EXHIBIT 10.4
EXECUTION VERSION
OPERATING AGREEMENT
OF
LIBERTY/FOX U.S. SPORTS LLC
April 29, 1996
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF THE
OWNERSHIP INTERESTS IS ALSO RESTRICTED BY PROVISIONS OF THIS AGREEMENT AND
RELATED AGREEMENTS.
TABLE OF CONTENTS
Page
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ARTICLE 1: FORMATION AND DEFINITIONS............................... 1
1.1 Formation.......................................... 1
1.2 Name............................................... 1
1.3 Initial Members and Ownership Interests............ 1
1.4 Office and Agent................................... 1
1.5 Foreign Qualification.............................. 1
1.6 Term............................................... 2
1.7 Definitions........................................ 2
ARTICLE 2: PURPOSES AND POWERS............................... 13
2.1 Principal Purpose.................................. 13
2.2 Other Purposes..................................... 13
2.3 Powers............................................. 13
ARTICLE 3: CAPITAL OF THE COMPANY............................... 13
3.1 Initial Contributions.............................. 13
3.2 Additional Contributions........................... 13
3.3 Capital Accounts................................... 13
3.4 Transfer........................................... 14
3.5 Adjustments........................................ 14
3.6 Market Value Adjustments........................... 14
3.7 No Withdrawal of Capital........................... 15
3.8 No Interest on Capital............................. 15
3.9 No Drawing Accounts................................ 15
3.10 No Salary.......................................... 15
3.11 Loans to Divisional Companies...................... 15
ARTICLE 4: PROFITS AND LOSSES......................................... 16
4.1 Determination...................................... 16
4.2 Allocation of Profits and Losses Generally......... 16
4.3 Nonrecourse Deductions............................. 17
4.4 Minimum Gain Chargeback............................ 17
4.5 Gain Chargeback.................................... 18
4.6 Tax Allocations.................................... 18
4.7 Qualified Income Offset............................ 18
4.8 Limit on Loss Allocations.......................... 18
4.9 (S) 754 Adjustments................................ 18
4.10 Contributed Property............................... 19
4.11 Tax Credits........................................ 19
4.12 Allocation on Transfer............................. 19
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4.13 Tier Partnerships.................................. 20
ARTICLE 5: DISTRIBUTIONS.............................................. 20
5.1 Distributions Generally............................ 20
5.2 Payment............................................ 20
5.3 Withholding........................................ 20
5.4 Distribution Limitation............................ 20
ARTICLE 6: MANAGEMENT................................................. 21
6.1 Management......................................... 21
6.2 Actions Requiring a Unanimous Vote................. 21
6.3 Other Matters...................................... 23
6.4 Member Representatives............................. 23
6.5 No Dissolution, Resignation or Retirement.......... 23
6.6 Officers........................................... 24
6.7 Budgets and Business Plans; Financial Information.. 24
6.8 Management Conduct................................. 25
6.9 Unauthorized Actions............................... 25
ARTICLE 7: MEETINGS OF MEMBERS....................................... 26
7.1 Meetings........................................... 26
7.2 Place.............................................. 26
7.3 Notice............................................. 26
7.4 Waiver of Notice................................... 26
7.5 Record Date........................................ 26
7.6 Quorum............................................. 27
7.7 Manner of Acting................................... 27
7.8 Proxies............................................ 27
7.9 Meetings by Telephone.............................. 27
7.10 Action Without a Meeting........................... 27
ARTICLE 8: LIABILITY OF A MEMBER..................................... 27
8.1 Limited Liability.................................. 27
8.2 Capital Contribution............................... 28
8.3 Capital Return..................................... 28
8.4 Reliance........................................... 28
ARTICLE 9: INDEMNIFICATION........................................... 28
9.1 General............................................ 28
9.2 Exception.......................................... 29
9.3 Expense Advancement................................ 29
9.4 Insurance.......................................... 29
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9.5 Indemnification of Others.......................... 29
ARTICLE 10: ACCOUNTING AND REPORTING................................. 29
10.1 Fiscal Year........................................ 29
10.2 Accounting Method.................................. 29
10.3 Tax Elections...................................... 30
10.4 Returns............................................ 30
10.5 Financial Reports.................................. 30
10.6 Annual Audit....................................... 30
10.7 Books and Records.................................. 31
10.8 Information........................................ 31
10.9 Banking............................................ 32
10.10 Tax Matters Partner................................ 32
10.11 No Partnership.................................... 33
ARTICLE 11: DISSOLUTION.............................................. 33
11.1 Dissolution........................................ 33
11.2 Events of Withdrawal............................... 33
11.3 Continuation....................................... 34
11.4 Formation of New Company........................... 35
ARTICLE 12: LIQUIDATION.............................................. 35
12.1 Liquidation........................................ 35
12.2 Tax Termination.................................... 36
12.3 Priority of Payment................................ 36
12.4 Liquidating Distributions.......................... 36
12.5 No Restoration Obligation.......................... 37
12.6 Timing............................................. 37
12.7 Liquidating Reports................................ 37
12.8 Liquidation if New Company is Formed............... 37
12.9 Certificate of Cancellation........................ 37
ARTICLE 13: TRANSFER RESTRICTIONS.................................... 38
13.1 General Restriction................................ 38
13.2 No Member Rights................................... 38
13.3 Permitted Transferees.............................. 38
13.4 General Conditions on Transfers.................... 38
13.5 Rights of Transferees.............................. 40
13.6 Admission.......................................... 40
13.7 Security Interest.................................. 40
ARTICLE 14: CERTAIN BUSINESS MATTERS............................... 41
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14.1 Restricted Activities.............................. 41
14.2 Rights Purchases/Resale Rights..................... 42
14.3 fX Programming..................................... 44
14.4 New Ventures....................................... 45
14.5 Uplink Services and Production Facilities.......... 45
14.6 Cooperation........................................ 46
14.7 Continuing Rights.................................. 46
14.8 Consent to Opportunities........................... 46
14.9 No Adverse Actions................................. 47
ARTICLE 15: DISPUTE RESOLUTION........................................ 47
15.1 Disputes........................................... 47
15.2 Negotiation........................................ 47
15.3 Arbitration........................................ 47
15.4 Determination of Fair Market Value................. 48
ARTICLE 16: GENERAL PROVISIONS........................................ 49
16.1 Amendment.......................................... 49
16.2 Representations.................................... 49
16.3 Unregistered Interests............................. 50
16.4 Waiver of Dissolution Rights....................... 50
16.5 Waiver of Partition Right.......................... 50
16.6 Waivers Generally.................................. 50
16.7 Equitable Relief................................... 51
16.8 Remedies for Breach................................ 51
16.9 Costs 51
16.10 Indemnification.................................... 51
16.11 Counterparts....................................... 51
16.12 Notice 51
16.13 Deemed Notice...................................... 52
16.14 Partial Invalidity................................. 52
16.15 Entire Agreement................................... 52
16.16 Benefit 52
16.17 Binding Effect..................................... 52
16.18 Further Assurances................................. 52
16.19 Headings........................................... 52
16.20 Terms 52
16.21 Governing Law; Forum............................... 53
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OPERATING AGREEMENT
OF
LIBERTY/FOX U.S. SPORTS LLC
This OPERATING AGREEMENT is made as of the 29th day of April, 1996 by and among
LMC NEWCO U.S., INC., FOX REGIONAL SPORTS HOLDINGS, INC. and LIBERTY/FOX SPORTS
FINANCING LLC, such parties being all the Members of LIBERTY/FOX U.S. SPORTS
LLC, a Delaware limited liability company.
In consideration of the mutual promises and covenants contained in this
Agreement and intending to be legally bound, the parties agree as follows:
ARTICLE 1: FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on April 11, 1996, by filing a
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Certificate of Formation with the Delaware Secretary of State pursuant to the
Act and on behalf of the initial Members of the Company.
1.2 NAME. The name of the Company is LIBERTY/FOX U.S. SPORTS LLC. The
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business of the Company will be conducted under such name, as well as any other
name or names as the Company may from time to time determine.
1.3 INITIAL MEMBERS AND OWNERSHIP INTERESTS. The name and address of each
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initial Member and its initial Ownership Interest are set forth in Schedule 1.3.
1.4 OFFICE AND AGENT.
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[a] The initial registered office of the Company in Delaware will be at 0000
Xxxxxx Xxxx, Xxxxxxxxxx, XX 00000-0000, and its initial registered agent
will be The Xxxxxxxx-Xxxx Corporation System, Inc. The Company may change
its registered office or registered agent in Delaware in accordance with
the Act.
[b] The initial principal office of the Company will be at 00000 Xxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000. The Company may change its
principal office upon the unanimous Vote of the Members.
1.5 FOREIGN QUALIFICATION . Promptly after execution of this Agreement,
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the Company will apply for any required certificate of authority to do business
in any other state or jurisdiction, as required or appropriate. The Company
will file such other
certificates and instruments as may be necessary or desirable in connection with
its formation, existence and operation.
1.6 TERM. The Company will be effective from the date of filing of its
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Certificate of Formation with the Delaware Secretary of State and will continue
until its termination pursuant to 12.9.
1.7 DEFINITIONS. The following terms, when used in this Agreement, have the
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meanings set forth below:
Act: the Delaware Limited Liability Company Act, as amended
from time to time.
Additional Contribution: a capital contribution (other than the Initial
Contribution) that a Member makes to the Company, as
described in 3.2.
Adjusted Capital Account
Deficit: as to any Member, the deficit balance (if any) in such
Member's Capital Account as of the end of the Fiscal
Year, after [a] crediting to such Capital Account any
amount which such Member is obligated to restore
pursuant to this Agreement or is deemed obligated to
restore pursuant to the minimum gain chargeback
provisions of the (S) 704(b) Regulations and [b]
charging to such Capital Account any adjustments,
allocations or distributions described in the
qualified income offset provisions of the (S) 704(b)
Regulations which are required to be charged to such
Capital Account pursuant to this Agreement.
Affiliate: with respect to any Person, any Person that directly
or indirectly Controls, is Controlled by, or is under
common Control with such Person. For purposes of this
definition, Twentieth Holdings Corporation and its
subsidiaries will be deemed to be Affiliates of Fox
and News.
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Agreement: this Operating Agreement, also known as a limited
liability company agreement under the Act, as amended
from time to time.
Agreement Regarding
Ownership Interests: the Agreement Regarding Ownership Interests dated as
of the date hereof among Liberty Media Corporation,
News America Holdings Incorporated, LMC Newco U.S.,
Inc., Fox Regional Sports Holdings, Inc., and
Liberty/Fox Sports Financing LLC.
Arbitrable Dispute: a dispute described in 14.4 or 14.5 that is required
to be submitted to arbitration.
Available Cash: for any Fiscal Year or other period, net income (or
loss) of the Company determined in accordance with
GAAP, adjusted, without duplication, by adding [a]
depreciation, amortization and other non-cash charges
to the extent deducted in determining net income and
deducting [b] [i] the current portion of indebtedness
of the Company, [ii] payments required to be paid by
the Company within one year after the date of
calculation, [iii] prepaid expenses and other cash
expenditures to the extent not deducted in determining
net income or loss and [iv] reasonable reserves for
working capital and contingent liabilities of the
Company and all Business Companies as determined by
the unanimous Vote of the Members.
Bankruptcy: of a Member will be deemed to have occurred upon the
happening of any of the following:
[a] the making by such Member of a general assignment
for the benefit of creditors;
[b] the filing by such Member of a voluntary petition
in bankruptcy;
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[c] the adjudication of such Member as bankrupt or
insolvent, or the entry of an order, judgment or
decree by any court of competent jurisdiction,
granting relief against such Member in any bankruptcy
or insolvency proceeding;
[d] the filing by such Member of a petition or answer
seeking for such Member any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law
or regulation;
[e] the filing by such Member of an answer or other
pleading admitting or failing to contest the material
allegations of a petition filed against such Member in
any proceeding for reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar proceeding under any statute, law or
regulation;
[f] the valid appointment, with the consent of such
Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest; or
[g] the valid appointment, without the consent of
such Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest, if such
appointment is not vacated or stayed within 90 days
after such appointment or, if stayed, such appointment
is not vacated within 90 days after such stay.
Broadcast TV: free over-the-air broadcast television.
Business Company: the fX LLC, the Sports LLC, a Sports Company, an fX
Company, or any other Person in which all the equity
or ownership interests are owned, directly or
indirectly, by the Company and the LMC Member, the Fox
Member or one or more
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Affiliates of the LMC Member or the Fox Member.
Business Day: any day other than Saturday, Sunday or a day on which
banking institutions in Denver, Colorado, New York,
New York or Los Angeles, California are required or
authorized to be closed.
Capital Account: the capital account of a Member established and
maintained in accordance with 3.3.
Capital Contribution: any contribution of money or property by a Member to
the Company which is either an Initial Contribution or
an Additional Contribution.
Certificate: the Certificate of Formation of the Company, as
amended from time to time.
Code: the Internal Revenue Code of 1986, as amended from
time to time (including corresponding provisions of
subsequent revenue laws).
Company: the limited liability company formed under the
Certificate and governed by this Agreement.
Company Business: the Sports Business, the fX Business and any other
business approved by the Members from time to time for
inclusion in the definition of Company Business.
Control: the possession, direct or indirect, of the power to
direct or cause the direction of the management and
policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
Controlled Affiliate: with respect to any Person, an Affiliate of such
Person that such Person Controls.
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Dissolution: the happening of any of the events described in 11.1.
Distribution: the amount of any money or the Fair Market Value of
any property distributed by the Company to a Member as
an operating or liquidating distribution in accordance
with this Agreement, reduced by the amount of any
Company liabilities assumed by the distributee or to
which the distributed property is subject.
Divisional Company: each of the Sports LLC and the fX LLC.
Fair Market Value: the cash price at which a willing seller would sell
and a willing buyer would buy, both having full
knowledge of the relevant facts and being under no
compulsion to buy or sell, in an arm's-length
transaction without time constraints. Except as
otherwise expressly provided in this Agreement, the
Fair Market Value of any item will be determined in
accordance with 15.4.
FBC: Fox Broadcasting Company, a Delaware corporation.
Financing LLC: Liberty/Fox Sports Financing LLC, a Delaware limited
liability company.
Fiscal Year: the fiscal and taxable year of the Company, including
both 12-month and short fiscal or taxable years; until
changed as provided in this Agreement, each Fiscal
Year will begin on January 1 of each year and end on
December 31 of such year, provided that the first
Fiscal Year will begin on April 29, 1996 and the last
Fiscal Year will end on the date on which Liquidation
of the Company occurs.
Formation Agreement: The Formation and Contribution Agreement dated as of
the date of this Agreement among News America Holdings
Incorporated, a Delaware corporation, Fox and LMC.
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Fox: Fox, Inc., a Colorado corporation.
Fox Member: Fox Regional Sports Holdings, Inc. and any successor
to or Transferee of Fox Regional Sports Holdings, Inc.
or another Fox Member who is admitted as a Member
pursuant to Article 13.
Fox O and O Stations: as defined in 14.7.
Fox Preferred Amount: as of any date of determination, an amount equal to
the sum of the products of $5.00 times the fX
Subscriber Increment, if any, as of each Fiscal Year
end beginning with the first Fiscal Year end after the
date of this Agreement and ending with the fifth
Fiscal Year end after the date of this Agreement, and
including the Fiscal Year end occurring immediately
before or on the date of determination; provided that
in no event will the Fox Preferred Amount exceed
$100,000,000.
fX Business: the ownership and operation of the fX Service and, if
contributed pursuant to Section 2.11 of the Formation
Agreement, the fXM Service.
fX Company: each Person engaged in the fX Business in which all
the equity or ownership interests are owned, directly
or indirectly, by the Company and the LMC Member, the
Fox Member or one or more Affiliates of the LMC Member
or the Fox Member.
fX LLC: Liberty/Fox fX Operations LLC, a Delaware limited
liability company.
fX Service: the Service currently operated under the name "fX" or
any successor Service.
fXM Service: the Service currently operated under the name "fXM:
Movies From Fox" or any successor Service.
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fX Subscriber: a 24-hour subscriber to the fX Service within the
meaning of each affiliation agreement (or similar
agreement) pursuant to which the fX Service is
distributed, whether by cable television or any other
means of distribution, as to which subscriber an fX
Company is entitled to receive payment of a monthly
fee in accordance with such agreement.
fX Subscriber Increment: [a] as of the first Fiscal Year end after the total
number of fX Subscribers exceeds 30,000,000, the
excess of such total number over 30,000,000 and [b] as
of each subsequent Fiscal Year end, the excess, if
any, of the total number of fX Subscribers as of such
Fiscal Year end over the total number of fX
Subscribers as of the prior Fiscal Year end; provided,
however, that if, as of the end of any Fiscal Year,
there is no Subscriber Increment, the calculation of
the Subscriber Increment for succeeding Fiscal Years
shall be the excess, if any, of the total number of fX
Subscribers as of the date of determination over the
total number of fX Subscribers as of the end of the
most recent prior Fiscal Year in which there was a
Subscriber Increment. The determination of the number
of fX Subscribers will be based on the Company's
records and such other information as may reasonably
be required to make such determination.
GAAP: generally accepted accounting principles as in effect
from time to time in the United States of America.
Initial Contribution: the initial capital contribution made by a Member to
the Company, as described in Schedule 3.1.
Lien: a mortgage, lien, pledge, security interest or other
encumbrance.
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Liquidation: the process of winding up and terminating the Company
after its Dissolution.
LMC: Liberty Media Corporation, a Delaware corporation.
LMC Member: LMC Newco U.S., Inc. and any successor to or
Transferee of LMC Newco U.S., Inc. or any LMC Member
who is admitted as a Member pursuant to Article 13.
Losses: as defined in 4.1.
Member: an initial member of the Company as listed in Schedule
1.3 and any other Person subsequently admitted to the
Company as an additional or substitute member in
accordance with this Agreement.
New Company: as defined in 11.4.
New Members: as defined in 11.4.
News: The News Corporation Limited, a South Australia
corporation.
Notice: written notice actually delivered or deemed delivered
under 16.13.
Ownership Interest: with respect to each Person owning an interest in the
Company, all the interests of such Person in the
Company (including an interest in the Profits and
Losses of the Company, a Capital Account interest and
all other rights and obligations of such Person under
this Agreement) expressed as a percentage, as
initially set forth in Schedule 1.3 and as
subsequently adjusted in accordance with this
Agreement.
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Parents Agreement: the Parents Agreement dated as of the date of this
Agreement between News America Holdings Incorporated
and LMC.
Permitted Transferee: a Person described in 13.3 to whom an Ownership
Interest may be Transferred.
Person: a human being or a corporation, partnership, limited
liability company, trust, unincorporated organization,
association or other entity.
Preferred Allocation
Date: the earlier of [i] the last day of the fifth full
Fiscal Year following the date of this Agreement or
[ii] the date on which the final Fox Preferred Amount
has been established and Fox has received
Distributions pursuant to 5.1[a] which equal, in the
aggregate, the Fox Preferred Amount.
Prime Rate: the annual rate from time to time publicly announced
by The Bank of New York in New York, New York, as its
prime rate, adjusted as of the day of any change (or
if lower, the maximum rate permitted by law).
Proceeding: any threatened, pending, on-going, or completed
action, suit or proceeding, whether formal or
informal, and whether civil, administrative,
investigative or criminal.
Profits: as defined in 4.1.
Regulations: the Treasury Regulations (including temporary or
proposed regulations) promulgated under the Code, as
amended from time to time (including corresponding
provisions of succeeding regulations).
Representative: as defined in 6.4.
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Restricted Business: as defined in 14.1[a].
Service: a programming service offered by the Company, a Sports
Company or an fX Company.
Sports Business: the ownership and operation of one or more services
featuring programming, data or content that, as to an
individual service, is, or, as to a group of related
services, is coordinated in such a manner as to be,
predominantly sports and sports-related for
distribution by any means and in any form in the
United States of America and its territories
(excluding Puerto Rico) and Canada; provided that the
Sports Business will not include [i] any programming
service delivered by Broadcast TV, even if transmitted
via cable or any other mode of distribution, which
programming service offers programming that is not
predominantly sports and sports-related, [ii] any on-
line sports information business conducted in
connection with sports programming on FBC, [iii] the
on-line sports information business conducted through
SportsLine USA, Inc., and [iv] ownership and operation
of sports bars and similar establishments and the
sports merchandising businesses currently conducted by
one or more Affiliates of the Fox Member under the
name "Fox," or any similar name.
Sports Company: each Person engaged in the Sports Business in which
all the equity or ownership interests are owned,
directly or indirectly, by the Company and the LMC
Member, the Fox Member or one or more Affiliates of
the LMC Member or the Fox Member.
Sports LLC: Liberty/Fox Regional Sports LLC, a Delaware limited
liability company.
Tax Matters Partner: as defined in 10.10.
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TCI: Tele-Communications, Inc., a Delaware corporation.
Third Party: with respect to any Member or the Company, a Person
other than an Affiliate of such Member or the Company.
Total Divisional
Interest: [a] with respect to the Sports LLC, the percentage
interest determined by [i] multiplying the aggregate
ownership interest (expressed as a decimal) of a
Member and its Affiliates in Financing LLC by
Financing LLC's Ownership Interest in the Company,
[ii] adding that product to the aggregate Ownership
Interest of such Member and its Affiliates in the
Company, [iii] multiplying that sum by the Company's
ownership interest (expressed as a decimal) in Sports
LLC, and [iv] adding that product to any ownership
interests in Sports LLC held directly by such Member
and its Affiliates, and [b] with respect to the fX
LLC, the percentage interest determined by [i]
multiplying the aggregate ownership interest
(expressed as a decimal) of a Member and its
Affiliates in Financing LLC by Financing LLC's
Ownership Interest in the Company, [ii] adding that
product to the aggregate Ownership Interest of such
Member and its Affiliates in the Company, [iii]
multiplying that sum by the Company's ownership
interest (expressed as a decimal) in fX LLC, and [iv]
adding that product to any ownership interests in fX
LLC held directly by such Member and its Affiliates.
Transfer: a sale, exchange, assignment, transfer or other
disposition of all or any part of an Ownership
Interest (whether voluntary, involuntary or by
operation of law).
Transferee: a Person to whom an Ownership Interest is Transferred
in compliance with this Agreement,
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who will have the rights specified in 13.5 of this
Agreement.
Transferor: a Person who Transfers all or any part of an Ownership
Interest in compliance with this Agreement.
Vote: the action of the Company by the Members in accordance
with the voting requirements set forth in Article 6,
either in meeting assembled or by written consent
without a meeting.
Withdrawal: the occurrence of an event which terminates a Person's
membership in the Company, as provided in 11.2.
ARTICLE 2: PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSE. Subject to the provisions of this Agreement, the
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business and principal purpose of the Company is [a] to engage in any Company
Business, either directly or indirectly through the ownership of interests in
Sports LLC, the Sports Companies, fX LLC, or any other Person through which a
Company Business is conducted, [b] to acquire, own, hold, sell or otherwise
dispose of interests in the assets used to conduct any Company Business or
interests in Sports LLC, the Sports Companies, fX LLC, or any other Person
through which a Company Business is conducted and [c] to do any and all other
acts or things which may be incidental or necessary to carry on the business of
the Company as contemplated by this Agreement.
2.2 OTHER PURPOSES. The Company may engage in activities related or
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incidental to its principal purpose, as well as any other business or investment
activity as may be approved by the affirmative Vote of all Members. However, as
provided in the Act, the Company may not engage in the business of granting
policies of insurance, assuming insurance risks, issuing debt instruments for
circulation as money or receiving deposits of money.
2.3 POWERS. The Company has all the powers granted to a limited
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liability company under the Act, as well as all powers necessary or convenient
to achieve its purposes and to further its business.
ARTICLE 3: CAPITAL OF THE COMPANY
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3.1 INITIAL CONTRIBUTIONS. Contemporaneously with the execution of
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this Agreement, each Member will contribute or cause to be contributed to the
Company the assets set forth opposite its name in Schedule 3.1, as contemplated
by the Formation Agreement. The Fair Market Value of such contribution as
specified in Schedule 3.1 will be credited to the applicable Member's Capital
Account and such Fair Market Value will be deemed to be the amount of such
Member's Initial Capital Contribution.
3.2 ADDITIONAL CONTRIBUTIONS. Except as required by law, no
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Additional Contributions will be required or permitted to be made by any Member.
If additional contributions are needed to fund the operation of any Company
Business, such contributions will be made to the Sports LLC or the fX LLC, as
the case may be, in accordance with the operating agreement governing such
Business Company.
3.3 CAPITAL ACCOUNTS. A Capital Account will be maintained for each
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Member and credited, charged and otherwise adjusted as required by (S) 704(b) of
the Code and the (S) 704(b) Regulations. Each Member's Capital Account will be:
[a] Credited with [i] the amount of money contributed by the Member as an
Initial Contribution or an Additional Contribution, [ii] the Fair Market
Value of assets contributed by the Member as an Initial Contribution or
Additional Contribution (net of liabilities that the Company assumes or
takes subject to), [iii] the Member's allocable share of Profits and [iv]
all other items properly credited to such Capital Account as required by
the (S) 704(b) Regulations;
[b] Charged with [i] the amount of money distributed to the Member by the
Company, [ii] the Fair Market Value of assets distributed to the Member by
the Company (net of liabilities that the Member assumes or takes subject
to), [iii] the Member's allocable share of Losses and [iv] all other items
properly charged to such Capital Account as required by the (S) 704(b)
Regulations; and
[c] Otherwise adjusted as required by the (S) 704(b) Regulations.
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with the
provisions of Article 4 as though such asset had been sold for its Fair Market
Value on the date of Distribution and the Members' Capital Accounts will be
adjusted to reflect both the deemed realization of such appreciation or
depreciation and the Distribution of such property.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with the
(S) 704(b) Regulations and will be interpreted and applied in a manner
consistent with such Regulations and any amendment or successor provision
thereto. The Members will
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cause appropriate modifications to be made if unanticipated events might
otherwise cause this Agreement not to comply with the (S) 704(b) Regulations, so
long as such modifications do not cause a material change in the relative
economic benefits of the Members under this Agreement.
3.4 TRANSFER. If all or any part of an Ownership Interest is
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Transferred in accordance with this Agreement, the Capital Account of the
Transferor that is attributable to the Transferred Ownership Interest will carry
over to the Transferee.
3.5 ADJUSTMENTS. The Members intend to comply with the (S) 704(b)
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Regulations in all respects, and the Capital Accounts of the Members will be
adjusted to the full extent that the (S) 704(b) Regulations may apply (including
applying the concepts of qualified income offsets and minimum gain chargebacks).
3.6 MARKET VALUE ADJUSTMENTS. Appropriate Capital Account adjustments will be
------------------------
made upon any Transfer of an Ownership Interest, including those that apply upon
the constructive Liquidation of the Company under (S) 708(b) of the Code, all in
accordance with the (S) 704(b) Regulations. Similarly, if optional basis
adjustments are made under (S) 734 or (S) 743 of the Code, appropriate Capital
Account adjustments will be made as required by the (S) 704(b) Regulations.
3.7 NO WITHDRAWAL OF CAPITAL. Except as specifically provided in
------------------------
this Agreement, no Member will be entitled to withdraw all or any part of its
Capital Contribution from the Company prior to the Company's Dissolution and
Liquidation or, when such withdrawal of capital is permitted, to demand a
distribution of property other than money or as otherwise provided in this
Agreement.
3.8 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest
----------------------
on such Person's Capital Account or Capital Contribution.
3.9 NO DRAWING ACCOUNTS. The Company will not maintain a drawing
-------------------
account for any Member. All Distributions to Members will be governed by
Article 5 (relating to Distributions not in Liquidation of the Company) and by
Article 12 (relating to Distributions in Liquidation of the Company).
3.10 NO SALARY. Except upon the affirmative Vote of all Members, no
---------
Member or Affiliate will be entitled to any salary or other form of compensation
paid by the Company for services rendered to the Company. The foregoing
prohibition will not apply to a Member's allocation of any Profits pursuant to
Article 4 or receipt of any Distribution contemplated by this Agreement pursuant
to Article 5 or Article 12.
15
3.11 LOANS TO DIVISIONAL COMPANIES. In the event that the members of a
-----------------------------
Divisional Company approve the making of an additional contribution to such
Divisional Company and a Funding Member (as defined in the operating agreement
of the Divisional Company) fails to make all or any portion of its share of such
approved additional contribution by the required date, the other Funding Member
may, at such Funding Member's option, elect to make a loan to the Company in the
amount of the deficiency in additional contributions. Such loan will bear
simple interest at the Prime Rate and will be payable only from Available Cash
of the Company. Payments in respect of any such loans will be applied in the
order that such loans were made, and all payments will be applied first to
accrued but unpaid interest and then to reduce the outstanding principal amount
of the loan. In the event that any Funding Member of a Divisional Company makes
a loan to the Company in accordance with this 3.11, the Company concurrently
will make a loan in the same amount and upon the same terms to the Divisional
Company in which the deficiency in additional contributions occurred. Any such
loan from a Funding Member to the Company will be repaid from Available Cash
before any Distributions are made by the Company to its Members, and any such
loan from the Company to a Divisional Company will be repaid in full from
available cash of the Divisional Company (determined pursuant to the operating
agreement of the Divisional Company) before any distributions are made by the
Divisional Company to its members. All such loans from the Company to a
Divisional Company will be due and payable at the closing of a transaction
pursuant to Section 2.2, 2.3, 2.4 or 2.5 of the Agreement Regarding Ownership
Interests in which either Member Group sells all of its Interests in the
Divisional Company. If during a Funding Cure Period (as defined in the
operating agreement of a Divisional Company), the defaulting Funding Member pays
to the nondefaulting Funding Member an amount equal to all unpaid principal of
and interest on the Funding Member's loan to the Company to which such Funding
Cure Period relates, the loans from the Funding Member to the Company and from
the Company to the Divisional Company will immediately be forgiven, and the
Interests of the Funding Members and the Company in the Divisional Company will
be adjusted in accordance with the operating agreement of the Divisional
Company.
ARTICLE 4: PROFITS AND LOSSES
4.1 DETERMINATION. The terms "Profits" and "Losses" mean,
-------------
respectively, the net profits and losses of the Company determined for each
Fiscal Year in accordance with the method of accounting adopted by the Company
for federal income tax purposes, except that such net profit or loss will be
determined [a] by including as an item of income any income that is exempt from
taxation, [b] by deducting as an expense any expenditure of the Company not
deductible in computing its taxable income and not properly chargeable to any
Capital Account, or deemed not deductible in computing its taxable income and
not properly chargeable to any Capital Account in accordance with
16
the (S) 704(b) Regulations and [c] by calculating the gain, loss, depreciation
and amortization on property which is reflected in the Capital Accounts at a
book basis different from the basis of such property for federal income tax
purposes based on the book basis of such property in accordance with the (S)
704(b) Regulations. Any allocation of Profits or Losses will be considered a pro
rata allocation of each item entering into the computation of Profits and
Losses.
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY. Except as provided in 4.3
------------------------------------------
through 4.13, Profits or Losses, as the case may be, for each Fiscal Year will
be allocated as follows:
[a] Profits will be allocated:
[i] first, as to Profits allocated subsequent to the Preferred Allocation
Date, 100% to the Fox Member until the cumulative amount so allocated
for all Fiscal Years (net of cumulative Losses allocated to the Fox
Member under 4.2[b][i]) is equal to the Fox Preferred Amount;
[ii] second, as to Profits allocated in any Fiscal Year, to the Members to
the extent of, and in proportion to, Losses previously allocated to
such Members pursuant to 4.2[b][iii]. To the extent that a prior
allocation of Losses has been offset by a prior allocation of Profits
pursuant to this 4.2[a][ii], Profits will not be further allocated
under this 4.2[a][ii] to offset such Losses; and
[iii] thereafter, as to Profits allocated in any Fiscal Year, to the
Members in proportion to their Ownership Interests.
[b] Losses will be allocated:
[i] first, as to Losses allocated subsequent to the Preferred Allocation
Date, 100% to the Fox Member until the cumulative amount so allocated
for all Fiscal Years is equal to the cumulative amount of Profits
allocated pursuant to 4.2[a][i];
[ii] second, as to Losses allocated in any Fiscal Year, to the Members to
the extent of, and in proportion to, Profits previously allocated to
such Members pursuant to 4.2[a][iii]. To the extent that a prior
allocation of Profits has been offset by a prior allocation of Losses
pursuant to this 4.2[b][ii], Losses will not be further allocated
under this 4.2[b][ii] to offset such Profits; and
17
[iii] thereafter, as to Losses allocated in any Fiscal Year, to the
Members in proportion to their Ownership Interests.
4.3 NONRECOURSE DEDUCTIONS. Losses attributable to any Company
----------------------
nonrecourse liability (for which no Member or related Person (within the meaning
of the (S) 752 Regulations) bears the economic risk of loss) will be allocated
in the same manner as Losses are allocated pursuant to 4.2[b], and Losses of the
Company attributable to any Member nonrecourse liability (which is nonrecourse
to the Company, but for which one or more Members or related Persons bear the
economic risk of loss) will be allocated in accordance with the (S) 704(b)
Regulations to those Members bearing (or who, because of their relationship to
Persons who bear such economic risk of loss, are deemed to bear) the economic
risk of loss for the liability. The allocation of liabilities to a property,
the determination of nonrecourse deductions, the effect of property revaluations
and all other issues affecting the allocation of nonrecourse deductions will be
determined in accordance with the (S) 704(b) Regulations.
4.4 MINIMUM GAIN CHARGEBACK. Notwithstanding the general rule on
-----------------------
allocation of Profits stated in 4.2[a], if there is a net decrease in Company
minimum gain for any Fiscal Year, each Member will be allocated items of Profits
for such year equal to such Member's share of the net decrease in Company
minimum gain. If there is a net decrease in Member nonrecourse debt minimum
gain for any Fiscal Year, each Member having a share of such minimum gain will
be allocated items of Profits equal to such Member's share of such net decrease
in Company nonrecourse debt minimum gain. The determination of net decreases in
Company minimum gain and Member nonrecourse debt minimum gain, allocations of
such net decreases, exceptions to minimum gain chargebacks and all other issues
affecting the minimum gain chargeback requirements will be determined in
accordance with the (S) 704(b) Regulations.
4.5 GAIN CHARGEBACK. Notwithstanding the general rule stated in 4.2[a]
---------------
but subject to the prior application of the minimum gain chargeback rule stated
in 4.4, Profits of the Company incident to Dissolution and Liquidation will be
allocated among the Members in the following order and priority: [a] if any
Members have negative Capital Account balances, to such Members in proportion to
and to the extent of such negative balances until all such negative balances are
eliminated; [b] if the allocations to the Company described in 4.2[a][i] have
not been completed, to the Fox Member until completion of such allocations; and
[c] the balance to the Members in proportion to their Ownership Interests.
4.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and
---------------
deduction of the Company for federal income tax purposes for a Fiscal Year will
be allocated, as nearly as is practicable, in accordance with the manner in
which such items are reflected in the allocations of Profits and Losses among
the Members for such Fiscal Year. To the
18
extent possible, principles identical to those that apply to allocations for
federal income tax purposes will apply for state and local income tax purposes.
4.7 QUALIFIED INCOME OFFSET. Notwithstanding any other provision of
-----------------------
this Agreement to the contrary (except 4.4, which will be applied first), if in
any Fiscal Year or other period a Member unexpectedly receives an adjustment,
allocation or distribution described in the qualified income offset provisions
of the (S) 704(b) Regulations, such Member will be specially allocated items of
income in an amount and manner sufficient to eliminate, to the extent required
by the (S) 704(b) Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible.
4.8 LIMIT ON LOSS ALLOCATIONS. Notwithstanding the provisions of
-------------------------
4.2[b] or any other provision of this Agreement to the contrary, Losses (or
items thereof) will not be allocated to a Member if such allocation would cause
or increase a Member's Adjusted Capital Account Deficit and will be reallocated
to the other Members in proportion to their Ownership Interests, subject to the
limitations of this 4.8.
4.9 (S) 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax
-------------------
basis of any Company asset under (S) 734(b) or (S) 743(b) of the Code is
required to be taken into account in determining Capital Accounts under the (S)
704(b) Regulations, the amount of the adjustment to the Capital Accounts will be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis), and the gain or loss will be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted under the (S) 704(b)
Regulations.
4.10 CONTRIBUTED PROPERTY. All items of gain, loss and deduction with
--------------------
respect to property that is reflected in the Capital Accounts of the Members at
a basis different from such property's adjusted tax basis will be allocated,
solely for tax purposes, among the Members to take into account the variation
between the adjusted tax basis of the property and the basis reflected in the
Member's Capital Account according to the principles of the (S) 704(c)
Regulations. For example, if there is built-in gain with respect to certain
property at the time of such property's contribution to the Company, upon the
Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the (S) 704(c) Regulations during the period such
property was held by the Company) would be allocated to the contributing Member
(and such pre-contribution gain would not again create a Capital Account
adjustment because the property was credited to Capital Account upon
contribution at its Fair Market Value). Except as limited by the following
sentence, the allocation of tax items with respect to (S) 704(c) property to
Members that do not reflect a basis difference with respect to such property in
their Capital Accounts will, to the extent possible, be equal to the allocation
of the corresponding book items made to such Members with respect to such
property. All tax
19
allocations made under this 4.11 will be made in accordance with (S) 704(c) of
the Code and (S) 1.704-3(b) of the Regulations.
4.11 TAX CREDITS. To the extent that the federal income tax basis of
-----------
an asset is allocated to the Members in accordance with the Regulations
promulgated under (S) 46 of the Code, any tax credit attributable to such tax
basis will be allocated to the Members in the same ratio as such tax basis.
With respect to any other tax credit, to the extent that a Company expenditure
gives rise to an allocation of loss or deduction, any tax credit attributable to
such expenditure will be allocated to the Members in the same ratio as such loss
or deduction. Consistent principles will apply in determining the Members'
interests in tax credits that arise from taxable or non-taxable receipts of the
Company. All allocations of tax credits will be made as of the time such credit
arises. Any recapture of a tax credit will be allocated, to the extent
possible, to the Members in the same manner as the tax credit was allocated to
them. Except as otherwise specifically provided in the (S) 704(b) Regulations
(such as the adjustments required when there is an upward or downward adjustment
in the tax basis of investment credit property), allocations of tax credits and
their recapture will not be reflected by any adjustment to Capital Accounts.
4.12 ALLOCATION ON TRANSFER. If any Ownership Interest is transferred
----------------------
during any Fiscal Year of the Company (whether by liquidation of an Ownership
Interest, Transfer of all or part of an Ownership Interest or otherwise), the
books of the Company will be closed as of the effective date of Transfer. The
Profits or Losses attributed to the period from the first day of such Fiscal
Year through the effective date of Transfer will be allocated to the Transferor
and the Profits or Losses attributed to the period commencing on the day after
the effective date of Transfer will be allocated to the Transferee. In lieu of
an interim closing of the books of the Company and with the agreement of the
Transferor and the Transferee, the Company may allocate Profits and Losses for
such Fiscal Year between the Transferor and the Transferee based on a daily
proration of items for such Fiscal Year or any other reasonable method of
allocation (including an allocation of extraordinary Company items, as
determined by the Company, based on when such items are recognized for federal
income tax purposes).
4.13 TIER PARTNERSHIPS. Rules similar to those stated in this Article will
-----------------
apply to the extent the Company is an owner of an interest in another Person
which is classified as a partnership for federal income tax purposes, all in
accordance with the (S) 704(b) Regulations.
20
ARTICLE 5: DISTRIBUTIONS
5.1 DISTRIBUTIONS GENERALLY. Except for Distributions incident to the
-----------------------
Company's Dissolution and Liquidation (which will be governed by 12.4), and
except as provided in 3.11, Available Cash will be distributed quarterly to the
Members in the following order and priority:
[a] First, 100% to the Fox Member until the cumulative amount so distributed
for all Fiscal Years is equal to the Fox Preferred Amount; and
[b] Thereafter, to the Members in accordance with their Ownership Interests.
5.2 PAYMENT. All Distributions will be made to Members owning
-------
Ownership Interests on the date of record, such date being the last day of the
calendar month preceding the date of Distribution, as reflected on the books of
the Company.
5.3 WITHHOLDING. If required by the Code or by state or local law,
-----------
the Company will withhold any required amount from Distributions to a Member for
payment to the appropriate taxing authority. Any amount so withheld from a
Member will be treated as a Distribution by the Company to such Member. Each
Member will timely file any agreement that is required by any taxing authority
in order to avoid any withholding obligation that would otherwise be imposed on
the Company.
5.4 DISTRIBUTION LIMITATION. Notwithstanding any other provision of
-----------------------
this Agreement, the Company will not make any Distribution to the Members if,
after the Distribution, the liabilities of the Company (other than liabilities
to Members on account of their Ownership Interests) would exceed the Fair Market
Value of the Company's assets. With respect to any property subject to a
liability for which the recourse of creditors is limited to the specific
property, such property will be included in assets only to the extent the
property's Fair Market Value exceeds its associated liability, and such
liability will be excluded from the Company's liabilities.
ARTICLE 6: MANAGEMENT
6.1 MANAGEMENT. Management of the business and affairs of the
----------
Company is reserved to, and vested in, the Members and no manager (as defined in
the Act) will be elected by the Members unless this Agreement is appropriately
amended. Each Member will cause the Company to be managed and operated with the
intent to maximize the cash flow and long-term asset value of the Company. The
Members will exercise their management control by Vote, subject to any
restrictions on a Member's right to Vote as provided in Section 3.5 of the
Agreement Regarding Ownership Interests. No Member
21
has the authority to act on behalf of the Company unless authorized by a Vote.
Notwithstanding the foregoing, Persons dealing with the Company are entitled to
rely conclusively on the power and authority of any Member. From time to time,
on the request of a Member authorized to act in accordance with this Agreement,
the Company will confirm to Third Parties that Persons dealing with the Company
may rely on powers and authorities of such Member as set forth in this
Agreement.
6.2 ACTIONS REQUIRING A UNANIMOUS VOTE. Subject to any restriction on a
----------------------------------
Member's right to Vote pursuant to Section 3.5 of the Agreement Regarding
Ownership Interests, in addition to those actions described elsewhere in this
Agreement as requiring the Vote of, or approval by, all the Members, the
following actions or decisions by the Company will be made only by the
affirmative unanimous Vote of the Members:
[a] entry into areas of business other than the Sports Business or the fX
Business;
[b] the approval of each (or any amendment to any previously approved) three-
year business plan and annual operating and capital budget for the Company
and each Company Business and Service; if the Members are unable
unanimously to approve an annual budget for the Company or a particular
Company Business or Service, then, until a new budget is approved, the
annual budget for the Company or that Company Business or Service for the
immediately preceding Fiscal Year will remain in effect, adjusted (without
duplication) to reflect the following increases or decreases: [i] the
operation of escalation or de-escalation provisions in contracts in effect
at the time of approval of the budget solely as a result of the passage of
time or due to operations or undertakings approved in the budget or the
occurrence of events beyond the control of the Company, to the extent such
contracts are still in effect; [ii] elections made in any prior year under
contracts contemplated by the budget for the prior year regardless of which
party to such contracts makes such election; [iii] the effect of the
existence of any multi-year contract entered into in accordance with a
previous budget to the extent not fully reflected in the prior year's
budget; [iv] increases or decreases in expenses attributable to the
annualized effect of employee additions or reductions during the prior year
contemplated by the budget for the prior year; [v] interest expense
attributable to any loans; [vi] increases or decreases in overhead expenses
in an amount equal to the total of overhead expenses reflected in the
budget for the prior year (excluding non-recurring items) multiplied by the
percentage increase or decrease in the U.S. Department of Labor Bureau of
Labor Statistics Consumer Price Index for all Urban Consumers ("CPI-U") or
a successor index for the prior Fiscal Year (but in no event will such
change be more than 10% of the corresponding items in the prior budget);
and [vii] decreases in expenses attributable to non-recurring items
reflected in the prior year's budget.
22
[c] engaging in any non-budgeted transaction which, when added to all other
non-budgeted transactions during the same Fiscal Year, would cause the
aggregate amount of non-budgeted transactions for such Fiscal Year to
exceed $5,000,000;
[d] approval of any programming rights acquisition agreement involving more
than US $5,000,000 per year or US $15,000,000 in the aggregate (unless
provided for in the approved budget under which the Company is then
operating);
[e] acquiring an interest in or the assets of any business for an acquisition
price of more than US $5,000,000;
[f] amendment of this Agreement or any other organizational document of the
Company, any Business Company or any Person directly or indirectly
Controlled by the Company or in which the Company has an interest directly
or indirectly entitling it to vote on such amendment;
[g] any action relating to the merger, sale, consolidation, reorganization,
dissolution, winding up, liquidation or similar transaction involving all
or any portion of the Company, a Sports Company, an fX Company or any
Company Business;
[h] incurrence of any debt exceeding US $5,000,000 (excluding normal trade
debt), or the issuance of any guarantee, or the creation of any Lien,
unless provided for in the approved budget under which the Company is then
operating;
[i] appointment or removal of auditors of the Company, approval or adoption of
accounting principles applicable to the Company, and any change in the
Fiscal Year of the Company;
[j] any decision to require Additional Contributions to the Company;
[k] any decision to distribute cash or other assets of the Company, except any
Distribution pursuant to Article 5 or pursuant to Section 2.4 of the
Agreement Regarding Ownership Interests;
[l] the admission of additional Members (except as provided in 13.3) or the
grant by the Company of any right to acquire any interest in the Company or
any stock or equity appreciation or similar right;
[m] any transaction involving the Company, on the one hand, and a Member or an
Affiliate of a Member, on the other (including the provision of management
or
23
other services and charges therefor or allocations of general and
administrative costs by a Member or an Affiliate of a Member to the
Company), except as otherwise provided in 14.4;
[n] any change in programming direction or philosophy or operating principles
(including budget compliance) of the Company or of any Service offered by
the Company;
[o] appointment or removal of the Tax Matters Partner; or
[p] any employment agreement providing for compensation on termination of
employment other than in accordance with severance policies generally
applicable to employees of the Company.
[q] any agreement by the Company to take any of the foregoing actions.
6.3 OTHER MATTERS. Unless otherwise restricted by a unanimous Vote of
-------------
the Members, any action not requiring a unanimous Vote will be deemed approved
by the Company if such action is taken by an officer of the Company in the
ordinary course of business in a manner consistent with a business plan or
budget approved by the Members.
6.4 MEMBER REPRESENTATIVES. The Fox Member and the LMC Member each
----------------------
will be entitled to designate two individuals, and Financing LLC will be
entitled to designate four individuals, to act as such Member's duly authorized
representatives and agents (each a "Representative") for purposes of exercising
such Member's Vote on any matter involving the Company. A Member will designate
its Representatives by Notice to each other Member and may change any such
designation at any time upon similar Notice.
6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT. No Member will voluntarily
-----------------------------------------
dissolve, resign from or retire from the Company, except by a Transfer to a
Permitted Transferee or following Dissolution and Liquidation of the Company.
If any such voluntary dissolution, resignation or retirement occurs in
contravention of this Agreement, the withdrawing Member will, without further
act, become a Transferee of such Member's Ownership Interest (with the limited
rights of a Transferee as set forth in 13.5). Any Member who dissolves, resigns
or retires from the Company in contravention of this Agreement will be liable to
the Company and the other Members for monetary damages (but any such action or
proposed action will not be subject to any equitable action for injunctive
relief or specific performance).
24
6.6 OFFICERS.
--------
[a] The Fox Member will have the exclusive right to cause the Company to
nominate a chief executive officer ("CEO"), chief financial officer
("CFO"), and chief operating officer ("COO") for each of the Sports
Business and the fX Business, subject, in each case, to the LMC Member's
approval, which approval will not unreasonably be withheld. Each CEO will
have the authority to select such other officers (other than a CFO and COO)
as may be necessary or desirable to carry out the day-to-day management of
that CEO's Company Business, such day-to-day management to be subject to
the approval of the Members.
[b] At the request of the LMC Member made at any time after the date that is 18
months after the date of this Agreement, the Fox Member will give due
consideration, in good faith, to the appointment of a single CEO, CFO and
COO for all the Company Businesses. Such appointment will be subject to
the approval of the LMC Member, which approval will not be unreasonably
withheld.
[c] Each of the Fox Member and the LMC Member will have the right, in its sole
discretion, to cause the Company to terminate a CEO, a CFO or a COO. In
case of any such termination, the terminated officer will be required to
leave his or her position within 24 hours after receiving a notice of
termination.
[d] Appointment of a Person as an officer or agent of the Company will not, in
itself, create any contract rights. The officers of the Company, acting in
their capacities as such, will be agents acting on behalf of the Company as
principal.
6.7 BUDGETS AND BUSINESS PLANS; FINANCIAL INFORMATION .
-------------------------------------------------
[a] The Members will require the appropriate officers and employees of the
Company to prepare and present to the Members an annual operating and
capital budget and a three-year business plan for each of the Sports
Business and the fX Business at least 90 days in advance of the beginning
of the applicable Fiscal Year. Each annual operating and capital budget
will be at least as detailed as the 12-month budgets attached as Appendices
A and B. Until the first three-year business plan and annual operating and
capital budgets are approved by the Members, the Sports Business and the fX
Business will be operated in accordance with the 12-month budgets attached
to this Agreement as Schedules 6.7[a][i] and 6.7 [a][ii], respectively.
25
[b] The Members will require the appropriate officers and employees of the
Company to prepare and deliver to the Members [i] reasonably detailed
quarterly and annual financial statements, including balance sheets and
statements of income and cash flows for the Company, each of the Sports
Companies and the fX LLC, in each case prepared in accordance with GAAP
(subject, in the case of interim financial statements, to the omission of
footnotes and normal year-end adjustments), [ii] monthly statements of
income and cash flows for the Company, each of the Sports Companies and the
fX LLC, including, in the case of such statements of income, identification
of all transactions between the Company, a Sports Company or the fX LLC, on
the one hand, and a Member or any of its Affiliates, on the other,
including footnote disclosure thereof, [iii] quarterly reports setting
forth in reasonable detail information concerning investments made by the
Company, each of the Sports Companies and the fX LLC, [iv] monthly
comparisons of the applicable budget to actual performance and [v] at least
quarterly, 12-month forward rolling operating and capital forecasts. The
financial information to be provided pursuant to this 6.7[b] will be
distributed to the Members within the following time periods: information
required to be furnished monthly will be provided within 15 days following
the end of the applicable month, information required to be furnished
quarterly will be provided within 30 days following the end of the
applicable quarter, and information required to be furnished annually will
be provided within 60 days following the end of the applicable Fiscal Year.
6.8 MANAGEMENT CONDUCT. The Members each will cause the officers
------------------
and employees of the Company promptly and diligently to perform the duties
contemplated by this Agreement. If a Member willfully fails to perform its
obligations under the foregoing sentence to the material detriment of the other
Members and fails to cure such failure within 30 days after Notice by another
Member, such Member will immediately lose its right to take part in the
selection or termination of any CEO, CFO and COO and will cease to have voting
rights as to the actions described in 6.2[b] through 6.2[d] and as to any
agreement by the Company to take any of such actions.
6.9 UNAUTHORIZED ACTIONS. If a Member takes any action which is not
--------------------
authorized under this Agreement and, as a consequence of such action, the
Company incurs any liability or obligation to any Person, at the election of any
other Member, the Member taking such unauthorized action will be solely
responsible for the full amount of such liability or obligation and will
indemnify the Company against any claim for satisfaction thereof. Subject to
receipt of an assumption agreement, duly executed by such Member, to the effect
set forth in the foregoing sentence, which assumption agreement is in form and
substance reasonably satisfactory to the other Members, the Company will assign
to such Member all the Company's rights in and to any asset, income or benefit
arising from the incurrence of such liability or obligation (such assignment to
be effected by an
26
assignment duly executed by the Company, which assignment is in form and
substance reasonably satisfactory to such Member). After such assignment, the
Member to which such rights have been assigned may use or transfer such rights,
subject, in any event, to any restriction on the use or transfer thereof imposed
by this Agreement or the Parents Agreement.
ARTICLE 7: MEETINGS OF MEMBERS
7.1 MEETINGS.
--------
[a] Regular meetings of the Members will be held quarterly upon at least 10
days' prior Notice by the Member entitled to select the place of the
meeting pursuant to 7.2.
[b] Special meetings of the Members may be called by any Member owning at least
10% of the Ownership Interests held by all Members upon the giving of at
least 10 days' prior Notice by such Member.
7.2 PLACE. The Fox Member will select the place where the
-----
first quarterly meeting of Members is to be held. Thereafter, the LMC Member
and the Fox Member will alternate in selecting the place for each quarterly
meeting of the Members. If no place for a meeting is designated, or if a
special meeting is called, the place of the meeting will be the Company's
principal business office or such other place as the Members may approve.
7.3 NOTICE. Notice of any meeting will be given to at least one
------
Representative of each Member not less than 10 days or more than 30 days before
the date of the meeting. Such Notice will state the place, day and hour of the
meeting and, in the case of a special meeting, the purpose for which the meeting
is called.
7.4 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice
----------------
required to be given to such Member, whether before or after the time for the
meeting stated in such Notice. Any Member who signs minutes of action (or a
written consent) will be deemed to have waived any required Notice with respect
to such action.
7.5 RECORD DATE. For the purpose of determining Members entitled to
-----------
Notice of or to Vote at any meeting of Members, the date on which Notice of the
meeting is first given will be the record date for the determination of Members.
Any such determination of Members entitled to Vote at any meeting of Members
will apply to any adjournment of a meeting.
27
7.6 QUORUM. A quorum at any meeting of Members will be deemed
------
to exist if at least one Representative of each Member entitled to Vote is
present in person or by proxy. Any meeting at which a quorum is not present may
be adjourned to another place, day and hour without further Notice.
7.7 MANNER OF ACTING. If a quorum is present at any meeting of the
----------------
Members, the affirmative Vote of Members as set forth in Article 6 will be the
act of the Company. Prompt Notice describing all actions taken at a meeting
will be provided to all Representatives who were not in attendance at such
meeting.
7.8 PROXIES. At any meeting of Members, a Member may Vote in
-------
person or by written proxy given to another Member. A proxy will be valid if
signed by any Representative of the Member or by a duly authorized attorney-in-
fact and filed with the Company before or at the time of the meeting. No proxy
will be valid after three months from the date of its signing unless otherwise
provided in the proxy. Attendance at the meeting by any Representative of the
Member giving the proxy will be deemed to revoke the proxy during the period of
attendance.
7.9 MEETINGS BY TELEPHONE. The Members may participate in a meeting
---------------------
by means of conference telephone or similar communications equipment by which
all Representatives participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required Notice.
7.10 ACTION WITHOUT A MEETING. Any action required or permitted to be
------------------------
taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more minutes of action or written consents describing the
action taken, signed by all Representatives of those Members entitled to Vote.
Action so taken will be effective when all Representatives of those Members
entitled to Vote have signed the consent, unless the consent specifies a later
effective date. Prompt Notice describing all actions taken without a meeting of
Members will be provided to all Representatives who have not signed the written
consent authorizing such actions.
ARTICLE 8: LIABILITY OF A MEMBER
8.1 LIMITED LIABILITY. Except as otherwise provided in the Act and in 6.9,
-----------------
the debts, obligations and liabilities of the Company (whether arising in
contract, tort or otherwise) will be solely the debts, obligations and
liabilities of the Company, and no Member of the Company (including any Person
who formerly held such status) is liable or will be obligated personally for any
such debt, obligation or liability of the Company solely by reason of such
status. No Representative, individual trustee, officer, director,
28
employee or agent of any Member will have any personal liability for the
performance of any obligation of such Member under this Agreement.
8.2 CAPITAL CONTRIBUTION. Each Member is liable to the Company for
--------------------
[a] the Initial Contribution agreed to be made under 3.1 and [b] any Capital
Contribution or Distribution that has been wrongfully or erroneously returned or
made to such Person in violation of the Act, the Certificate or this Agreement.
8.3 CAPITAL RETURN. Any Member who has received the return of all or
--------------
any part of such Person's Capital Contribution will have no liability to return
such Distribution to the Company after the expiration of three years from the
date of such Distribution unless Notice of an obligation to return is given to
such Person within such three-year period; provided that if such return of
capital has occurred without violation of the Act, the Certificate or this
Agreement, the three-year obligation to return capital will apply only to the
extent necessary to discharge the Company's liability to its creditors who
reasonably relied on such obligation in extending credit prior to such return of
capital.
8.4 RELIANCE. Any Member will be fully protected in relying in
--------
good faith upon the records of the Company and upon such information, opinions,
reports or statements by [a] any of the Company's other Members, employees or
committees or [b] any other Person who has been selected with reasonable care as
to matters such Member reasonably believes are within such other Person's
professional or expert competence. Matters as to which such reliance may be
made include the value and amount of assets, liabilities, Profits and Losses of
the Company, as well as other facts pertinent to the existence and amount of
assets from which distributions to Members might properly be made.
ARTICLE 9: INDEMNIFICATION
9.1 GENERAL. The Company will indemnify each Member from and
-------
against any and all loss, damage, expense (including reasonable fees and
expenses of attorneys and other advisors and any court costs incurred by such
Member) or liability incurred in any Proceeding to which such Member is made a
party because such Person was a Member or acted or failed to act with respect to
the business or affairs of the Company if [a] such Person acted in good faith,
[b] such Person reasonably believed that its conduct in an official capacity was
in the Company's best interests or, if the conduct was not in an official
capacity, that its conduct was at least not opposed to the Company's best
interests and [c] such Person, in the case of any criminal Proceeding, had no
reasonable cause to believe its conduct was unlawful.
29
9.2 EXCEPTION. Notwithstanding the general rule stated in 9.1, the
---------
Company will not indemnify any Person in connection with [a] any Proceeding by
or in right of the Company in which such Member was adjudged liable to the
Company, [b] in connection with any Proceeding charging improper personal
benefit to the Member (whether or not involving action in an official capacity)
in which such Person was adjudged liable on the basis that personal benefit was
improperly received or [c] any liability or obligation for which such Person is
liable under 6.9.
9.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses
-------------------
incurred by a Member who is a party to a Proceeding, the Company may provide
funds to such Person in advance of the final disposition of the Proceeding if
[a] the Member furnishes the Company with such Person's written affirmation of a
good-faith belief that it has met the standard of conduct described in 9.1, [b]
the Member agrees in writing to repay the advance (with simple interest at the
Prime Rate) if it is determined that it has not met such standard of conduct and
[c] the Company determines that, based on then known facts, indemnification is
permissible under this Article.
9.4 INSURANCE. The indemnification provisions of this Article do
---------
not limit a Member's right to recover under any insurance policy maintained by
the Company. If, with respect to any loss, damage, expense or liability
described in 9.1, any Member receives an insurance policy indemnification
payment which, together with any indemnification payment made by the Company,
exceeds the amount of such loss, damage, expense or liability, then such Person
will immediately repay such excess to the Company.
9.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company
-------------------------
will indemnify and advance expenses to a Member, the Company may indemnify and
advance expenses to any officer, employee or agent of the Company. In addition,
the Company, in its discretion, may indemnify and advance expenses to any
Company officer, employee or agent to a greater extent than a Member.
ARTICLE 10: ACCOUNTING AND REPORTING
10.1 FISCAL YEAR. For income tax and accounting purposes, the fiscal
-----------
year of the Company will be the Fiscal Year.
10.2 ACCOUNTING METHOD. For income tax and accounting purposes, the Company
-----------------
will use the accrual method of accounting (unless otherwise required by the
Code). The Tax Matters Partner will have the authority to adopt all other
accounting methods for tax purposes.
30
10.3 TAX ELECTIONS. The Tax Matters Partner will have the authority to
-------------
make such tax elections, and to revoke any such election, as the Tax Matters
Partner may from time to time determine. Notwithstanding the preceding
sentence, following any Transfer (within the meaning of (S) 754 of the Code) of
an Ownership Interest, the Tax Matters Partner will make the election under (S)
754 of the Code upon the timely written request of either the Transferor Member
or the Transferee. In addition, the Tax Matters Partner may make the (S) 754
election if the Tax Matters Partner determines that such election is in the best
interests of the Company or any Member.
10.4 RETURNS. At the expense of the Company, the Tax Matters
-------
Partner will cause the preparation and timely filing of all tax returns required
to be filed by the Company pursuant to the Code, as well as all other tax
returns required in each jurisdiction in which the Company does business.
10.5 FINANCIAL REPORTS. The Members will cause the appropriate officers or
-----------------
employees of the Company, at the expense of the Company, to cause to be prepared
and distributed to the Members the financial statements, reports and other
information prescribed by 6.7 and such other financial statements, budgets,
plans and schedules as required for the reporting purposes of and/or are from
time to time reasonably requested by the Members.
10.6 ANNUAL AUDIT.
------------
[a] Each Fiscal Year, an audit will be made by the Company's accountants at the
expense of the Company. The audit will be conducted in accordance with
generally accepted auditing standards, and will cover all of the assets,
properties, liabilities and net worth of the Company as well as its
dealings, transactions and operations during such Fiscal Year, together
with all other matters customarily included in such accountings and audits
or as may be reasonably required by the Members. As to any Member whose
fiscal year does not coincide with the Fiscal Year of the Company, the
Company will bear the cost of [i] any review that is required to be
conducted by such Member's independent auditor for the purpose of
permitting such independent auditor to rely on any audit opinion issued by
the Company's independent auditor for the Fiscal Year ended within the
fiscal year of the Member and [ii] if applicable, any review that is
required to permit such Member to comply with Regulation S-X of the
Securities Act of 1934, as amended, such cost not to exceed a reasonable
amount.
[b] At the expense of the Company, within 60 days after the end of each Fiscal
Year, the Company will furnish the Members with audited financial
statements prepared by the Company's accountants on an accrual basis in
accordance with
31
GAAP consistently applied which will contain a balance sheet as of the end
of the Fiscal Year, statements of income, changes in the Capital Accounts
and cash flow for the Fiscal Year then ended. The timing of the annual
audit of each Fiscal Year will be such that the Company's accountants are
in a position to render a conclusion as to the probable fairness of
presentation of the financial statements of the Company for such Fiscal
Year (which will have been furnished pursuant to the foregoing provisions
of this 10.6) by the 60th day following the close of the Fiscal Year.
10.7 BOOKS AND RECORDS.
-----------------
[a] The following books and records of the Company will be kept at its
principal office: [i] a current list of the full name and last known
business, residence or mailing address of each Member; [ii] originals of
the Certificate and of this Agreement, as amended (as well as any signed
powers of attorney pursuant to which any such document was executed); [iii]
a copy of the Company's federal, state and local income tax returns and
reports and annual financial statements of the Company, for the six most
recent years; and [iv] minutes, or minutes of action or written consent, of
every meeting of Members of the Company.
[b] At the Company's expense, there will be kept at the Company's principal
office separate books of account for each Company Business which will be a
true and accurate record of all costs and expenses incurred, all credits
made and received and all income derived in connection with the operation
of the Company Business in accordance with GAAP consistently applied.
[c] Each Member, at its sole expense, will have the right, at any time without
notice to the other, to examine, copy and audit the Company's books and
records during normal business hours.
10.8 INFORMATION.
-----------
[a] Each Member has the right, from time to time and upon reasonable demand for
any purpose reasonably related to such Person's interest as a Member of the
Company, to obtain from the Company: [i] a current list of the full name
and last known business, residence or mailing address of each Member; [ii]
a copy of the Certificate and of this Agreement, as amended (as well as any
signed powers of attorney pursuant to which any such document was
executed); [iii] a copy of the Company's federal, state and local income
tax returns and reports and annual financial statements of the Company, for
the six most recent years; [iv] minutes, or minutes of action or written
consent, of every meeting of the Members of the Company; [v] true and full
information regarding the amount
32
of money and a description and statement of the agreed value of any other
property or services contributed or to be contributed by each Member, and
the date on which each became a Member; [vi] true and full information
regarding the status of the business and financial condition of the
Company; and [vii] other information regarding the affairs of the Company
as reasonably may be requested by such Member.
[b] The Members will cause the Company [i] to deliver to each Member, for its
review and approval, a copy of each tax return or report required to be
filed by the Company at least 30 days before the required filing date and
[ii] to provide to each Member, not more than 135 days after each Fiscal
Year end, such information for such Fiscal Year as the Member reasonably
requires to prepare tax returns or reports required to be filed by it or
one or more of its Affiliates, including federal and state tax information
and projections and estimates.
10.9 BANKING. The Company may establish and maintain one or more
-------
accounts or safe deposit boxes at banks or other financial institutions. The
Company may authorize one or more individuals to sign checks on and withdraw
funds from such bank or financial accounts and to have access to such safe
deposit boxes, and may place such limitations and restrictions on such authority
as the Company deems advisable. No funds of the Company will be commingled with
funds of any Member or any other Person.
10.10 TAX MATTERS PARTNER. Until further action by the Company, the
-------------------
Fox Member is designated as the Tax Matters Partner under (S) 6231(a)(7) of the
Code. The Tax Matters Partner will take no action which is reasonably expected
to have a material adverse effect on one or more of the Members unless such
action is approved by the unanimous Vote of the Members. The Tax Matters
Partner will be responsible for notifying all Members of ongoing proceedings,
both administrative and judicial, and will represent the Company throughout any
such proceeding. The Members will furnish the Tax Matters Partner with such
information as it may reasonably request to provide the Internal Revenue Service
with sufficient information to allow proper notice to the Members. If an
administrative proceeding with respect to a partnership item under the Code has
begun, and the Tax Matters Partner so requests, each Member will notify the Tax
Matters Partner of its treatment of any partnership item on its federal income
tax return, if any, which is inconsistent with the treatment of that item on the
partnership return for the Company. Any settlement agreement with the Internal
Revenue Service will be binding upon the Members only as provided in the Code.
The Tax Matters Partner will not bind any other Member to any extension of the
statute of limitations or to a settlement agreement without such Member's
written consent. Any Member who enters into a settlement agreement with respect
to any partnership item will notify the other Members of such settlement
agreement and its terms within 30 days after the date
33
of settlement. If the Tax Matters Partner does not file a petition for
readjustment of the partnership items in the Tax Court, federal District Court
or Claims Court within the 90-day period following a notice of a final
partnership administrative adjustment, any notice partner or 5-percent group (as
such terms are defined in the Code) may institute such action within the
following 60 days. The Tax Matters Partner will timely notify the other Members
in writing of its decision. Any notice partner or 5-percent group will notify
the other Members of its filing of any petition for readjustment.
10.11 NO PARTNERSHIP. The classification of the Company as a partnership
---------------
will apply only for federal (and, as appropriate, state and local) income tax
purposes. This characterization, solely for tax purposes, does not create or
imply a general partnership between the Members for state law or any other
purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the Act.
ARTICLE 11: DISSOLUTION
11.1 DISSOLUTION. Dissolution of the Company will occur upon the
-----------
happening of any of the following events:
[a] The sale or other disposition of all or substantially all of the Company's
assets;
[b] An event of Withdrawal (as defined in 11.2) of a Member, unless there are
at least two remaining Members and the Company is continued as provided in
11.3;
[c] The affirmative Vote of all Members; or
[d] The last day of the Fiscal Year ending in 2095, unless prior to such date
the Company is continued under the Act and this Agreement by the unanimous
Vote of all Members.
11.2 EVENTS OF WITHDRAWAL. An event of Withdrawal of a Member occurs when
--------------------
any of the following occurs:
[a] With respect to any Member, upon the Transfer of all of such Member's
Ownership Interest (which Transfer is treated as a resignation);
[b] With respect to any Member, upon the voluntary withdrawal (including any
resignation or retirement in contravention of 6.5) of the Member;
34
[c] With respect to any Member that is a corporation, upon filing of articles
of dissolution of the corporation;
[d] With respect to any Member that is a partnership, a limited liability
company or a similar entity, upon dissolution and liquidation of such
entity (but not solely by reason of a technical termination under (S)
708(b)(1)(B) of the Code);
[e] With respect to any Member that is a trust, upon termination of the trust;
[f] With respect to any Member, the Bankruptcy of the Member; or
[g] Any other event which terminates the continued membership of a Member in
the Company.
Within 10 days after the occurrence of any event of Withdrawal with respect to a
Member, such Member will give Notice of the date and the nature of such event to
the Company. Any Member failing to give such Notice will be liable in damages
for the consequences of such failure as otherwise provided in this Agreement.
11.3 CONTINUATION.
------------
[a] In the event of Withdrawal of a Member, the Company will be continued if
there are two or more Members remaining and if, within 90 days after such
event, there is an affirmative Vote of a majority in interest of the
remaining Members to continue the Company's business as a limited liability
company under the Act and this Agreement. For this purpose, "a majority in
interest of the remaining Members" means Members owning, in the aggregate,
a majority of the interests in the Profits of the Company (determined and
allocated based upon a reasonable estimate of Profits from the date of the
event of Withdrawal to the projected termination of the Company) and a
majority of the interests in the capital of the Company (determined as of
the date of the event of Withdrawal) held by all Members other than the
Member with respect to which the event of Withdrawal occurred. If the
business of the Company is so continued, an event of Withdrawal of one or
more Members will not cause the Dissolution of the Company. If the Company
is so continued, with respect to any Member as to which an event of
Withdrawal has occurred, such Member or such Member's Transferee or other
successor-in-interest (as the case may be) will, without further act,
become a Transferee of such Ownership Interest (with the limited rights of
a Transferee as set forth in 13.5, unless admitted as a substitute Member).
If the Company is not continued as above provided, the Company will be
treated as dissolved as of the end of such 90-day period.
35
[b] If the Company is continued as provided in 11.3[a], within 90 days after
the event of Withdrawal one or more additional Members may be admitted by
an affirmative Vote of all remaining Members or non-Bankrupt Members, as
the case may be. The Ownership Interest of such additional Member or
Members will be the percentage determined by the remaining Members or the
non-Bankrupt Members, as the case may be, and will be allocated from the
Ownership Interests held by such remaining Members or non-Bankrupt Members,
as the case may be.
11.4 FORMATION OF NEW COMPANY. Upon Dissolution of the Company
------------------------
caused by an event described in 11.1[b] at a time when there are only two
Members, the remaining Member may elect to reform the Company as a new limited
liability company (the "New Company") upon Liquidation of the Company. If the
remaining Member decides to make such an election, the remaining Member will
give Notice to the withdrawing Member within 10 days after the Company's receipt
of Notice of the event of Withdrawal pursuant to 11.2. The remaining Member
will then cause the formation of the New Company consisting of the remaining
Member and one or more new members (the "New Members") within 60 days of giving
such Notice. The New Company's limited liability company agreement will be in
substantially the same form as this Agreement. The withdrawing Member will have
the rights of a Transferee in the New Company as described in 13.5, and will
therefore have the right to receive allocations and Distributions from the New
Company equivalent to the withdrawing Member's right to receive allocations and
Distributions from the Company as existed prior to the event of Withdrawal. To
the extent that any other Person had rights to receive allocations and
Distributions from the Company at the time the event of Withdrawal of the
withdrawing Member occurred, such Person will have the rights of a Transferee in
the New Company as described in 13.5 equivalent to the rights such Person had in
the Company prior to the occurrence of the event of Withdrawal. The Ownership
Interests and the remaining rights to receive allocations and Distributions from
the New Company will be allocated among the remaining Member and the New Members
as the remaining Member and the New Members may agree at the time the New
Company is formed.
ARTICLE 12: LIQUIDATION
12.1 LIQUIDATION. Upon Dissolution of the Company, if the Company has
-----------
not been continued pursuant to 11.3, the Company will immediately proceed to
wind up its affairs and liquidate pursuant to this 12.1 or pursuant to 12.8. If
there is only one remaining Member, that Member will act as the liquidating
trustee. Otherwise, any Person appointed by Members owning more than 50% of the
Ownership Interests held by all Members will act as the liquidating trustee.
The Liquidation of the Company will be accomplished in a businesslike manner as
determined by the liquidating trustee. A
36
reasonable time will be allowed for the orderly Liquidation of the Company and
the discharge of liabilities to creditors so as to enable the Company to
minimize any losses attendant upon Liquidation. Any gain or loss on disposition
of any Company assets in Liquidation will be allocated to Members in accordance
with the provisions of Article 4. Any liquidating trustee is entitled to
reasonable compensation for services actually performed, and may contract for
such assistance in the liquidating process as such Person deems necessary or
desirable. Until the filing of a certificate of cancellation under 12.9, and
without affecting the liability of the Members and without imposing liability on
the liquidating trustee, the liquidating trustee may settle and close the
Company's business, prosecute and defend suits, dispose of its property,
discharge or make provision for its liabilities, and make Distributions in
accordance with the priorities set forth in this Article.
12.2 TAX TERMINATION. In addition to termination of the Company following
---------------
its Dissolution, a termination of the Company will occur, for federal income tax
purposes only, on the date the Company is terminated under (S) 708(b)(1) of the
Code. Under current law, events causing such a termination include the sale or
exchange of 50% or more of the total interest in the capital and profits of the
Company within a 12-month period. Upon the occurrence of a termination under
(S) 708(b)(1) of the Code, a constructive Liquidation and a constructive
reformation of the Company as a tax partnership will be deemed to occur for
federal income tax purposes. All adjustments and computations will be made
under this Agreement as if the constructive transactions had actually occurred,
and the Capital Accounts of the Members in such new tax partnership will be
determined and maintained in accordance with the (S) 704(b) Regulations.
12.3 PRIORITY OF PAYMENT. If the Company is not continued pursuant to 11.3
-------------------
and the remaining Member has not elected to form the New Company as provided in
11.4, the assets of the Company will be distributed in Liquidation in the
following order:
[a] First, to creditors by the payment or provision for payment of the debts
and liabilities of the Company (other than any loans or advances that may
have been made by any Member or Affiliate) and the expenses of Liquidation;
[b] Second, to the setting up of any reserves that are reasonably necessary for
any contingent, conditional or unmatured liabilities or obligations of the
Company;
[c] Third, to the repayment of any loans to the Company that may have been made
by any Member or any Affiliate of a Member (according to the relative
priority of repayment of such loans and proportionally among loans of equal
priority if the amount available for repayment is insufficient for payment
in full); and
37
[d] Fourth, to the Members in proportion to the positive balances in their
respective Capital Accounts after such Capital Accounts have been adjusted
for all allocations of Profits and Losses and items thereof for the Fiscal
Year during which such Liquidation occurs.
12.4 LIQUIDATING DISTRIBUTIONS. If the Company is not continued
-------------------------
pursuant to 11.3 and the remaining Member has not elected to form the New
Company as provided in 11.4, the liquidating Distributions due to the Members
will be made by selling the assets of the Company and distributing the net
proceeds. Notwithstanding the preceding sentence, but only upon the affirmative
Vote of all Members, the liquidating Distributions may be made by distributing
the assets of the Company in kind to the Members in proportion to the amounts
distributable to them pursuant to 12.3, valuing such assets at their Fair Market
Value (net of liabilities secured by such property that the Member takes subject
to or assumes) on the date of Distribution. Each Member agrees to save and hold
harmless the other Members from such Member's proportionate share of any and all
such liabilities which are taken subject to or assumed. Appropriate and
customary prorations and adjustments will be made incident to any Distribution
in kind. The Members will look solely to the assets of the Company for the
return of their Capital Contributions, and if the assets of the Company
remaining after the payment or discharge of the debts and liabilities of the
Company are insufficient to return such contributions, they will have no
recourse against any other Member. The Members acknowledge that 12.3 may
establish Distribution priorities different from those set forth in the
provisions of the Act applicable to Distributions upon Liquidation, and the
Members agree that they intend, to that extent, to vary those provisions by this
Agreement.
12.5 NO RESTORATION OBLIGATION. Except as otherwise specifically
-------------------------
provided in 8.2 and 8.3, nothing contained in this Agreement imposes on any
Member an obligation to make an Additional Contribution in order to restore a
deficit Capital Account upon Liquidation of the Company.
12.6 TIMING. Final Distributions in Liquidation (except in the
------
case of a constructive Liquidation under 12.2) will be made by the end of the
Company's Fiscal Year in which such actual Liquidation occurs (or, if later,
within 90 days after such event) in the manner required to comply with the (S)
704(b) Regulations. Payments or Distributions in Liquidation may be made to a
liquidating trust established by the Company for the benefit of those entitled
to payments under 12.3, in any manner consistent with this Agreement and the (S)
704(b) Regulations.
12.7 LIQUIDATING REPORTS. A report will be submitted with each liquidating
-------------------
Distribution to Members made pursuant to 12.4, showing the collections,
disbursements and Distributions during the period which is subsequent to any
previous report. A final
38
report, showing cumulative collections, disbursements and Distributions, will be
submitted upon completion of the Liquidation.
12.8 LIQUIDATION IF NEW COMPANY IS FORMED. Upon Dissolution of the Company
------------------------------------
caused by an event described in 11.1[b], if the remaining Member forms a New
Company with one or more New Members as provided in 11.4, Liquidation of the
Company will be accomplished by the assignment of all of the Company's assets
and liabilities, whether fixed or contingent, to the New Company and the
assumption by the New Company of all of the Company's assets and liabilities,
whether fixed or contingent.
12.9 CERTIFICATE OF CANCELLATION. Upon Dissolution of the Company and the
---------------------------
completion of the winding up of its business, the Company will file a
certificate of cancellation (to cancel the Certificate of Formation) with the
Delaware Secretary of State pursuant to the Act. At such time, the Company will
also file an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business. A certificate of
cancellation will also be filed at any time there is only one Member.
ARTICLE 13: TRANSFER RESTRICTIONS
13.1 GENERAL RESTRICTION. No Person may Transfer all or any part of such
-------------------
Person's Ownership Interest in any manner whatsoever except to a Permitted
Transferee as set forth in 13.3 and only if the requirements of 13.4 have also
been satisfied. Any other Transfer of all or any part of an Ownership Interest
is null and void, and of no effect. Any Member who makes a Transfer of all of
such Person's Ownership Interest will be treated as resigning from the Company
on the effective date of such Transfer. The rights and obligations of any
resigning Member or of any Transferee of an Ownership Interest will be governed
by the other provisions of this Agreement.
13.2 NO MEMBER RIGHTS. Except as otherwise provided in this Agreement, no
----------------
Member has the right or power to confer upon any Transferee the attributes of a
Member in the Company. The Transferee of all or any part of an Ownership
Interest by operation of law does not, by virtue of such Transfer, succeed to
any rights as a Member in the Company.
13.3 PERMITTED TRANSFEREES. Subject to the requirements set forth in
---------------------
13.4, a Person may Transfer all (but not less than all) of such Person's
Ownership Interest to any Person to whom such Ownership Interest is permitted to
be transferred pursuant to the Agreement Regarding Ownership Interests and, in
case of any such Transfer, except as otherwise provided in the Agreement
Regarding Ownership Interests, the Transferee will be admitted as a Member as of
the effective date thereof.
39
13.4 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest
-------------------------------
will be effective unless all the conditions set forth below are satisfied:
[a] Unless waived by each nontransferring Member, the Transferor signs and
delivers to the Company an undertaking in form and substance satisfactory
to the Company to pay all reasonable expenses incurred by the Company in
connection with the Transfer (including reasonable fees of counsel and
accountants and the costs to be incurred with any additional accounting
required in connection with the Transfer, and the cost and fees
attributable to preparing, filing and recording such amendments to the
Certificate or other organizational documents or filings as may be required
by law);
[b] Unless waived by each nontransferring Member, the Transferor delivers to
the Company [i] an opinion of counsel for the Transferor reasonably
satisfactory in form and substance to the Company to the effect that,
assuming the accuracy of the statement of the Transferee described in [ii]
below, the Transfer of the Ownership Interest as proposed does not violate
requirements for registration under applicable federal and state securities
laws and [ii] a statement of the Transferee in form and substance
reasonably satisfactory to the Company making appropriate representations
and warranties with respect to compliance with the applicable federal and
state securities laws and as to any other matter reasonably required by the
Company;
[c] Unless waived by each nontransferring Member, the Transferor provides an
opinion of counsel for the Transferor reasonably satisfactory in form and
substance to the nontransferring Members or other evidence reasonably
satisfactory to the nontransferring Members that the Transfer of the
Ownership Interest will not result in the termination of the Company within
the meaning of (S) 708(b)(1)(B) of the Code. If the immediate Transfer of
such Ownership Interest would cause such a termination, but the following
action would not cause such a termination, the Transferor will be entitled
[i] immediately to Transfer only that portion of the Ownership Interest as
may be Transferred without causing such a termination and [ii] to enter
into an agreement to Transfer the remainder of its Ownership Interest, in
one or more Transfers, at the earliest date or dates on which such Transfer
or Transfers may be effected without causing such a termination. In
determining whether a particular proposed Transfer will result in a
termination of the Company, the Members will take into account the
existence of prior written commitments to Transfer of which Notice has been
given pursuant to this Agreement and those proposed Transfers will be given
precedence over subsequent proposed Transfers. Each nontransferring Member
will waive the foregoing provisions of this 13.4[c] unless such Member
reasonably determines that the termination of the
40
Company within the meaning of (S) 708(b)(1)(B) of the Code is reasonably
likely to have a material adverse effect on such Member.
[d] The Transferor signs and delivers to the Company a copy of the assignment
of the Ownership Interest to the Transferee (substantially in the form of
the attached EXHIBIT A), which assignment will provide that the Transferor
is released from any and all liabilities with respect to the transferred
Ownership Interest unless the Transferee is an Affiliate of the Transferor,
in which case the assignment will provide that the Transferor will continue
to be liable for the performance of such liabilities;
[e] The Transferee signs and delivers to the Company an agreement
(substantially in the form of the attached EXHIBIT B) to be bound by this
Agreement; and
[f] The Transfer is in compliance with the other provisions of this Article and
the Agreement Regarding Ownership Interests, including any requirements
relating to Third Party consents.
The Transfer of an Ownership Interest will be effective as of 12:01 a.m.
(Pacific Time) on the first day of the month following the month in which all of
the above conditions have been satisfied. The Company will amend Schedule 1.3
as of the effective time to reflect the new Ownership Interests.
13.5 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest
---------------------
will, on the effective date of the Transfer, have only those rights of an
assignee as specified in the Act unless and until such Transferee is admitted as
a substitute Member. This provision limiting the rights of a Transferee will
not apply if such Transferee is already a Member; provided that any Member who
resigns or retires from the Company in contravention of 6.5 will have only the
rights of an assignee as specified in the Act. Any Transferee of an Ownership
Interest who is not admitted as a substitute Member in accordance with this
Agreement has no right [a] to participate or interfere in the management or
administration of the Company's business or affairs, [b] to Vote or agree on any
matter affecting the Company or any Member, [c] to require any information on
account of Company transactions or [d] to inspect the Company's books and
records. The only right of a Transferee of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement is to receive
the allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest Transferred) and to receive all necessary tax
reporting information. In any event, each Transferee of an Ownership Interest
(including both immediate and remote Transferees) will be subject to all of the
obligations, restrictions and other terms contained in this Agreement as if such
Transferee were a Member. To the extent of any Ownership Interest Transferred,
41
the Transferor Member will not possess any right or power as a Member and may
not exercise any such right or power directly or indirectly on behalf of the
Transferee.
13.6 ADMISSION. Except as set forth in 11.3 or 13.3 or as to any
---------
Transferee that is an Affiliate of the Transferor, a Transferee of an Ownership
Interest will not become a substitute Member of the Company unless such
substitution is consented to by all Members, which consent may be granted or
withheld in the sole discretion of the Members and which consent may be
arbitrarily withheld, effective upon a date specified (which must be on or after
the effective date of the Transfer, as determined under 13.4).
13.7 SECURITY INTEREST. The pledge or granting of a Lien affecting all or
-----------------
any part of a Member's Ownership Interest will not cause the Member to cease to
be a Member. Except as otherwise provided in the Agreement Regarding Ownership
Interests, in no event will any secured party be entitled to foreclose upon (or
receive a Transfer in lieu of foreclosure of) any such secured interest or to
exercise any rights of a Member under this Agreement (unless and until such
Person is admitted as a substitute Member), and such secured party may look only
to such Member for the enforcement of any of its rights as a creditor. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the Member
to whom such Distributions would be payable. Except as otherwise provided in
the Agreement Regarding Ownership Interests, any secured party will be entitled,
with respect to the security interest granted, only to the allocations and
Distributions to which the assigning Member would be entitled under this
Agreement, and only if, as and when such allocations and Distributions are made
by the Company, and to receive any necessary tax reporting information. Neither
the Company nor any Member will owe any fiduciary duty of any nature to a
secured party.
ARTICLE 14: CERTAIN BUSINESS MATTERS
14.1 RESTRICTED ACTIVITIES.
---------------------
[a] The Company and the Sports Companies will be the exclusive vehicles through
which the Members and their Controlled Affiliates will engage in the Sports
Business, and no Member will engage, and each Member will cause each Person
Controlled by it not to engage, directly or indirectly (including as a
shareholder, partner or other equity owner or as a lender or provider of
financial or management assistance), in any non-Broadcast TV programming
service that is, or any group of related non-Broadcast TV programming
services which are coordinated in such a manner as to be, predominantly
sports or sports-related (a "Restricted Business") that competes with or is
similar in all material respects
42
to the Sports Business. Notwithstanding the foregoing, [i] the ownership of
a Retained Interest (as defined in the Formation Agreement) will not
violate this 14.1[a], and [ii] no Member or any Controlled Affiliate of a
Member will be deemed to violate this 14.1[a] because such Member or
Controlled Affiliate is acting solely as a distributor of any [A] non-
Broadcast TV programming service that is a Restricted Business, or [B] pay-
per-view programming, as that term generally is understood in the
telecommunications industry on the date of this Agreement.
[b] The provisions of 14.1[a] will not prohibit a Member or its Controlled
Affiliates from [i] acquiring or holding for investment purposes 5% or less
of any class or series of equity securities of any Person, which class or
series is registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), even if that Person is principally
engaged in a Restricted Business or [ii] acquiring or holding any interest
(including a controlling interest) in any Person which is not principally
engaged in a Restricted Business. A Person will be deemed to be
principally engaged in a Restricted Business if more than 50% of the
operating revenues of such Person and its consolidated subsidiaries for the
most recent twelve-month period ended before the date of determination were
revenues derived from the Restricted Business. Notwithstanding the
foregoing, if any Member (or a Controlled Affiliate of a Member) acquires a
controlling interest in any Person engaged in a Restricted Business, such
Member will use its reasonable best efforts, consistent with its fiduciary
duties and the contractual obligations of the Person engaged in a
Restricted Business, to cause the interest in the Restricted Business to be
offered to the Company at a price reasonably determined by such Member (or
its Controlled Affiliate) to be equal to the Fair Market Value of such
interest and on such other terms and conditions as are, in the reasonable
judgment of such Member (or its Controlled Affiliate), commercially
reasonable.
[c] Except as otherwise expressly provided in this Agreement and the Parents
Agreement, each Member and its Controlled Affiliates may engage in or
possess interests in other businesses or ventures of any nature or
description, without regard to whether such businesses or ventures are or
may be deemed to be competitive in any way with any Company Business and
none of the Members or their Controlled Affiliates or any director, officer
or employees of the Members or their Controlled Affiliates will be
obligated to present to the Company any particular investment or business
opportunity, but instead, the Members and their Controlled Affiliates will
have the right to take such opportunity for their own account or for the
account of any other Person without any obligation whatsoever to the
Company or any other Member.
43
14.2 RIGHTS PURCHASES/RESALE RIGHTS .
------------------------------
[a] The Members will work together to maximize their strength in purchasing
domestic sports programming rights. Each Member will [i] use its
reasonable best efforts, in the ordinary course of its business, to solicit
opportunities to acquire non-Broadcast TV rights to sports programming for
the benefit of the Company, whether separately or as part of a package
including Broadcast TV rights, [ii] give reasonable prior notice to the
Company of any opportunity to purchase any material non-Broadcast TV rights
to sports programming comprising or contained within the rights to be
purchased by such Member and [iii] use its reasonable best efforts to
obtain the approval or agreement of the Company to purchase material non-
Broadcast TV rights to sports programming and, if such non-Broadcast TV
rights are part of a package including Broadcast TV rights, the allocation
of the price between Broadcast TV rights and non-Broadcast TV rights. The
provisions of this Section 14.2 will not prohibit any Member from
soliciting opportunities to acquire, or from acquiring, non-Broadcast TV
rights that are not within the scope of the Sports Business and will not
apply to the solicitation or acquisition of any non-Broadcast TV sports
programming rights by a Member on an occasional basis for exhibition on a
programming service that is not predominantly sports or sports-related.
Nothing in this Agreement will be construed as prohibiting a Member from
purchasing Broadcast TV or pay-per-view rights or as requiring a Member to
offer Broadcast TV or pay-per-view rights to the Company.
[b] If a Member acquires or is offered non-Broadcast TV rights that are within
the scope of the Sports Business, such non-Broadcast TV rights immediately
will be offered to the Company for a price equal to the price paid or
proposed to be paid therefor by such Member. Except as otherwise expressly
provided in paragraph [c], if such rights are rejected by the Company, that
Member will be free to purchase, resell, or use such non-Broadcast TV
sports programming rights, subject to [i] the obligation to offer such
rights to the Company before purchasing them on terms less favorable to the
Person offering the rights than those rejected by the Company, [ii] the
obligation to offer such rights to the Company before selling them on terms
less favorable to the offering Member than the offer rejected by the
Company, [iii] the obligation to reoffer such rights to the Company before
selling them if they remain unsold more than 180 days after the Company
rejected the opportunity to buy such rights and [iv] the Members'
obligations under 14.1[a].
[c] If a Third Party presents a Member with any opportunity to acquire non-
Broadcast TV rights for all or a substantial portion of a season (or
similar time period) of sports games or events, or all or a substantial
portion of a sports
44
league (or similar association) for use on a programming service for all or
any portion of the United States and its territories (excluding Puerto
Rico) and Canada that is predominantly sports or sports-related, such
rights immediately will be offered to the Company on the terms proposed by
the Third Party. If the opportunity to acquire such rights is rejected by
the Company, no Member may pursue the opportunity for its own account or
offer or direct it to any other Person.
[d] The Fox Member (or any Affiliate of the Fox Member designated by the Fox
Member) will have a right of first refusal to acquire United States or
Canadian Broadcast TV sports programming rights offered by the Company.
[e] For as long as Fox or one or more Affiliates of Fox and Liberty or one or
more Affiliates of Liberty are members in the International Venture, and
for two years following the date on which Fox and all Affiliates of Fox or
Liberty and all Affiliates of Liberty cease to be members in the
International Venture, any non-Broadcast TV rights to United States or
Canadian sports programming for distribution outside the United States of
America or Canada, whether held by the Company or any Member, will be
subject to a right of first refusal in favor of the International Venture
prior to a sale thereof to a Third Party, to the extent such rights are
within the scope of the International Venture's business.
[f] If the Company or any Member intends to sell or otherwise dispose of any
Broadcast TV rights to United States or Canadian sports programming for
distribution outside the United States or Canada in any territory in which
Fox (or one or more of its Affiliates) or Liberty (or one or more of its
Affiliates) owns, directly or indirectly, a 10% or greater ownership
interest in a Broadcast TV network, the owner of such network will have a
right of first refusal with respect to such rights. With respect to any
territory in which both the Fox Member or an Affiliate thereof, on the one
hand, and the LMC Member or an Affiliate thereof, on the other, own 10% or
greater interests in Broadcast TV networks, the owners of the networks in
which such Members or their Affiliates have interests each will have a
right of first refusal with respect to the acquisition of such Broadcast TV
Rights and, in that event, the right of first refusal will be exercisable
by the Person offering the higher price, so long as that price is not less
than the price offered by a Third Party.
[g] Any Member that has a right of first refusal pursuant to this 14.2 will
have 15 Business Days after receipt of written notice of the occurrence of
an event giving rise to its right of first refusal within which to exercise
such right. Any right of first refusal or other right to acquire arising
under this 14.2 will be exercisable in accordance with the procedures set
forth in Schedule 14.2.
45
14.3 FX PROGRAMMING. The Members acknowledge that the fX Service was
--------------
initially created primarily to distribute entertainment programming produced by
Fox. Accordingly, Fox will have the right to require the fX Service to carry
Fox or Fox Affiliate-produced entertainment programming, consistent with the
operating principles of the Company and the programming philosophy of the fX
Service, in each case from time to time in effect. Rates for such programming
will be fair market rates, determined by reference to rates offered by
comparable Third Parties for such programming or, if no such offers are made,
rates offered for comparable programming in arms-length transactions with
comparable buyers or, if there is no reasonably comparable programming or
comparable buyer, by "baseball" arbitration conducted in accordance with the
procedures set forth in Article 15. No commitment for the fX Service to carry
such programming will be made without the giving of at least 30 days' prior
notice to the LMC Member, which notice will include reasonably detailed
information supporting the terms of such commitment. The fX LLC will consider
carrying entertainment programming offered by the LMC Member or its Affiliates
on terms comparable to that applicable to Fox or Fox Affiliate-produced
programming, subject, in any event, to the goal of promoting consistency in
programming philosophy and direction.
14.4 NEW VENTURES.
------------
[a] Each Member will in good faith solicit and offer opportunities in the
Sports Business (other than the non-Broadcast TV rights addressed by 14.2)
to the Company (or the appropriate Sports Company), to the extent that it
is within such Member's control to admit such Person into the opportunity
and is consistent with the fiduciary duties, if any, owed by such Member to
others. If the Company or a Sports Company rejects the opportunity, the
Member proposing the opportunity to the Company or the Sports Company may
not pursue such opportunity. No Member will have any obligation to offer
an opportunity outside the Sports Business to the Company.
[b] Each opportunity of a Member to acquire any interest in a domestic sports
team, league, event or participant will be offered to the Company. If the
Company rejects such an opportunity and the Member acquires such an
interest, the Company will have the right to acquire when first available
any non-Broadcast TV rights available therefrom on such terms as the
parties may agree or, if they cannot agree, by matching the best offer by a
Third Party. If the Members cannot agree on terms and there is no offer by
a Third Party, the terms (including rights fees) payable for such non-
Broadcast TV rights will be fixed on a Fair Market Value basis, determined
by reference to terms of agreements for comparable rights in arms-length
transactions between similarly situated Persons or, if there are no such
agreements, by binding arbitration conducted in accordance with the
provisions of 15.3. For purposes of this Agreement, (i) a
46
sports league shall be deemed to be a domestic sports league if a majority
of the teams participating therein play a majority of their events in the
United States or Canada; (ii) a sports team will be deemed to be a domestic
sports team if the league in which it plays the majority of its events is a
domestic sports league; (iii) a sports participant will be deemed to be a
domestic sports participant if such sports participant is domiciled in the
United States or Canada; and (iv) a sports event shall be deemed to be a
domestic sports event if either the event takes place within the United
States or Canada or a majority of the participants therein are domestic
sports teams or domestic sports participants.
14.5 UPLINK SERVICES AND PRODUCTION FACILITIES . The Company will utilize
-----------------------------------------
facilities in Denver, Colorado operated by an Affiliate of TCI ("WTCI") as the
Company's uplink and transmission center, provided that (i) the signal quality
is of the same quality as the fX Service signal currently transmitted via fiber
lines from New York, New York to Los Angeles, California, (ii) the annual cost
of signal transmission from the Company's production facilities in Los Angeles,
California to WTCI's uplink and transmission center in Denver, Colorado is not
materially greater than the market rate generally charged for such transmission,
as quoted by one or more Third Parties, and (iii) the costs of uplinking and
transmission charged to the Company by WTCI are not materially greater than the
costs that would be incurred for comparable services provided by one or more
Third Parties, except (in each case) as otherwise approved by the unanimous Vote
of the Members. The Company will utilize production and post-production
facilities located at Fox's premises in Los Angeles, California, provided that
(i) the costs to the Company of such facilities and of the services provided at
such facilities are not materially greater than the costs of comparable
facilities and services if they were to be provided by one or more Third
Parties, except as otherwise approved by a unanimous Vote of the Members.
14.6 COOPERATION. The Members and the Company will cross-promote the
-----------
Services as well as Fox's Broadcast TV sports programming and services in a
commercially reasonable manner. Fox will promote the Company's Services on FBC
and on Broadcast Television stations owned and operated by Fox ("Fox O and O
Stations"). LMC will promote the Company's Services on programming services
Controlled by LMC. The Company's Services will promote Fox's Broadcast TV
sports programming and services. LMC and Fox will run promotions that are
substantially equivalent in value. The mutual promotions will involve, subject
to each Member's commercial discretion, a variety of promotions, including, for
example, program reminders by on-air personalities. The parties will coordinate
program scheduling and cross-sponsorship activities between the Company's
Services, on the one hand, and any programming services owned and Controlled by
LMC and the FBC network and Fox O and O Stations, on the other hand. In
addition, the Members will encourage their Affiliates and, in the case of Fox,
FBC station affiliates, to engage, where possible, in similar activities. The
nature and volume
47
of the Members' cross-promotional activities will be included in the Company's
reports to the Members on a quarterly basis. Anything in this Agreement to the
contrary notwithstanding, the fXM Service and any other Service Controlled by
any Member or any Affiliate of a Member which is not advertiser supported will
not be afforded any of the rights or be subject to any of the obligations
created by this 14.6; however, nothing in this Agreement will prevent cross-
promotional activity between the fX Service and the fXM Service.
14.7 CONTINUING RIGHTS. At LMC's option, Fox will take such actions as may
-----------------
be necessary to cause its obligations under 14.6 and under operating, service or
similar agreements with respect to the Company Businesses, to the extent
applicable to its Broadcast TV business, to be binding on any unaffiliated
transferee of any Broadcast TV network of Fox for a term not to exceed two years
after the date of transfer. In addition, the Company will have the right to use
the name "Fox" for at least one year after the date of transfer.
14.8 CONSENT TO OPPORTUNITIES. If pursuant to this Agreement or the
------------------------
Parents Agreement a Member or an Affiliate of a Member is required to offer to
the Company a right to purchase or any other right or opportunity, such Member
will not unreasonably withhold its consent to the acceptance or pursuit of such
right or opportunity by the Company.
14.9 NO ADVERSE ACTIONS. Each Member will not take or omit to take any
------------------
action which action or omission reasonably could be expected to adversely affect
in any material respect the operations, financial condition or prospects of the
Company, the Financing LLC, and the Business Companies taken as a whole.
Notwithstanding the foregoing, neither the LMC Member nor any Affiliate of the
LMC Member will have any obligation to take any affirmative action in its
separate business dealings to increase the number of fX Subscribers.
ARTICLE 15: DISPUTE RESOLUTION
15.1 DISPUTES. If an Arbitrable Dispute arises, the parties to the
--------
Arbitrable Dispute (who may be any combination of the Company and any one or
more of the Members) will attempt to resolve the Arbitrable Dispute as set forth
in 15.2 before proceeding to arbitration as provided in 15.3. With respect to
each Arbitrable Dispute, the Company and each Member waives all rights to seek
remedies in any court and the right to jury trial. All documents, discovery and
other information related to any such Arbitrable Dispute, and any attempts to
resolve or arbitrate such Arbitrable Dispute, will be kept confidential, except
to the extent that disclosure thereof is required in connection with such
arbitration or is required by law.
48
15.2 NEGOTIATION. If an Arbitrable Dispute arises, any party to the
-----------
Arbitrable Dispute will give Notice to each other party to the Arbitrable
Dispute. If the Company is not a party to the Arbitrable Dispute, Notice also
will be given to the Company. After such Notice has been given, the parties in
good faith will attempt to negotiate a resolution of the Arbitrable Dispute.
15.3 ARBITRATION. If, within 30 days after the Notice provided in
-----------
15.2, an Arbitrable Dispute is not resolved through negotiation or mediation,
the dispute will be arbitrated (subject to any subsequent resolution of the
matter by agreement of the parties to the dispute). The parties to the
Arbitrable Dispute agree to be bound by the selection of an arbitrator and to
settle the dispute exclusively by binding arbitration, all in accordance with
the following provisions:
[a] The parties to the Arbitrable Dispute will request that an arbitrator be
selected by the American Arbitration Association. That arbitrator will
then arbitrate the Arbitrable Dispute in Chicago, Illinois, and issue an
award.
[b] With respect to a dispute described in 14.3 regarding a rate for
programming provided to the fX Service, the Fox Member (or an Affiliate
thereof) and the LMC Member each will submit to the arbitrator and each
other in advance of the arbitration hearing such party's last best offer as
to such rate. As to any such dispute, the arbitrator will be limited to
awarding only one or the other of the two proposed rates submitted.
[c] To the extent consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of the
American Arbitration Association and in accordance with the Illinois
Arbitration Act. The arbitrator's decision will be made pursuant to the
relevant substantive law of the State of New York. The award of the
arbitrator will be final, binding and non-appealable. Judgment on the
award may be entered in any court in the United States, state or federal,
having jurisdiction.
[d] The fees and expenses of the arbitrator and the other direct costs of the
arbitration will be shared by the parties to the dispute in equal
proportions (which may not be proportionate to the Ownership Interests of
such parties). Each party to the Arbitrable Dispute will bear all other
costs and expenses as provided in 16.9.
15.4 DETERMINATION OF FAIR MARKET VALUE. Wherever this Agreement refers to,
----------------------------------
or calls for a determination of, Fair Market Value, the Fair Market Value of the
item in question will be determined in accordance with the following provisions:
49
[a] The Members may, by unanimous Vote, determine the Fair Market Value of such
item.
[b] If the Members are unable to agree on a Fair Market Value within 15 days
after the date Notice of the dispute is given by a Member to the others, or
if they determine that an appraisal should be used to determine Fair Market
Value, then the Members will cause the Fair Market Value as of the most
recent month end to be determined by a qualified appraiser acceptable to
the Members. If the Members are unable to agree on a single appraiser
within 30 days after the date of Notice of the dispute, each of the Fox
Member and the LMC Member will have an additional 10 days to select one
appraiser nationally recognized in valuing items of the kind required to be
valued. If either fails to appoint an appraiser, then the determination of
Fair Market Value by the one appraiser will be binding.
[c] Each appraiser will determine the Fair Market Value. The Company and the
Members will use their reasonable best efforts to cause such appraiser to
submit to them a written report indicating its determination of such Fair
Market Value within 30 days after the date such appraiser is selected.
[d] If the higher of the two appraisals is 110% or less of the lower appraisal,
the average of the two will be the Fair Market Value.
[e] If the higher of the two appraisals is more than 110% of the lower
appraisal, the Company will immediately notify the two appraisers and cause
them to appoint a third similarly qualified appraiser within 10 days after
such notice. The Company and the Members will use their reasonable best
efforts to cause such third appraiser (who will not be apprised of the
determination of the other appraisers) to submit a written report to each
of them indicating such appraiser's determination of Fair Market Value
within 30 days after the date such third appraiser is selected. If three
appraisals are necessary, then the average of the two appraisals in which
the determinations of Fair Market Value are closest together will be the
Fair Market Value or, if the highest and lowest are equidistant from the
middle determination, then the middle determination will be the Fair Market
Value.
[f] A determination of Fair Market Value made pursuant to this 15.4 will be
final, binding and nonappealable.
[g] The Company will pay the fees and costs of any appraiser involved in a
determination of Fair Market Value pursuant to this 15.4.
50
ARTICLE 16: GENERAL PROVISIONS
16.1 AMENDMENT. This Agreement may be amended only by the affirmative Vote of
---------
all Members. Any amendment will become effective upon such approval, unless
otherwise provided. Notice of any proposed amendment must be given at least five
days in advance of the meeting at which the amendment will be considered (unless
the approval is evidenced by duly signed minutes of action or written consent).
Any duly adopted amendment to this Agreement is binding on, and inures to the
benefit of, each Person who holds an Ownership Interest at the time of such
amendment, without the requirement that such Person sign the amendment or any
republication or restatement of this Agreement.
16.2 REPRESENTATIONS. Each Member represents and warrants to each other
---------------
Member that, as of the signing of this Agreement:
[a] Such Member is duly organized, validly existing and in good standing under
the laws of the jurisdiction where it purports to be organized, and is a
United States Person;
[b] Such Member has full power and authority as a corporation or limited
liability company to enter into and perform its obligations under this
Agreement;
[c] All actions necessary to authorize the signing and delivery of this
Agreement, and the performance of obligations under it, have been duly
taken;
[d] This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member and constitutes the legal,
valid and binding obligation of such Member enforceable in accordance with
its terms, except as such enforceability may be affected by applicable
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies is
subject to judicial discretion;
[e] No consent or approval of any other Person is required in connection with
the signing, delivery and performance of this Agreement by such Member; and
[f] The signing, delivery and performance of this Agreement do not violate the
organizational documents of such Member or any material agreement to which
such Member is a party or by which such Member is bound.
16.3 UNREGISTERED INTERESTS. Each Member [a] acknowledges that the
----------------------
Ownership Interests are being offered and sold without registration under the
Securities Act of 1933, as amended, or under similar provisions of state law,
[b] acknowledges that such
51
Member is fully aware of the economic risks of an investment in the Company, and
that such risks must be borne for an indefinite period of time, [c] represents
and warrants that such Member is acquiring an Ownership Interest for such
Member's own account, for investment, and with no view to the distribution of
the Ownership Interest, and [d] agrees not to Transfer, or to attempt to
Transfer, all or any part of its Ownership Interest without registration under
the Securities Act of 1933, as amended, and any applicable state securities
laws, unless the Transfer is exempt from such registration requirements.
16.4 WAIVER OF DISSOLUTION RIGHTS. The Members agree that irreparable
----------------------------
damage would occur if any Member should bring an action for judicial dissolution
of the Company. Accordingly, each Member accepts the provisions under this
Agreement as such Person's sole entitlement on Dissolution of the Company and
waives and renounces such Person's right to seek a court decree of dissolution
or to seek the appointment by a court of a liquidator for the Company. Each
Member further waives and renounces any alternative rights which might otherwise
be provided by law upon the Withdrawal of such Person and accepts the provisions
under this Agreement as such Person's sole entitlement upon the happening of
such event.
16.5 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any
-------------------------
right that it may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any property held by the
Company.
16.6 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
-----------------
discharge any provision of this Agreement. No delay in the exercise of any
right will operate as a waiver of such right. No single or partial exercise of
any right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
16.7 EQUITABLE RELIEF. Except as provided in 6.5, if any Member proposes
----------------
to Transfer all or any part of its Ownership Interest in violation of the terms
of this Agreement, the Company or any Member may apply to any court of competent
jurisdiction for an injunctive order prohibiting such proposed Transfer except
in compliance with the terms of this Agreement, and the Company or any Member
may institute and maintain any action or proceeding against the Person proposing
to make such Transfer to compel the specific performance of this Agreement. Any
attempted Transfer in violation of this Agreement is null and void, and of no
force and effect. The Person against whom such action or proceeding is brought
waives the claim or defense that an adequate remedy at law exists, and such
Person will not urge in any such action or proceeding the claim or defense that
such remedy at law exists.
16.8 REMEDIES FOR BREACH. Except as otherwise expressly provided in
-------------------
this Agreement [a] the rights and remedies of the Members set forth in this
Agreement are
52
neither mutually exclusive nor exclusive of any right or remedy provided by law,
in equity or otherwise, and [b] all legal remedies (such as monetary damages) as
well as all equitable remedies (such as specific performance) will be available
for any breach or threatened breach of any provision of this Agreement.
16.9 COSTS. If the Company or any Member retains counsel for
-----
the purpose of enforcing or preventing the breach or any threatened breach of
any provision of this Agreement or for any other remedy relating to it, then the
prevailing party will be entitled to be reimbursed by the nonprevailing party
for all costs and expenses so incurred (including reasonable attorney's fees,
costs of bonds and fees and expenses for expert witnesses).
16.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
---------------
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member which is in
violation of this Agreement.
16.11 COUNTERPARTS. This Agreement may be signed in multiple
------------
counterparts (or with detachable signature pages). Each counterpart will be
considered an original instrument, but all of them in the aggregate will
constitute one agreement.
16.12 NOTICE. All Notices under this Agreement will be in writing
------
and will be either delivered or sent addressed as follows: [a] if to the
Company, at the Company's principal office in Los Angeles, California, and [b]
if to any Member, at such Person's address as then appearing in the records of
the Company. In computing time periods, the day of Notice will be included.
16.13 DEEMED NOTICE. Any Notices given to any Member in accordance with
-------------
this Agreement will be deemed to have been duly given: [a] on the date of
receipt if personally delivered, [b] five days after being sent by U.S. mail,
postage prepaid, [c] the date of receipt, if sent by registered or certified
U.S. mail, postage prepaid, [d] one Business Day after receipt, if sent by
confirmed facsimile or telecopier transmission or [e] one Business Day after
having been sent by a nationally recognized overnight courier service.
16.14 PARTIAL INVALIDITY. Wherever possible, each provision of this
------------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law. However, if for any reason any one or more of the provisions of
this Agreement are held to be invalid, illegal or unenforceable in any respect,
such action will not affect any other provision of this Agreement. In such
event, this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained in it.
53
16.15 ENTIRE AGREEMENT. This Agreement (including its Schedules and
----------------
Exhibits) contains the entire agreement and understanding of the Members
concerning its subject matter.
16.16 BENEFIT. The contribution obligations of each Member will
-------
inure solely to the benefit of the other Members and the Company, without
conferring on any other Person any rights of enforcement or other rights.
16.17 BINDING EFFECT. This Agreement is binding upon, and inures to the
--------------
benefit of, the Members and their Permitted Transferees, provided that any
Transferee will have only the rights specified in 13.5 unless admitted as a
substitute Member in accordance with this Agreement.
16.18 FURTHER ASSURANCES. Each Member will sign and deliver, without
------------------
additional consideration, such other documents of further assurance as may
reasonably be necessary to give effect to the provisions of this Agreement.
16.19 HEADINGS. Article and section titles have been inserted for
--------
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
16.20 TERMS. Terms used with initial capital letters will have
-----
the meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than a limiting sense. The word day means a calendar day.
16.21 GOVERNING LAW; FORUM. This Agreement will be governed by, and
--------------------
construed in accordance with, [a] the laws of the State of Delaware, insofar as
any matter at issue is governed by, or is addressed in, the Act, and [b] the
laws of the State of New York, as to any other matter. Any conflict or apparent
conflict between this Agreement and the Act will be resolved in favor of this
Agreement, except as otherwise required by the Act. Except as provided in
Article 15, any action to enforce any provision of this Agreement may be brought
only in a court in the state of New York or in the United States District Court
for the Southern District of New York. Each party [i] agrees to submit to the
general jurisdiction of such courts and to accept service of process at its
address for notices pursuant to this Agreement in any such action or proceeding
and [ii] irrevocably waives any objection it may have to the laying of venue of
such action or proceeding brought in any such court and any claim that such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
54
IN WITNESS WHEREOF, all of the MEMBERS have signed this OPERATING AGREEMENT of
LIBERTY/FOX U.S. SPORTS LLC, to be effective from the date first above
mentioned, notwithstanding the actual date of signing.
LMC NEWCO U.S., INC.
May 9, 1996
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Its: President & Chief Executive Officer
-------------------------------------
FOX REGIONAL SPORTS HOLDINGS, INC.
May 9, 1996
By: /s/ Xxx Xxxxxxxxx
-------------------------------------
Its: Senior Vice President
-------------------------------------
LIBERTY/FOX SPORTS FINANCING LLC
May 9, 1996
By: News America Holdings Incorporated, a
Member
By: /s/ Xxx Xxxxxxxxx
-------------------------------------
Its: Senior Vice President
-------------------------------------
By: LMC Newco U.S., Inc., a Member
By: /s/ Xxxxx X. Xxxxxx
-------------------------------------
Its: President & Chief Executive Officer
-------------------------------------
55
