provide such 1%
Member such compensation, the Non-Compete Period applicable to such 1% Member shall continue until
the last day of such six (6) month period. In order to make such election, the Managing Member
shall, within five (5) Business Days upon issuing to or receiving from a 1% Member a written notice
of termination of employment, notify such 1% Member in writing whether the Company Group will
provide such base and bonus compensation for such six (6) month period. If the Managing Member
does not timely make such an election, then the Non-Compete Period shall end when such 1% Member’s
employment with the Company Group terminates. Notwithstanding the foregoing, to the extent that a
1% Member gives a notice of termination of employment at least fourteen (14) days in advance of
such termination, (i) such 1% Members’ Non-Compete Period shall be reduced, for up to ninety (90)
days, by the number of days elapsed between the date of such notice and the date of the termination
of such 1% Member’s employment (such number, the “Reduced Number of Days”), (ii) the period
during which the Company shall provide compensation pursuant to this Section 5.07(f) shall be
reduced by the Reduced Number of Days and (iii) the percentage contained in the proviso to the
first sentence of this Section 5.07(f) (including with respect to the annual bonus) shall equal the
product of 50% multiplied by a fraction the numerator of which is 182 minus the Reduced Number of
Days and the denominator of which is 182.
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5.08. Confidentiality; Work for Hire. In consideration of the benefits provided in this
Agreement, each Employee Member hereby agrees to the following:
(a) During the entire term of the Employee Member’s employment with the Company Group, the
Employee Member will have access to and become acquainted with confidential proprietary information
of the Company Group, including, without limitation, confidential or proprietary investment
methodologies and models, market analysis, trade secrets, know-how, designs, formulae, software
programs, proprietary or confidential plans, client identities and relationships, compilations of
information, client lists or files, service providers, business operations or techniques, records,
specifications, and data owned or used in the course of business by the Company Group
(collectively, “Confidential Information”). The Employee Member shall not disclose any of
the Confidential Information, directly or indirectly, or use it in any way, either during the
Employee Member’s employment with the Company Group or at any time thereafter, except as required
in the course of the Employee Member’s employment by the Company Group. All files, records,
documents, drawings, specifications, equipment and similar items relating to the business of the
Company Group, whether prepared by the Employee Member or otherwise coming into the Employee
Member’s possession, will remain the exclusive property of the Company Group, and if removed from
the premises of the Company Group will be immediately returned to the Company Group upon any
termination of the Employee Member’s employment.
(b) Each Employee Member agrees that any and all presently existing investment advisory
businesses of the Company Group and all businesses developed by the Company Group, including by the
Employee Member or any other employee or agent of the Company Group, including all investment
methodologies, all client investment advisory contracts, fees and fee schedules, commissions,
records, data, client lists, agreements, trade secrets, and any other incident of any business
developed by the Company Group or earned or carried on by the Employee Member for the Company
Group, and all trade names, service marks and logos under which the Company Group does business,
and any combinations or variations thereof, are and shall be, the exclusive property of the Company
Group for its sole use, and (where applicable) shall be, payable directly to the Company Group. In
addition, the Employee Member acknowledges and agrees that the investment performance of the
accounts managed by the Company Group is attributable to the efforts of the team of professionals
of the Company Group (including by the Employee Member during the Employee Member’s employment with
the Company Group) and not to the efforts of any single individual, and that, therefore, (i) the
performance records of the accounts managed by the Company Group (including by the Employee Member
during the Employee Member’s employment with the Company Group) are and shall be the exclusive
property of the Company Group and (ii) such records may not be used or cited by such Employee
Member at any time except as required in the course of the Employee Member’s employment by the
Company Group or with the prior written consent of the Managing Member.
(c) As used in this Section 5.08, the term “Confidential Information” does not include
information that the Employee Member can document (i) becomes or has been generally
21
available to the public other than as a result of the Employee Member’s or its
representative’s disclosure; (ii) was available to the Employee Member on a non confidential basis
prior to its disclosure by the Company Group; or (iii) is independently developed or becomes
available to the Employee Member on a nonconfidential basis from a source other than the Company
Group.
(d) The Employee Member agrees that the Employee Member has not and will not during the term
of the Employee Member’s employment with the Company Group: (i) improperly use or disclose any
proprietary information or trade secrets of any former employer or other Person with which the
Employee Member has an agreement or duty to keep in confidence information acquired by the Employee
Member, if any; or (ii) bring onto the premises of the Company Group any document or confidential
or proprietary information belonging to such employer or Person unless consented to in writing by
such employer or Person. The Employee Member will indemnify the Company and hold it harmless from
and against all claims, liabilities, damages and expenses, including reasonable attorneys’ fees and
costs of suit, arising out of or in connection with any violation of the foregoing.
(e) The Employee Member recognizes that the Company Group may have received, and in the future
may receive, from third parties their confidential or proprietary information subject to a duty on
the Company Group’s part to maintain the confidentiality of such information and to use it only for
certain limited purposes. The Employee Member agrees that the Employee Member owes the Company
Group and such third parties, during the Employee Member’s employment by the Company Group and
thereafter, a duty to hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any Person and to use it in a manner consistent with, and for
the limited purposes permitted by, the Company Group’s agreement with such third party.
(f) In the event of the Employee Member’s termination of employment with the Company for any
reason whatsoever, the Employee Member agrees promptly to surrender and deliver to the Company all
records, notes, materials, equipment, drawings, documents and data of any nature pertaining to any
Confidential Information or to his employment, and the Employee Member will not retain or take with
the Employee Member any tangible materials containing or pertaining to any Confidential Information
that the Employee Member may produce, acquire or obtain access to during the course of his
employment.
(g) Works Made for Hire.
(1) The Employee Member acknowledges that all work performed by the Employee Member
for the Company Group, including without limitation copyrights, patents, inventions or any
other works (collectively, the “Works”), shall be considered “works made for hire”
as defined in the United States Copyright Act, as amended. For purposes of this Agreement,
the Company is the Person for whom this work is prepared and is considered the sole and
original author of any work done by the Employee Member hereunder. Therefore, the Company
owns all of the right, title and interest in
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and to the Works, and shall have the sole and exclusive right (and may grant to others
the right) in perpetuity throughout the universe, to copyright, use, modify, change, adapt
or exploit the Works (and permit others to do the same) by any means, for any purpose, in
any media, now known or hereafter devised. The Employee Member hereby waives any and all
moral rights that he, or any Person working on his behalf, may have pursuant to any Laws or
in any jurisdiction regarding the Works.
(2) In the event that a court of competent jurisdiction ever determines that any of
the Works are not “works made for hire,” then such Works and all rights therein shall be
deemed assigned to the Company (and/or its successors or assigns). The foregoing
assignment includes all worldwide rights of any kind in and to the Works (whether or not
such rights are recognized in the United States or any other country in the world)
including, all rights incident to copyright ownership (including renewals or extensions),
to claims for damages by reason of past infringement and to the right to xxx and recover
such damages for the use and benefit of the Company. Upon the Company’s reasonable
request, the Employee Member agrees to execute additional documents, if any, necessary to
evidence, establish, maintain or protect the Company Group’s (or its licensees’,
successors’ or assigns’) rights in and ownership of the Works and hereby appoints the
Company (and its successors or assigns) as his attorney-in-fact to execute such documents.
5.09. New Class B Members and Issuance of Class B Units. Subject to the terms of this
Agreement, the Managing Member may admit one (1) or more additional Class B Members or issue
additional Class B Units to an existing Class B Member at any time. As determined by the Managing
Member, the admission of additional Class B Members may result in dilution of the Interests of the
Company’s then existing Members. No existing Member shall be entitled to be compensated or
reimbursed on account of any such dilution, nor will any Member be entitled to rights of first
refusal, pre-emptive rights or any other rights or benefits as a result of the issuance of
additional Units to any existing Member or the admission of a new Class B Member. The Managing
Member may do all things appropriate or convenient in connection with the issuance of Units or the
admission of any additional Class B Member. The admission of an additional Class B Member to the
Company shall not dissolve the Company.
5.10. Investment Representations of Members. Each Member hereby represents, warrants and
acknowledges to the Company that:
(a) Such Member has all requisite power to execute, deliver and perform this Agreement; the
performance of its obligations hereunder will not result in a breach or a violation of, or a
default under, any material agreement or instrument by which such Member or any of such Member’s
properties is bound or any statute, rule, regulation, order or other law to which it is subject,
nor require the obtaining of any consent, approval, permit or license from or filing with, any
governmental authority or other Person by such Person in connection with the execution, delivery
and performance by such Member of this Agreement.
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(b) This Agreement constitutes (assuming its due authorization and execution by the other
Members) such Member’s legal, valid and binding obligation.
(c) Such Member is acquiring its Interest for investment solely for such Member’s own account
and not for distribution, transfer or sale to others in connection with any distribution or public
offering.
(d) Such Member (i) has received all information that such Member deems necessary to make an
informed investment decision with respect to an investment in the Company and (ii) has had the
unrestricted opportunity to make such investigation as such Member desires pertaining to the
Company and an investment therein and to verify any information furnished to such Member.
(e) Such Member understands that such Member must bear the economic risk of an investment in
the Company for an indefinite period of time because (i) the Interests have not been registered
under the Securities Act and applicable state securities laws and (ii) the Interests may not be
sold, transferred, pledged or otherwise disposed of except in accordance with this Agreement and
then only if they are subsequently registered in accordance with the provisions of the Securities
Act and applicable state securities laws or registration under the Securities Act or any applicable
state securities laws is not required.
(a) It is the intention of each of the Managing Member and the Class B Members that, unless
otherwise determined by the Managing Member, the number of the Class A Shares and Class B Shares
outstanding shall at all times equal the number of Class A Units and Class B Units outstanding,
respectively, and each of the Company, the Managing Member and the Class B Members agrees to
cooperate to give effect to the intent of this Section 5.11(a).
(b) The Managing Member shall not, directly or indirectly, enter into or conduct any business,
or hold any assets other than (i) business conducted and assets held by the Company and its
Subsidiaries, (ii) the ownership, acquisition and disposition of equity interests of the Company,
(iii) the management of the business of the Company and its Subsidiaries, (iv) the offering, sale,
syndication, private placement or public offering of shares, bonds, securities or other interests
in compliance with this Section 5.11, (v) any activity or transaction contemplated by this
Agreement and the Registration Rights Agreement and (vi) such activities as are incidental to the
foregoing.
(c) The Managing Member shall not own any assets or take title to assets (other than
temporarily in connection with an acquisition prior to contributing such assets to the Company)
other than equity interests in the Company and such cash and cash equivalents, bank accounts or
24
similar instruments or accounts as the Board of Directors of the Managing Member deems
reasonably necessary for the Managing Member to carry out its responsibilities contemplated under
this Agreement.
(d) The Managing Member shall, directly, maintain at all times ownership of all outstanding
Class A Units, and shall not permit any Person to possess or exercise a right or ability to remove,
replace, appoint or elect the Managing Member of the Company.
(e) If the Managing Member issues any equity securities after the date of this Agreement:
(i) at any time the Managing Member issues any equity securities other than pursuant to the
2007 Plan, the Managing Member shall immediately contribute all the cash proceeds, assets or other
consideration or payments received from or in respect of the issuance of securities and from the
exercise of any rights contained in any such securities, including from a Class B Member in respect
of such issuance (collectively, the “Equity Proceeds”) (x) to the Company and the Company
shall immediately issue to the Managing Member, in exchange for the Equity Proceeds contributed to
the Company and any deemed Capital Contributions pursuant to Section 5.11(e)(iii), (A) in the case
of an issuance of a Class A Share, one Class A Unit, and (B) in the case of an issuance of any
other equity securities by the Managing Member, a new class or series of units or other equity
securities with designations, preferences and other rights, terms and provisions that are
substantially the same as those of such Managing Member’s equity securities equal in number to the
number of the Managing Member’s equity securities issued or, (y) if otherwise agreed in writing by
the Managing Member and any other Member, to such Member and such Member shall immediately transfer
to the Manager, in exchange for such Equity Proceeds, applicable Class B Units held by such Member,
which Class B Units shall be automatically converted upon transfer, (A) in the case of an issuance
of a Class A Share, one Class A Unit or, (B) in the case of an issuance of any other securities by
the Managing Member, a new class or series of units or other equity securities with designations,
preferences and other rights, terms and provisions that are substantially the same as those of such
Managing Member’s equity securities equal in number to the number of the Managing Member’s equity
securities issued;
(ii) at any time the Managing Member issues a Class A Share pursuant to the 2007 Plan (whether
pursuant to the exercise of a stock option or the grant of a stock award or otherwise), (x) the
Managing Member shall be deemed to have contributed to the Company an amount of cash equal to the
per share closing price of its Class A common stock on the New York Stock Exchange on the trading
day immediately prior to the date of such issuance (or, if earlier, on the date the related option
is exercised) and shall concurrently transfer the Equity Proceeds, if any, to the Company (such
Equity Proceeds shall not constitute a Capital Contribution) and (y) the Company shall be deemed to
have purchased from the Managing Member the Class A Shares for the amount of cash deemed
contributed by the Managing Member to the Company pursuant to clause (x) above and shall issue one
Class A Unit to the Managing Member; and
25
(iii) in the event of any issuance of Class A Shares by the Managing Member, and the
contribution to the Company, by the Managing Member, of the cash proceeds or other consideration or
payments received from or in respect of such issuance (including from a Class B Member in respect
of such issuance), if the cash proceeds or other consideration or payments actually received by the
Managing Member are less than the gross proceeds of such issuance as a result of any underwriter’s
discount or other expenses paid or incurred in connection with such issuance (after giving effect
to any consideration or payments paid by Class B Members in respect of such issuance), the Managing
Member shall be deemed to have made a capital contribution to the Company in the amount equal to
the sum of the cash proceeds or other consideration or payments of such issuance plus the amount of
such underwriter’s discount and other expenses paid by the Managing Member, which discount and
expense shall be treated as an expense for the benefit of the Company for purposes of Section 4.01.
(f) If, at any time, any Class A Shares (or such other class or series of equity securities)
of the Managing Member is to be redeemed by the Managing Member for cash, the Company shall,
immediately prior to such redemption, redeem one (1) Class A Unit (or such other class or series of
equity securities in the Company) held by the Managing Member, upon the same term and for the same
price per Class A Unit (or such other class or series of equity securities in the Company), as such
Class A Shares (or such other class or series of equity securities of the Managing Member).
(g) Neither the Company nor the Managing Member shall in any manner subdivide (by split,
distribution, reclassification, recapitalization or otherwise) or combine (by reverse split,
reclassification, recapitalization or otherwise) their respective class or series of outstanding
units and common stock with designations, preferences and other rights, terms and provisions that
are substantially the same, unless such class of series of units or common stock are subdivided or
combined concurrently in an identical manner.
(h) Each Class B Member shall, concurrently with the execution and delivery of this Agreement
or, in the event that any Class B Units are issued by the Company to such Class B Member subsequent
to the date hereof, concurrently with such subsequent issuance, (i) execute and deliver to the
Managing Member a subscription agreement in form satisfactory to the Managing Member, subscribing
to a number of Class B Shares equal to the number of Class B Units held by such Class B Member as
of the date hereof or, with respect to a subsequent issuance, the number of Class B Units to be
issued to such Class B Member at such subsequent issuance, (ii) pay to the Managing Member
consideration for such subscribed Class B Shares at the par value, (iii) if such Class B Member is
not a party to the Class B Stockholders Agreement, execute and deliver to the Managing Member a
counterpart to the Class B Stockholders Agreement or an additional party signature page thereto and
(iv) execute and deliver to the Managing Member such instruments, certificates, agreements and
other documents as may be reasonably required by the Managing Member to effect the issuance of such
subscribed Class B Shares. The Managing Member shall issue to such Class B Member, upon receipt of
the foregoing, the Class B Shares so subscribed.
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(i) Notwithstanding the foregoing provisions of this Section 5.11, the Managing Member may
incur indebtedness and may take other actions if the Managing Member determines in good faith that
such indebtedness or other actions are in the best interests of the Company.
6.01. Transfer of Units.
(a) No Class B Member or transferee thereof shall, without the prior written consent of the
Managing Member, which may be withheld in its sole discretion, create, or suffer the creation of, a
Lien in such Member’s Units.
(b) The Managing Member shall not Transfer any Class A Units.
(c) No Class B Member shall Transfer, or suffer the Transfer of, such Class B Member’s Units
(including by way of indirect transfer resulting from the direct or indirect transfer of control of
any entity which is a Class B Member), in whole or in part, nor enter into any agreement as the
result of which any Person shall become interested with such Class B Member therein except subject
to Section 6.01(d), (i) with the prior written consent of the Managing Member, which may be
withheld in its sole discretion, (ii) by last will and testament to: (A) spouses or lineal
descendants, (B) inter vivos trusts, (C) family limited partnerships or similar entities or (D)
devices for the benefit of spouses and lineal descendants, on the condition in each case that each
Transferee thereof expressly acknowledges and agrees in writing that such transferred Interests (or
a portion thereof) are subject to this Agreement and all of the terms and conditions hereof or
(iii) pursuant to Exhibit B hereof.
(d) Except with the written consent of the Managing Member, no Transfer of a Unit shall be
permitted (and, if attempted, shall be void ab initio) if, in the determination of the Managing
Member,
(1) such Transfer is made to any Person who lacks the legal right, power or capacity
to own such Unit;
(2) such Transfer would require the registration of such transferred Unit or of any
class of Unit pursuant to any applicable United States federal or state securities laws
(including, without limitation, the Securities Act or the Exchange Act) or other foreign
securities laws or would constitute a non-exempt distribution pursuant to applicable state
securities laws;
27
(3) to the extent requested by the Managing Member, the Company does not receive such
legal and/or tax opinions and written instruments (including, without limitation, copies of
any instruments of Transfer and such Assignee’s consent to be bound by this Agreement as an
Assignee) that are in a form satisfactory to the Managing Member, as determined in the
Managing Member’s sole discretion;
(4) such a Transfer would pose a material risk that the Company would be a “publicly
traded partnership” as defined in Section 7704 of the Code;
(5) such Transfer would result in 50 percent or more of the Company’s total
“partnership interests” having been “sold or exchanged” in any 12 month period (within the
meaning of Section 708(b)(1)(B) of the Code) and the resulting termination of the Company
pursuant to Section 708(b)(1)(B) would, in the determination of the Managing Member, have a
more than immaterial adverse effect on the Company or the Members; or
(6) in the case of a Class B Unit, such transfer shall have been made in accordance
with the Class B Stockholders Agreement.
(e) Notwithstanding Section 6.02(b), (i) at any time prior to or following a Transfer of Class
B Units by a Class B Member, the transferring Class B Member, the transferee and the Managing
Member may agree in writing, in the sole discretion of each such Person, that all or any portion of
the Class B Units that may be forfeited by a Permitted Transferee pursuant to Section 6.02(b) shall
instead be forfeited by the Employee Member that transferred such Class B Units; and (ii) with
respect to any Class B Units transferred by an Employee Member to a Permitted Transferee prior to
the date hereof, such Class B Units shall not be subject to forfeiture by such Permitted Transferee
and such Employee Member shall instead forfeit an additional number of Class B Units equal to the
number of Class B Units that otherwise would have been forfeited by such Permitted Transferees
pursuant to Section 6.02(b) (for example, if an Ordinary Employee Member transferred twenty (20)
Class B Units to a Permitted Transferee prior to the date hereof, retained eighty (80) Class B
Units and thereafter breached Section 5.07 during the term of his employment, such Ordinary
Employee Member shall forfeit twenty five (25) Class B Units and such Permitted Transferee shall
not forfeit any Class B Units).
(f) Any purported Transfer of Units not in compliance with this Section 6.01 shall be void and
shall not create any obligation of the party of the Company or its Members to recognize such
Transfer.
(a) Vesting of Units.
28
29
over (B) the aggregate number of vested Class B Units (if any) previously forfeited by
such Member under this Section 6.03(b)(2).
(c) Consequences of Forfeiture. In the event a Class B Member’s Class B Units are
forfeited pursuant to Section 6.02(b), (i) the exact number of Class B Units (if not a whole
number) shall be determined by rounding to the nearest whole number of Class B Units, (ii) such
Class B Member shall cease to hold such number of Class B Units, (iii) forfeited Class B Units
shall be held in the treasury of the Company and thereafter may be awarded pursuant to a Plan and
(iv) the Managing Member shall reflect the reduction of the number of units by revising the
Register of Members. In addition, such Class B Member shall reasonably cooperate with the Managing
Member to assist in the redemption of an equal number of Class B Shares held by such Class B
Member.
6.03. Drag Along Rights. If holders of more than 50% of the outstanding Class B Units held
by Class B Members (the “Selling Holders”) propose to sell to a third party any Class B
Units held by such Class B Members (including Class B Units transferred by such Class B Members to,
and held by, their Permitted Transferees) (whether such sale is by way of purchase, merger,
recapitalization or other form of transaction), then upon (i) the request of the Selling Holders
and (ii) the consent of the Managing Member and a Majority in Interest of Class B Members, each
other Class B Member, shall sell the same percentage, as applicable, of the Class B Units
beneficially owned by such Class B Member to such third party buyer pursuant to the same terms and
conditions negotiated by the Selling Holders for the sale of the Class B Units held by the Selling
Holders. For example, if the Selling Holders propose to sell 35% of the Class B Units held by each
of them, any other Member shall, upon request of the Selling Holders and the consent of the
Managing Member and the Majority in Interest of Class B Members, sell 35% of the Class B Units held
by such other Class B Member. Each of the Class B Members agrees to such sale and to execute such
agreements, powers of attorney, voting proxies or other documents and instruments as may be
necessary or desirable to consummate such sale. Each of the Class B Members further agrees to
timely take such other actions as the Managing Member may reasonably request as necessary in
connection with the consummation of such sale. Each
30
Class B Member shall be required to make customary representations and warranties in connection
with such transfer with respect to his, her or its own authority to transfer his, her or its title
to the Class B Units transferred, together with such other representations and warranties with
respect to the Company as are made by the Selling Holders in connection with such sale; provided,
however, that the liability of each Class B Member with respect to the representations and
warranties concerning the Company shall be limited to his pro rata portion of the proceeds paid in
such sale. Each Class B Member shall pay his pro rata portion (based on the total value of the
consideration received by such Class B Member compared to the aggregate consideration received by
all Members in the transaction) of the reasonable out-of-pocket expenses incurred in connection
with a sale consummated pursuant to this Section 6.03.
(a) The business and affairs of the Company shall be under the sole and exclusive direction,
management and supervision of the Managing Member. In addition to all powers provided or permitted
by the Laws of the State of Delaware or any other applicable Law, the Managing Member is hereby
authorized on behalf of the Company: to expend Company funds in furtherance of the business and
purpose of the Company; to admit Members and issue Units for consideration and on terms and
conditions in his discretion; to incur obligations for and on behalf of the Company in connection
with its business; to open, maintain and close, in the name of the Company, brokerage and bank
accounts, and to draw checks or other orders for the payment of money; to borrow or raise moneys
for and on behalf of the Company upon such terms and conditions as may be necessary or advisable
and without limit as to amount or manner and time of repayment; to issue, accept, endorse and
execute promissory notes, drafts, bills of exchange, bonds, debentures and other negotiable or
non-negotiable instruments and evidences of indebtedness; to hypothecate, mortgage or pledge the
whole or any part of the property or credit of the Company, whether at the time owned or thereafter
acquired; to repay in whole or in part, refinance, modify or extend any security interest affecting
property owned by the Company and, in connection therewith, to execute for and on behalf of the
Company any or all extensions, renewals, or modifications of such security interests; to lend funds
and other property of the Company either with or without security; to waive any default under any
agreement to which the Company is a party; to apply for membership or participation in any
exchanges, clearing agencies, trade associations or other organizations and to take any actions and
disclose any information necessary or appropriate in connection with such applications; to
determine, subject to the provisions of this Agreement, the terms of any offering of Units and the
manner of complying with applicable Law and to take any additional action as he shall deem
necessary or desirable to effectuate the offering of Units; to prepare, execute, file and deliver
any documents, instruments or agreements; to employ such agents, brokers, traders, consultants,
advisers, employees, attorneys and accountants as he deems appropriate and necessary to the conduct
of the Company, at such rates and fees as it deems necessary or appropriate, whether or not they
are associates or Affiliates of the Company or the Managing Member; to obtain insurance for the
31
proper protection of the Company and the Members; to commence or defend any litigation or
arbitration involving the Managing Member in its capacity as Managing Member, and to retain legal
counsel in connection therewith and to pay out of the assets of the Company any and all liabilities
and expenses, including fees of legal counsel, incurred in connection therewith (except if the
Managing Member is or becomes liable therefor under Section 7.07 hereof); to take any other action
contemplated to be taken by the Managing Member pursuant to this Agreement; and to make such other
decisions and enter into any other agreements or take such other action as he believes to be
necessary or desirable to carry out the business and purpose of the Company.
(b) Notwithstanding the foregoing, the Managing Member shall not, without the consent of a
Majority in Interest of the Class B Members, have the power and authority to effectuate the sale,
lease, transfer, exchange or other disposition of all or substantially all of the assets of the
Company (including, but not limited to, the exercise or grant of any conversion, option, privilege
or subscription right or any other right available in connection with any assets at any time held
by the Company) or the merger, consolidation, reorganization or other combination of the Company
with or into another entity.
7.02. Executive Committee. The Company shall have an executive committee (the
“Executive Committee”) to which the Managing Member may delegate such power and authority
as the Managing Member may determine, subject to the right of Managing Member to revoke or modify
such delegation. The Executive Committee shall consist of the Chairman of the Managing Member,
together with such other Administrative Officers as may be designated and/or removed by the
Chairman. Each member of the Executive Committee shall have one (1) vote in any decision of the
Executive Committee. The Executive Committee may act only with majority vote or majority written
consent of its members and may act in accordance with such rules and procedures as it may determine
from time to time. Initially, Xxxxxxx X. Xxxxx, Xxxx X. Xxxxx, A. Rama Krishna and Xxxxxxx X.
Xxxxxx shall serve as members of the executive committee.
7.03. Administrative Officers.
(a) The Managing Member may from time to time appoint or remove one (1) or more administrative
officers (individually, an “Administrative Officer,” and collectively, the
“Administrative Officers”) from among the employees of the Company to carry out the
day-to-day affairs of the Company. No Administrative Officer need be a Member. Each
Administrative Officer’s title and authority shall be as determined from time to time by the
Managing Member.
(b) The Managing Member shall appoint a chief compliance officer of the Company to report
directly to the Managing Member (the “Chief Compliance Officer”). The responsibilities of
the Chief Compliance Officer shall include (i) recommending to the Managing Member policies and
procedures reasonably designed to prevent violation by the Company and its employees of federal
securities laws, (ii) administering the policies and procedures adopted
32
and implemented for such purpose and (iii) such other matters as the Managing Member shall
prescribe.
7.04. Binding Company. (a) No Class B Member, acting individually in its capacity as
such, has the right or authority to act for or bind, or to otherwise assume any obligation or
responsibility on behalf of, the Company except as specifically authorized in accordance with this
Agreement. The Company may only act and bind itself through:
(i) the action of the Managing Member in accordance with this Agreement;
(ii) the collective action of the members of the Executive Committee if and to the extent
authorized by the Managing Member or this Agreement or by the Managing Member; or
(iii) the action of an Administrative Officer if and to the extent authorized by this
Agreement, the Managing Member or the Executive Committee in accordance with this Agreement.
7.05. Reliance by Third Parties. Persons dealing with the Company are entitled to rely
conclusively upon the power and authority of the Managing Member or the Executive Committee as
hereinabove set forth and upon the certificate of the Managing Member or an Administrative Officer
(i) as to who the Members hereunder are, (ii) as to the existence or nonexistence of any fact or
facts which constitute conditions precedent to acts by the Members or in any other manner germane
to the affairs of the Company, (iii) as to who is authorized to execute and deliver any instrument
or document on behalf of the Company, (iv) as to the authenticity of any copy of this Agreement and
amendments hereto, (v) as to any act or failure to act by the Company or as to any other matter
whatsoever involving the Company or any Member (solely with respect to the activities of the
Company), or (vi) as to the authority of any Administrative Officer to act. Any corporation,
brokerage firm or transfer agent called upon to transfer any securities to or from the name of the
Company shall be entitled to rely on instructions or assignments signed or purporting to be signed
by a Managing Member or an Administrative Officer without inquiry as to the authority of the person
signing or purporting to sign such instructions or assignments or as to the validity of any
transfer to or from the name of the Company. At the time of any such transfer, any such
corporation, brokerage firm or transfer agent shall be entitled to assume that (i) the Company is
then in existence and (ii) that this Agreement is in full force and effect and has not been
amended, in each case unless such corporation, brokerage firm or transfer agent shall have received
written notice to the contrary.
7.06. Duties of Managing Member, the Executive Committee and Employee Members. During the
continuance of the Company, the Managing Member, each member of the Executive Committee and each
Employee Member shall devote such time and effort to the Company business as may be necessary to
promote adequately the interests of the Company. Failure of
33
any the Managing Member, any member of the Executive Committee or any Employee Member to devote his
time, skill and attention to the Company to the extent required pursuant to this Section 7.06 due
to illness shall not constitute a breach of his obligation to the Company pursuant to this Section
7.06.
7.07. Liability of Managing Member and the Executive Committee. Notwithstanding anything
to the contrary contained herein, a Managing Member or an Executive Committee member, individually,
or the Executive Committee, collectively, shall not be liable, responsible or accountable in damage
or otherwise to the Company or to any Member, successor, assignee or transferee except by reason of
acts or omissions due to fraud or intentional misconduct or that constitute a violation of the
implied contractual duty of good faith and fair dealing.
(a) Indemnification by the Company. To the fullest extent permitted by applicable
Law, the Company shall indemnify, defend and hold any Covered Person harmless from and against any
loss, liability, damage, cost or expense, including reasonable attorneys’ fees, in defense of any
demands, claims or lawsuits against such Covered Person in or as a result of or relating to its
capacity, acts or omissions as Managing Member, Executive Committee member, Chief Compliance
Officer, Administrative Officer or as an agent, employee, officer, adviser, or consultant,
concerning the business, or activities undertaken on behalf of the Company, including any demands,
claims or lawsuits initiated by a Member or resulting from or relating to the offer and sale of the
Units in the Company, provided that the acts or omissions of such Covered Person are not the result
of fraud, intentional misconduct or a violation of the implied contractual duty of good faith and
fair dealing, or such a lesser standard of conduct as under applicable Law prevents indemnification
hereunder or were taken in the knowledge that such actions were not within the stated purposes and
powers of the Company (the “Disabling Conduct”).
A Covered Person shall be entitled to receive, upon application, advances to cover the costs
of defending any claim or action against such Covered Person; provided, however, that such advances
shall be repaid to the Company if such Covered Person violated any of the standards set forth in
the preceding paragraph. All rights of a Covered Person shall survive the dissolution of the
Company and the death, retirement, removal, dissolution, incompetency or insolvency of such Covered
Person, provided that notice of a potential claim for indemnification hereunder is made by or on
behalf of such Covered Person seeking such indemnification prior to the time distribution in
liquidation of the property of the Company is made pursuant to Section 8.02 hereof.
(b) Reliance. A Covered Person shall be fully protected in relying in good faith upon
the records of the Company and upon such information, opinions, reports or statements presented to
the Company by any Person (other than such Covered Person) as to matters the Covered Person
reasonably believes are within such other Person’s professional or expert competence and who has
been selected with reasonable care by or on behalf of the Company, including
34
information, opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets
from which distributions to Members might properly be paid.
(c) Fiduciary Duty. To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating to the Company or to another Member or
any Affiliate of another Member, a Covered Person acting pursuant to the terms, conditions and
limitations of this Agreement shall not be liable to the Company or to another Member or any
Affiliate of another Member for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities
of a Covered Person otherwise existing at law or equity, are agreed by the Members to modify to
that extent such other duties and liabilities of the Covered Person to the extent permitted by law.
To the fullest extent permitted by applicable law and unless otherwise expressly provided
herein, (i) whenever a conflict of interest exists or arises between the Managing Member and the
Company or another Member, or (ii) whenever this Agreement or any other agreement contemplated
herein provides that the Managing Member shall act in a manner that is fair and reasonable to the
Company or any other Member, the Managing Member shall resolve such conflict of interest or take
such action, considering in each case the relative interest of the Company, each other Member and
the Managing Member, to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interests, any customary or accepted industry practices, and any
applicable generally accepted accounting practices or principles. So long as the Managing Member
acts, based on the foregoing sentence, in good faith and in a manner consistent with the foregoing
sentence, the resolution or action so made or taken by the Managing Member shall not constitute a
breach of this Agreement or any other agreement contemplated herein.
Notwithstanding anything to the contrary in the Agreement or under applicable Law, whenever in
this Agreement the Managing Member is permitted or required to make a decision or take an action or
omit to do any of the foregoing acting solely in its capacity as the Managing Member, the Managing
Member shall, except where an express standard is set forth, be entitled to make such decision in
its sole discretion (and the words “in its sole discretion” should be deemed inserted therefor in
each case in association with the words “Managing Member,” whether or not the words “sole
discretion” are actually included in the specific provisions of this Agreement), and in so acting
in its sole discretion the Managing Member shall be entitled to consider only such interests and
factors as it desires, including its own interests, and, except as set forth in the preceding
paragraph in the case of a conflict of interest, shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Company, any of the Company’s Affiliates,
any other Member or any other Person. To the fullest extent permitted by applicable Law, if
pursuant to this Agreement the Managing Member, acting solely in its capacity as the Managing
Member, is permitted or required to make a decision in its “good faith” or under another express
standard, the Managing Member shall act under such express standard and shall not be subject to any
other or different standard imposed by this Agreement or otherwise other applicable Law.
35
The Managing Member may consult with the legal counsel and accountants and any act or omission
suffered or taken by the Managing Member on behalf of the Company in furtherance of the interests
of the Company in good faith in reliance upon and in accordance with the advice of such counsel or
accountants will be full justification for any such act or omission, and the Managing Member will
be fully protected in so acting or omitting to act so long as such counsel or accountants were
selected with reasonable care.
(d) Insurance. To the fullest extent permitted by Law, the Company may purchase and
maintain insurance on behalf of any Covered Person against any liability asserted against such
Covered Person, whether or not the Company would have the power to indemnity such Covered Person
against such liability under the provision of this Section 7.08.
8.01. Dissolution. The Company shall dissolve upon the first to occur of the following:
(a) a determination by the Managing Member and a Majority in Interest of the Class B Members
that the Company should dissolve; or
(b) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the
Act.
Upon the dissolution of the Company, no further business shall be done in the Company name
except the completion of any incomplete transactions and the taking of such action as shall be
necessary for the winding up of the affairs of the Company and the distribution of its assets.
8.02. Liquidation.
(a) Subject to the provisions of Article IX, upon dissolution of the Company, the Managing
Member shall (i) cause such of the Company property as the Managing Member shall deem appropriate
to be sold in the manner and at the price the Managing Member determines, (ii) determine each
Member’s Capital Account pursuant to Article III hereof, (iii) determine each Member’s pro rata
share of Company Income and Company Loss in accordance with Sections 3.01 and 3.02 hereof; and (iv)
take the following actions and make the following distributions out of the property of the Company
in the following manner and order:
(1) pay all debts and liabilities of the Company and expenses of liquidation in the
order of priority provided by Law; and
36
(2) distribute the remainder of the property in cash to each Member in accordance with
the aggregate positive Capital Account balance, taking into account all allocations of
Company Income and Company Loss, and all distributions of Company assets, for the Fiscal
Year of the liquidation and for all prior periods. Any assets of the Company that are
distributed in kind hereunder shall be taken at their Gross Asset Value on the day of
distribution.
(b) No Member shall be obligated to restore a negative Capital Account.
Anything in the foregoing provisions of this Section 8.02 to the contrary notwithstanding, each
Member hereby agrees that any such dissolution or distribution shall be postponed for such period
of time as may be required by the Securities and Exchange Commission or any other Governmental or
Regulatory Authority having jurisdiction over the Company or its business, and any property of the
Company so retained by the Company shall continue at the risk of the Company and be subject to all
debts and other obligations of the Company; provided that the Managing Member will use his best
efforts to obtain the regulatory approvals necessary to effect such dissolution or distribution.
9.01. Reserves. The amount of any distribution upon a dissolution shall be made in cash or
in kind or partially in cash, as the Managing Member shall determine, less a reserve determined in
the sole discretion of the Managing Member.
9.02. Distribution of Reserves. Any reserve amounts so withheld will be deposited by the
Managing Member in an interest bearing account at a major bank headquartered in New York City.
Upon determination by the Managing Member that circumstances no longer require the retention of any
amount reserved pursuant to this Agreement, the Managing Member shall pay such sum to the Members
(or their respective Legal Representative), along with any interest earned on such account, at the
earliest practicable time.
10.01. Accounts of the Company. The books and records of account of the Company shall be
maintained in accordance with GAAP consistently applied and shall be reconciled to comply with the
methods followed by the Company for United States Federal income tax purposes, consistently
applied. The books and records shall be maintained at the Company’s principal office or at a
location designated by the Managing Member.
37
10.02. Annual Reports to Members. Within one hundred twenty (120) days after the end of
each Fiscal Year, the Managing Member shall cause to be prepared and mailed to each Member one (1)
or more reports setting forth, as of the end of such Fiscal Year, (a) a statement of Company Income
and the amount of such Member’s Capital Account and, as soon as thereafter practicable, the amount
of such Member’s share of the Company’s taxable income or loss for such Fiscal Year, in sufficient
detail to enable him to prepare his federal, state and other tax returns and (b) a balance sheet
and statements of operations and cash flows for the Company and its subsidiaries as of and for the
Fiscal Year. The financial statements described in this Section 10.02 shall be prepared in
accordance with GAAP applied on a consistent basis (except as may be noted therein).
10.03. Tax Returns and Tax Elections.
(a) The Company’s accountants shall prepare all federal, state and local tax returns of the
Company for each year for which such returns are required to be filed. The Managing Member, in his
or its sole discretion, shall determine the accounting methods and conventions under the tax laws
of the United States, the several states and other relevant jurisdictions as to the treatment of
income, gain, loss, deduction and credit of the Company or any other method or procedure related to
the preparation of such tax returns. The Managing Member, in its sole discretion, may cause the
Company to make or refrain from making any and all elections permitted by such tax laws,
provided that the Company shall make an election under Section 754 of the Code promptly
following the date hereof.
(b) Each Member agrees that, in respect of any year in which he has or had any interest in the
Company, he shall not (i) treat, on his individual income tax returns, any item of income, gain,
loss, deduction or credit relating to his interest in the Company in a manner inconsistent with the
treatment of such item by the Company as reflected on the Form K-1 or other information statement
furnished by the Company to such Member for use in preparing his income tax returns or (ii) file
any claim for refund relating to any such item based upon, or that would result in, such
inconsistent treatment unless such Member has been advised by counsel that treating such item in a
manner consistent with the treatment of such item by the Company would subject such Member to
penalties under the Code.
(c) The Managing Member, or a Person designated by the Managing Member who is a Member, shall
be the Company’s Tax Matters Partner (as that term is defined in Section 6231(a)(7) of the Code) in
the event of an income tax audit of any Company return. To the extent the Company is treated as an
entity for purposes of the audit, including administrative settlement and judicial review, the Tax
Matters Partner shall be authorized to act for and represent the Company, and to enter into a
settlement agreement within the meaning of Section 6224(c)(1) of the Code (or comparable provisions
under state or local Law) to which each Member agrees to be bound. All expenses incurred in
connection with any such audit shall be expenses of the Company. The Tax Matters Partner shall be
authorized to carry out on behalf of the Company and at the Company’s expense all acts appropriate
to such designation with respect to federal, state and local taxing authorities.
38
10.04. No Further Rights to Books and Records. Except for the information required to be
provided to the Members under this Agreement, no Class B Member shall have the right to demand from
the Company, and the Company shall have no obligation to provide to any Class B Member, any books
or records of the Company.
11.01. Amendments. (a) The terms and provisions of this Agreement (including, for the
avoidance of doubt, any Exhibit or Schedule hereto) may be modified or amended at any time and from
time to time with the written consent of the Managing Member and a Majority in Interest of the
Class B Members, provided that the Managing Member may, without the consent of any of the other
Members, amend this Agreement:
(i) to satisfy any requirements, conditions, guidelines or opinions contained in any opinion,
directive, order, ruling or regulation of the Securities and Exchange Commission, the Internal
Revenue Service or any other U.S. federal or state or non-U.S. governmental agency, or in any U.S.
federal or state or non-U.S. statute, compliance with which the Managing Member deems to be in the
best interest of the Company;
(ii) (A) to ensure that the Company will not be treated as (x) an association taxable as a
corporation for U.S. federal income tax purposes or (y) a “publicly traded partnership” for
purposes of Section 7704 of the Code or (B) to comply with the then existing requirements of the
Code, final or temporary Treasury Regulations and the rulings of the Internal Revenue Service
affecting the treatment of the Company as a partnership for federal income tax purposes;
(iii) to enable the Company to comply with the requirement of the “liquidation value safe
harbor” election within the meaning of the proposed revenue procedure of Notice 2005-43, 2005-24
I.R.B. 1, Proposed Treasury Regulations § 1.83-3(1) or Proposed Treasury Regulations §
1.704-1(b)(4)(xii) at such time, if any, as such proposed revenue procedure and Treasury
Regulations are promulgated in final or temporary form and made effective as to the Company, and to
make any such other related amendments as may be required by pronouncements or final or temporary
Treasury Regulations issued by the Internal Revenue Service or Treasury Department after the date
of this Agreement and applicable to the Company;
(iv) to make any change necessary, appropriate or desirable to give effect to the express
intentions and provisions of Section 5.11, so long as such change does not have a material adverse
effect or result in a material adverse change to the rights or obligations of any sub-class or
group of Class B Members specified in Section 1.05 singularly or the Class B Members as a whole;
(v) to change the name of the Company; or
(vi) to make any other change that is for the benefit of, or not adverse to the interests of,
the Class B Members.
39
(b) Notwithstanding the provisions of Section 11.01(a), no modification of or amendment to
this Agreement shall be made that will:
(i) materially and adversely affect the rights of a Class B Member in a manner that
discriminates against such Class B Member vis-à-vis the other Class B Members, or increase the
Capital Contribution obligations of a Class B Member, without the written consent of such Class B
Member;
(ii) modify or amend Sections 5.07, 5.08 or 6.02 in a manner adverse to any Employee Member
without the written consent of either (x) such Employee Member or (y) a Super Majority in Interest
of the Class B Members, provided, that (A) no such modification or amendment pursuant to
clause (y) of this Section 11.01(b)(ii) shall be effective unless each Employee Member adversely
affected thereby shall have received at least sixty (60) days’ prior notice thereof, (B) any such
modification or amendment shall only apply to such Employee Member if such Employee Member is an
employee of the Company Group at the end of such sixty (60) day period and (C) any Employee Member
who resigns during such sixty (60) day notice period shall be subject to such sections as in effect
prior to such amendment or modification, provided, further, however, that the
Managing Member may, without the consent of any of the other Members, modify or amend Sections
5.07, 5.08 or 6.02 in a manner that applies solely to Members admitted following the time of such
amendment; or
(iii) modify or amend the requirement in any provision of this Agreement (including this
Section 11.01) calling for the consent, vote or approval of a Majority in Interest of the Class B
Members, of a Super Majority in Interest of the Class B Member or of a Class B Member, without the
written consent of such Majority in Interest of the Class B Members, such Super Majority in
Interest of the Class B Members or such Class B Member, as the case may be.
11.02. Severability. If any term, provision, agreement, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be affected, impaired or
invalidated so long as the economic or legal substance of the transactions contemplated hereby is
not effected in any manner materially adverse to any party. Upon such a determination, the parties
hereof shall negotiate in good faith to modify this Agreement so as to effect the original intent
of the parties as closely as possible in an acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the fullest extent possible.
11.03. Notices. All notices to the Company shall be addressed to its principal office.
All notices addressed to a Member or his Legal Representative or to the Members as a group shall be
addressed to such Member or Legal Representative or Members at the address of such Member or Legal
Representative for the Members set forth on the Register of Members. Any Member or the Legal
Representative of any Member may designate a new address by notice to such effect given to the
Company. All notices and other communications to be given to a Member or his Legal Representative
shall be sufficiently given for all purposes hereunder (a) when received, if
40
in writing and delivered by hand, (b) two (2) Business Days following deposit with a nationally
recognized courier or overnight delivery service, (c) three (3) days after being mailed by
certified or registered mail, return receipt requested, with appropriate postage prepaid, or (d)
when sent, if sent in the form of an e-mail message or facsimile if receipt thereof is confirmed by
telephone.
11.04. No Waiver. No waiver of any breach or condition of this Agreement shall be deemed
to be a waiver of any other subsequent breach or condition, whether of like or different nature.
11.05. Copy on File. Each Member hereby agrees that one executed counterpart of this
Agreement or set of executed counterparts shall be held at the principal office of the Company,
that a Certificate of Formation and all amendments thereto shall be filed in the Office of the
Secretary of State of Delaware and copies thereof shall be held at the principal office of the
Company and that there shall be distributed to each Member, upon the request of such Member, a
conformed copy of this Agreement, as amended from time to time.
11.06. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
11.07. Binding Effect. Except as otherwise provided in this Agreement, every covenant,
term, and provision of this Agreement shall be binding upon and inure to the benefit of the Members
and their respective heirs, personal representatives, successors, permitted transferees and
permitted assigns.
11.08. Entire Agreement. This Agreement constitutes the full and entire understanding and
agreement, whether written or oral, among the parties with regard to the subject matter of this
Agreement and supersedes all prior agreements and understandings with respect to such subject
matter.
11.09. Other Activities. Neither the Company nor any Member (or any Affiliate of any
Member) shall have any right by virtue of this Agreement either to participate in or to share in
any other now existing or future ventures, activities or opportunities of any of the other Members
or their Affiliates, or in the income or proceeds derived from such ventures, activities or
opportunities.
11.10. Further Assurances. Each Member agrees to execute and deliver any and all
additional instruments and documents and do any and all acts and things as may be necessary or
expedient to effectuate more fully this Agreement or any provisions hereof or to carry on the
business contemplated hereunder.
11.11. Counterparts. This Agreement may be executed in one or more counterparts, including
counterparts executed by additional Class B Members admitted to the Company, and
41
each of such counterparts shall, for all purposes, be deemed to be an original, but all of such
counterparts shall constitute one and the same instrument.
11.12. Table of Contents and Captions Not Part of Agreement. The table of contents and
captions contained in this Agreement are inserted only as a matter of convenience and in no way
define, limit or extend the scope or intent of this Agreement or any provisions hereof.
11.13. Waiver of Right to Partition. Each of the Members irrevocably waives during the
term of the Company any right that such Member may have to maintain any action for partition with
respect to the property and assets of the Company, and hereby agrees not to file a xxxx for a
membership accounting or otherwise proceed adversely in any manner whatsoever against the other
Members or the Company, except for bad faith, gross negligence, fraud, intentional misconduct or
violation of this Agreement.
[Signatures on next page]
42
MANAGING MEMBER: | ||||
PZENA INVESTMENT MANAGEMENT, INC. | ||||
BY:
|
/s/ Xxxxxxx X. Xxxxx
|
|||
Title: Chief Executive Officer |
CLASS B MEMBERS: |
||
/s/ Xxxxxxx X. Xxxxx
|
||
/s/ Xxxxx X. Xxxxxxxxx
|
||
/s/ Xxxxxxx Xxxx
|
CLASS B MEMBERS (continued):
XXXX X. XXXXX
XXXXXXX X. XXXXXX
A. RAMA KRISHNA
XXXXXXX X. XXXXXXXX
XXXXX XXXXX
XXXXXXXX XXXX
XXXX XXXX
XXXX FIRE
XXXX XXXXXX
XXXXXXXX XXX
XXXXXXX XXXXX
XXXXX XXXX
XXXXXXX X. XXXXXXXX
XXXXXXXX XXXXX
XXXXX XXXXXX
XXXXXXX XXXXXX
XXXXXXX MURTI
XXXXX X. XXXXX
THE XXXXXXX XXXXX DESCENDANTS TRUST, THE XXXXX XXXXX FAMILY TRUST
THE XXXXXXX XXXXX FAMILY TRUST
THE XXXXXX XXXXX FAMILY TRUST
THE XXXX XXXXX FAMILY TRUST
THE XXXXXX XXXXXXX XXXXX TRUST
THE XXXXXX XXXXXX XXXXX TRUST
THE KRISHNA FAMILY TRUST
THE XXXXXXX XXXXXX DYNASTY TRUST
THE XXXXXXX XXXXXX GRANTOR RETAINED ANNUITY TRUST
THE XXXXXXX X. XXXXXXXX GRANTOR RETAINED ANNUITY TRUST
THE XXXXX X. XXXXXXXX GRANTOR RETAINED ANNUITY TRUST
CC GRANTOR RETAINED ANNUITY TRUST I
XXXXXXX XXXXXXXXX
ADS III 2007 GRANTOR RETAINED ANNUITY TRUST
XXXXXXXX SILVER
BSS GRANTOR RETAINED ANNUITY TRUST
LJK TRUST I
LJK TRUST IV
MILESTONE ASSOCIATES, L.L.C.
PIPING BROOK, LLC
XXXXXXX X. XXXXXX
A. RAMA KRISHNA
XXXXXXX X. XXXXXXXX
XXXXX XXXXX
XXXXXXXX XXXX
XXXX XXXX
XXXX FIRE
XXXX XXXXXX
XXXXXXXX XXX
XXXXXXX XXXXX
XXXXX XXXX
XXXXXXX X. XXXXXXXX
XXXXXXXX XXXXX
XXXXX XXXXXX
XXXXXXX XXXXXX
XXXXXXX MURTI
XXXXX X. XXXXX
THE XXXXXXX XXXXX DESCENDANTS TRUST, THE XXXXX XXXXX FAMILY TRUST
THE XXXXXXX XXXXX FAMILY TRUST
THE XXXXXX XXXXX FAMILY TRUST
THE XXXX XXXXX FAMILY TRUST
THE XXXXXX XXXXXXX XXXXX TRUST
THE XXXXXX XXXXXX XXXXX TRUST
THE KRISHNA FAMILY TRUST
THE XXXXXXX XXXXXX DYNASTY TRUST
THE XXXXXXX XXXXXX GRANTOR RETAINED ANNUITY TRUST
THE XXXXXXX X. XXXXXXXX GRANTOR RETAINED ANNUITY TRUST
THE XXXXX X. XXXXXXXX GRANTOR RETAINED ANNUITY TRUST
CC GRANTOR RETAINED ANNUITY TRUST I
XXXXXXX XXXXXXXXX
ADS III 2007 GRANTOR RETAINED ANNUITY TRUST
XXXXXXXX SILVER
BSS GRANTOR RETAINED ANNUITY TRUST
LJK TRUST I
LJK TRUST IV
MILESTONE ASSOCIATES, L.L.C.
PIPING BROOK, LLC
By:
|
/s/ Xxxxxxx X. Xxxxx
Title: Attorney-in-Fact for each of the above-listed Class B Members |
|||
By:
|
/s/ Xxxxx X. Xxxxxxxxx
Title: Attorney-in-Fact for each of the above-listed Class B Members |
Exhibit A
2006 Plan
Exhibit B
EXCHANGE RIGHTS OF CLASS B MEMBERS
ARTICLE I
1.01. General. This Exhibit B is a part of the Amended and Restated Operating
Agreement of Pzena Investment Management, LLC, dated as of October 30, 2007 (the “Agreement”).
Capitalized terms used in this Exhibit B have the respective meanings given to them in Section 1.2
hereof or, if not defined therein, in Section 1.08 of the Agreement. Except as otherwise provided
herein, references to Sections in this Exhibit B shall be references to Sections of this Exhibit B.
In the event that the Company is dissolved pursuant to the Agreement, any exchange right provided
in this Exhibit B shall expire on the final distribution of the assets of the Company.
1.02. Certain Definitions. As used in this Exhibit, the following terms shall have
the following meanings:
“Annual Period” shall mean (a) the First Period and (b) each annual period beginning
on a date after the First Period and ending on an annual anniversary of the IPO Date.
“Certificate” shall mean the Amended and Restated Certificate of Incorporation of
Pzena Inc., filed with the Secretary of State of the State of Delaware on October 30, 2007, as
thereafter amended from time to time.
“Class A Shares” shall mean shares of Class A Common Stock of Pzena Inc.
“Class B Shares” shall mean shares of Class B Common Stock of Pzena Inc.
“Closing” has the meaning set forth in Section 2.4(a).
“Closing Date” has the meaning set forth in Section 2.4(a).
“Employee Member Group” has the meaning set forth in Section 2.2(a)(i).
“Exchange” shall mean the exchange by a Class B Member of one or more Class B Units
for an equal number of Class A Shares pursuant to the provisions of this Exhibit B.
“Exchange Date” has the meaning set forth in Section 2.3(a).
“Exchange Notice” has the meaning set forth in Section 2.1(b).
“Exchange Request” has the meaning set forth in Section 2.3.
“First Effective Date” shall mean the first effective date of a registration statement
on Form S-3 filed by Pzena Inc.
“First Period” shall mean the period commencing on the First Effective Date and ending
on the second anniversary of the IPO Date.
“IPO Date” shall mean the date of the closing of the initial public offering of the
Class A Shares.
“Registration Rights Agreement” shall mean the Resale and Registration Rights
Agreement, dated as of October 30, 2007, by and among Pzena Inc. and the Holders named on the
signature pages thereto.
ARTICLE II
(a) The Managing Member shall establish one or more dates in each Annual Period as a date on
which the Class B Members shall be permitted to Exchange their Class B Units (such date, an
“Exchange Date”), provided that the Managing Member may, by notice to each Class B Member, postpone
any Exchange Date one or more times; provided, further, that if the Managing Member fails to
establish at least one Exchange Date during any Annual Period, the last Business Day of such Annual
Period shall be an Exchange Date. For the avoidance of doubt, the Managing Member may establish as
many Exchange Dates as it shall determine in its sole discretion.
(b) The Managing Member shall provide, in respect of at least one (1) Exchange Date in each
Annual Period, a written notice (an “Exchange Notice”) to all Class B Members at least thirty (30)
calendar days prior to such Exchange Date. In respect of any other Exchange Date within such
Annual Period, the Managing Member may provide an Exchange Notice to one or more Class B Members
such number of days prior to such Exchange Date as the Managing Member may determine in its sole
discretion.
(c) The Managing Member may permit, in writing or orally, one or more Class B Members to
submit Exchange Requests, such permission to be granted, withheld or granted on such terms and
conditions as determined by the Managing Member in its sole discretion.
months thereafter, if an Exchange Date occurs during such six month period, an
Ordinary Employee Member, and each Permitted Transferee of such Ordinary Employee
Member, shall be permitted to Exchange any number of vested Class B Units,
provided that, except as may be agreed in writing by the Managing Member,
such Ordinary Employee Member shall continue to hold throughout such period at least
twenty-five percent (25%) of the aggregate number of vested and unvested Class B
Units held by such Ordinary Employee Member and all Permitted Transferees of such
Ordinary Employee Member on the date of termination of employment of such Ordinary
Employee Member. Thereafter, an Ordinary Employee Member and all Permitted
Transferees of such Ordinary Employee Member shall be permitted to Exchange any or
all of the vested Class B Units held by such Ordinary Employee Member and such
Permitted Transferees.
discretion. The Managing Member and the Company reserve the right to cause certificates
evidencing such Class A Shares to be imprinted with legends as to restrictions on transfer that it
may deem necessary or appropriate, including legends as to applicable U.S. federal or state
securities laws or other legal or contractual restrictions and may require any Class B Member to
which Class A Shares are to be distributed to agree in writing (i) that such Class A Shares will
not be transferred except in compliance with such restrictions and (b) to such other matters as the
Managing Member may deem reasonably necessary or appropriate in light of applicable law and
existing agreements.
2.03. Exchange Request. Upon receiving the Exchange Notice or as permitted by the
Managing Member pursuant to Section 2.1(c), a Class B Member may submit a request to effect an
Exchange by delivering to the Company, not less than fourteen (14) calendar days prior to an
Exchange Date (or such lesser number of days as the Managing Member may permit in its sole
discretion), a written notice (the “Exchange Request”). An Exchange Request shall set
forth the number of Class B Units such Class B Member elects to exchange for Class A Shares at the
Closing on such Exchange Date. The Class B Member shall represent to each of the Company and the
Managing Member that such Class B Member owns the Class B Units to be delivered at such Closing
pursuant to Section 2.6, free and clear of all Liens, except as set forth therein, and, if there
are any Liens identified in the Exchange Request, such Class B Member shall covenant that such
Class B Member will deliver at the applicable Closing evidence reasonably satisfactory to the
Company and the Managing Member, that all such Liens have been released. An Exchange Request is
not revocable or modifiable, except with the written consent of the Managing Member and the Class B
Member that submitted the request.
2.04. Closing Date.
(a) If an Exchange Request has been timely delivered pursuant to Section 2.3, then, on the
next Exchange Date (as may be extended pursuant to this Section 2.4, the “Closing Date”),
the parties shall effect the closing (the “Closing”) of the transactions contemplated by
this Article II at the offices of Pzena Inc. at 000 Xxxx 00xx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other time, at such other place, and in such other
manner, as the applicable parties to such Exchange shall agree in writing; provided,
however, that, except as may be determined otherwise by the Company in its sole discretion,
if an applicable Exchange Date falls on a day during which directors, officers or other employees
of Pzena Inc. or any of its affiliates are prohibited by the trading policies of Pzena Inc. from
disposing of equity securities of Pzena Inc., then with respect to all requested Exchanges, the
Closing Date shall instead be deemed to be the first Business Day after such Exchange Date that
such officers and directors are allowed to dispose of equity securities of Pzena Inc. pursuant to
the trading policies of Pzena Inc.
(b) No Exchange shall be permitted (and, if attempted, shall be void ab initio) if, in the
good faith determination of the Managing Member, such an Exchange would pose a material risk that
the Company would be a “publicly traded partnership” as defined in Section 7704 of the Code.
2.05. Closing Conditions.
(a) The obligations of any of the parties to consummate an Exchange pursuant to this Article
II shall be subject to the conditions that there shall be no injunction, restraining order or
decree of any nature of any Governmental or Regulatory Authority that is then in effect that
restrains or prohibits the Exchange of Class B Units or the transfer of Class B Shares for
redemption.
(b) The obligations of the Company and the Managing Member to consummate an Exchange pursuant
to this Article II with respect to a Class B Member Exchanging Class B Units at such Closing shall
be subject to the following conditions:
(1) Such Class B Member shall have taken all actions reasonably requested by
Pzena Inc. to permit the automatic redemption, immediately following the Closing, of
a number of Class B Shares equal to the number of Class B Units being Exchanged by
such Class B Member at such Closing (including delivery to the Company of
certificates evidencing such number of Class B Shares and confirmation that any
Liens on such Class B Shares shall have been released); and
(2) If such Class B Member is not a party to the Registration Rights Agreement,
such Class B Member shall have executed and delivered a counterpart signature page
of the Registration Rights Agreement.
(c) The obligations of each Class B Member exchanging Class B Units at such Closing shall be
subject to the following conditions:
(1) Pzena Inc. shall have taken all actions reasonably required to permit the
automatic redemption, immediately following the Closing, of a number of Class B
Shares held by such Class B Member equal to the number of Class B Units being
Exchanged by such Class B Member at such Closing; and
(2) If such Class B Member is not a party to the Registration Rights Agreement,
Pzena Inc. shall have executed and delivered a copy of the Registration Rights
Agreement.
2.06. Closing Deliveries. At each Closing, the Company, the Managing Member and each
Class B Member that has submitted an Exchange Request in respect of such Closing shall deliver the
following:
(a) each such Class B Member shall deliver an instrument of transfer, substantially in the
form of Annex A hereto or otherwise in form reasonably satisfactory to the Managing Member,
sufficient (i) to transfer to the Company the number of vested Class B Units set forth in the
Exchange Request of such Class B Member and (ii) in the case of an Employee Member, to affirm that
such Class B Member agrees to comply with the covenants contained in Section 5.07 and 5.08 of the
Agreement as may be applicable to such Employee Member at that time;
(b) if applicable, each such Class B Member shall deliver evidence reasonably satisfactory to
the Company and the Managing Member, that all Liens on such Class B Member’s Class B Units
delivered pursuant to this Section 2.6 have been released;
(c) the Managing Member shall deliver to the Company a certificate issued in the name of each
such Class B Member representing an amount of Class A Shares equal to the number of Class B Units
such Class B Member elected to Exchange; and
(d) the Company shall deliver to each such Class B Member a certificate representing an amount
of Class A Shares equal to the number of such Class B Units such Class B Member elected to
Exchange.
2.07. Expenses. Each party hereto shall bear such party’s own expenses in connection
with the consummation of any of the transactions contemplated hereby, whether or not any such
transaction is ultimately consummated.
2.08. Termination of Class B Membership; Cancellation of Class B Units; Issuance of Class
A Units. Upon consummation of each Closing contemplated by this Article II, each Class B Unit
transferred to the Company at such Closing shall be cancelled, the Company shall issue one Class A
Unit to the Managing Member in respect of each such Class B Unit that was transferred and
surrendered, and the Managing Member shall modify the Register of Members to reflect such
cancellation and issuance. In the event that, as a result of an Exchange a Class B Member shall
cease to hold any vested or unvested Class B Units, such Class B Member shall cease to be a
“member” of the Company for any purpose under the Agreement or the Act.
2.09. Tax Treatment. As required by the Code and the Regulations: (i) the parties
shall report an Exchange consummated hereunder as a taxable sale of Class B Units by a Class B
Member to the Company (in conjunction with an associated cancellation of Class B Shares) and (ii)
no party shall take a contrary position on any income tax return, amendment thereof or
communication with a taxing authority.
2.10. Amendments. This Exhibit B may not be amended except as set forth in Section
11.01 of the Agreement.
This INSTRUMENT OF TRANSFER (this “Instrument”) is made as of the Applicable Date
by the undersigned (the “Transferor”). Capitalized terms used but not otherwise defined
herein shall have the meanings set forth on the signature page to this Instrument and, if not
defined therein, in the Amended and Restated Operating Agreement (as amended or modified, the
“Operating Agreement”) of the Pzena Investment Management, LLC, a Delaware limited
liability company (the “Company”).
W I T N E S S E T H
1. Transfer. Transferor hereby transfers, assigns and delivers to the Company, free and
clear of all Liens, all of Transferor’s right, title and interest in, to and under the Transferred
Units.
2. Representations and Warranties. Transferor hereby represents and warrants to the
Company as follows:
(i) | does not and will not violate any laws applicable to Transferor, or require Transferor to obtain any approval, consent or waiver of, or make any filing with, any person or entity (governmental or otherwise) that has not been obtained or made; | ||
(ii) | does not and will not result in a breach of, constitute a default under, accelerate any obligation under, or give rise to a right of termination of, any agreement, contract, instrument, lien, security interest, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which Transferor is a party or by which the property of Transferor is bound or affected, or result in the creation or imposition of any Lien on any of the assets of Transferor; and | ||
(iii) | in the event that Transferor is not a natural person, does not and will not violate any provision of any organization document of Transferor. |
(e) Access to Information. Transferor understands the risks of, and other
considerations relating to, the acquisition and ownership of the Exchange Shares. Transferor has
been provided an opportunity to ask questions of, and has received answers satisfactory to
Transferor from, Pzena Inc. and its representatives regarding the Exchange Shares, and has obtained
any and all additional information from Pzena Inc. and its representatives that Transferor deems
necessary regarding the Exchange Shares.
(f) Evaluation of and Ability to Bear Risks. Transferor has such knowledge and
experience in financial affairs that Transferor is capable of evaluating the merits and risks of,
and other considerations relating to, the ownership of the Exchange Shares, and has not relied in
connection with the acquisition of the Exchange Shares upon any representations, warranties or
agreements other than those set forth in this Instrument. Transferor ‘s financial situation is
such that Transferor can afford to bear the economic risk of holding the Exchange Shares for an
indefinite period of time, and Transferor can afford to suffer the complete loss of its investment
in the Exchange Shares.
3. Employee Member Acknowledgement. In the event Transferor is an Employee Member,
Transferor hereby acknowledges that he or she is receiving a significant economic benefit by
Exchanging the otherwise illiquid Transferred Units into the Exchange Shares and therefore
reaffirms his or her obligation to comply with the restive covenants contained in Sections 5.07 and
5.08 of the Operating Agreement as may be applicable to such Employee Member on and following the
date hereof.
4. Further Assurance. Transferor hereby agrees to execute and deliver such further
agreements and instruments and take such other actions as may be necessary to make effective the
transfer contemplated by this Instrument.
5. Successors and Assigns. This Instrument shall be binding upon, inure to the benefit of
and be enforceable by the respective successors and permitted assigns of the parties hereto.
6. Governing Law. This Instrument shall be governed by and construed and enforced in
accordance with the law of the State of Delaware, without regard to principles of conflict of laws.
7. Descriptive Headings. The descriptive headings in this Instrument are for convenience
of reference only and shall not be deemed to alter or affect the meaning or interpretation of any
provision of this Instrument.
8. Counterparts. This Instrument may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall constitute one and the same
instrument.
9. Entire Agreement. This Instrument and any other schedules, certificates, lists and
documents referred to herein, and any documents executed by any of the parties simultaneously
herewith or pursuant thereto, constitutes the entire agreement of the parties hereto, except as
expressly provided herein, and supersedes all prior agreements and understandings, discussions,
negotiations and communications, written and oral, among the parties with respect to the subject
matter hereof.
[Remainder of page intentionally left blank]
TRANSFEROR: | ||||
Acknowledged and accepted
as of the Applicable Date by:
as of the Applicable Date by:
PZENA INVESTMENT MANAGEMENT, LLC
Title: |
Certain Defined Terms
Applicable Date: |
||||
Transferor: |
||||
Applicable Number: |
||||
Exchange Request Date: |
||||
[Signature Page to Instrument of Transfer]
Schedule 1
Transferor represents and warrants to the Company that Transferor is an “accredited investor”
within the meaning of Regulation D promulgated under the Securities Act and has answered “Yes” to
the applicable statements below pursuant to which Transferor so qualify.
Yes
|
If Transferor is a natural person, Transferor’s own net worth, taken together with the net worth of Transferor’s spouse, exceeds $1,000,000. “Net worth” for this purpose means total assets (including residence, personal property and other assets) in excess of total liabilities. | |
Yes
|
If Transferor is a natural person, Transferor had an individual gross income in excess of $200,000 (or joint income with Transferor’s spouse in excess of $300,000) in each of the two previous years and reasonably expects a gross individual income in excess of $200,000 (or joint income with Transferor’s spouse in excess of $300,000) this year. | |
Yes
|
If Transferor is an entity, Transferor has total assets in excess of $5,000,000, AND was not formed for the specific purpose of acquiring the securities offered, AND is any of the following: |
• | a corporation, | ||
• | a partnership, | ||
• | a limited liability company, | ||
• | a Massachusetts or similar business trust, or | ||
• | an organization described in Section 501(c)(3) of the Internal Revenue Code |
Yes
|
If Transferor is an entity, all of Transferor’s equity owners are “accredited investors” within the meaning of Regulation D (taking into account the need to look through certain entities under applicable law). |
[Signature Page to Instrument of Transfer]
Exhibit C
Registration Rights Agreement