FIRST AMENDED AND RESTATED OPERATING AGREEMENT
OF
THE PLUMBER'S SECRET, L.L.C.
(as Successor to the ABC Limited Liability Company)
This First Amended and Restated Operating Agreement ("Agreement") of The
Plumber's Secret, L.L.C. ("Company") is made as of the 16th day of March 1999,
by and between Vila Enterprises LLC, a Delaware limited liability company with
a mailing address of XX Xxx 000, Xxxxxxxx Xxxxx, XX 00000 ("Vila
Enterprises"), and IMT's Plumber, Inc., a New Jersey corporation with a
mailing address of 00 Xxxx Xxxxx Xxxx, Xxxxx Xxxx, XX 00000 ("IMT"). (Vila
Enterprises and IMT shall hereinafter collectively be referred to as the
"Members.")
RECITALS
WHEREAS as "to be formed" corporation, Vila Co., the predecessor to Vila
Enterprises, and DEF Corporation, a corporation "to be formed" by Interactive
Marketing Technology, Inc., the predecessor to IMT, executed the Operating
Agreement of the ABC Limited Liability Company (the "Original Agreement.")
which contemplated the formation of a limited liability company in the state
of New Jersey;
WHEREAS the Original Agreement contemplated the formation of entities to
be members of the Company;
WHEREAS the parties desire to memorialize the formation and the naming of
the various entities and to amend and restate the Original Agreement to
clarify various aspects of the business relationship between the Members and
the Company; and,
WHEREAS, the parties desire to (i) produce, market and sell throughout
the world to Surge Plunge 2000 (the "Product") as more fully described in
Exhibit A (collectively, the "Business"),
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby agree as
follows:
ARTICLE I
FORMATION; PURPOSE; POWERS
1.1 Formation. The Members have formed the Company as a limited
liability company under the laws of the State of New Jersey. The Certificate
of Formation for the Company was filed with the New Jersey Secretary of State
on February 4, 1999. The Members hereby agree that the Company shall be
governed by, and the rights, duties and labilities of the Members shall be as
provided in, the New Jersey Limited Liability Company Act (the "Act") and this
Agreement.
1.2 Purpose. The Company is formed for the purpose of (i)
engaging in the Business, (ii) engaging in any lawful business, act or
activity related thereto as the Members may determine from time to time and
for which a limited liability company may be organized under the Act, and
(iii) engaging in any and all active necessary, convenient, desirable or
incidental to the foregoing.
1.3 Powers. Except as otherwise limited in this Agreement, the
Company shall have the power and authority to do any and all acts necessary,
appropriate, proper, advisable, convenient or incidental to or for the
furtherance of the purpose set forth in Section 1.2 hereof.
ARTICLE II
MANAGEMENT OF THE COMPANY
2.1 Decisions.
(a) The Members agree as follows with respect to decisions
to be made by the Members on behalf of the Company;
(i) All day-to-day management decisions relating to
the Business shall be made by IMT. If IMT is unavailable at the time that any
day-to-day management decision is required to be made by the Members, the such
day-to-day management decision shall be made by Vila Enterprises.
(ii) Except as provided below, all other major
decisions shall be made by mutual agreement of the Members.
(iii) The Members intend to produce an infomercial.
IMT shall have sole approval over decisions regarding the buying of time on
television and the distribution and marketing of the Product. Vila
Enterprises shall have the right to approve in advance the creative content,
the budget and the look of the infomercial. Vila Enterprises shall also have
the right to approve the packaging of the Product. All of the foregoing
approvals shall be exercised reasonably.
(b) There shall not be a "manager" (within the meaning of
the Act) of the Company.
2.2 Contracts; Insurance.
(a) IMT has heretofore entered into an agreement with A2000
USA, Inc. as a "Licensor" and Xxxxxx and Xxxx Xxxxxx as "Inventors" dated ___
day of June, 1998 (the "License Agreement"). IMT hereby assigns to the
Company the License Agreement, a copy of which is attached hereto as Exhibit
B.
(b) IMT shall obtain from the Licensor and Investors the
necessary rights to permit the assignment, including, but not limited to the
representations and warranties and indemnities inuring to the benefit of the
Company and its Members.
(c) All other contracts in connection with the Business may
be signed by IMT on behalf of the Company.
(d) It shall be IMT's responsibility to obtain and
maintain, at the expense of the Company, for as long as the Company has its
Business, a blanket liability insurance coverage including, but not limited to
coverage for advertising, manufacturing, and design and product liability for
the Product in an amount not less than $1,000,000 per claim or cause of
action. Each of the Members hereto as well as Xxx Xxxx and B.V.T.V Inc. shall
be named as additional insureds with the Company. All such insurance shall be
placed with one or more carriers which are rated A or better by A.M. Best
rating service. IMT shall deliver to Vila Enterprises evidence of (i) the
procurement of such insurance in form reasonably acceptable to Vila
Enterprises within fifteen (15) days of such procurement, and (ii) maintenance
of such insurance in form reasonable acceptable to Vila Enterprises at such
time as requested by Vila Enterprises.
2.3 Meetings. The Members shall not meet for any purpose,
except at such times as the Members from time to time shall determine in their
sole discretion.
ARTICLE III
INTERESTS; CONTRIBUTIONS; BANK ACCOUNTS; ACCOUNTING
3.1 Capitalization and Ownership.
(a) The initial capitalization of the Company will be Two
Hundred Thousand Dollars ($200,000) (the "Capitalization"). One Hundred
Thousand Twenty Dollars ($100,020) of the Capitalization shall be contributed
by IMT and Ninety-nine Thousand Nine Hundred Eighty Dollars ($99,980) of the
Capitalization shall be contributed by Vila Enterprises. Each Member's
contribution shall be referred to herein as its "Contribution" and each
Member's proportionate share shall be referred to as its "Percentage
Interest."
(b) Ownership in the Company shall be divided as follows:
IMT - 50.01% and Vila Enterprises - 49.99%. Notwithstanding the foregoing,
all decisions not otherwise reserved for a particular Member under this
Agreement shall be made upon mutual consent of the Members.
3.2 Loan. IMT shall loan to the Company up to $150,000 to start
and operate the Business before the Business generates sufficient cash flow of
its own to cover "Costs and Expenses of Operation", as listed in Exhibit C. A
separate funding agreement shall be entered into by the parties that will
provide in part that any monies advanced under the funding agreement shall be
treated as a loan to the Company to be paid back after the Company has
generated $500,000 in aggregate Net Cash Available (as defined in Section
5.2(a) hereof.)
3.3 Company Bank Account. The bank account for the Company
shall be opened by IMT in the name of the Company at First Union.
3.4 Company Accountants. The accountants for the Company shall
be Xxxxx Xxxxxxxx unless and until other accountants are selected by the
Members.
ARTICLE IV
CERTAIN COVENANTS OF THE MEMBERS
4.1 Other Business of the Members. Each of the Members shall
devote such time and effort as may be necessary or advisable for the
furtherance of the Business. Each of the Members or their affiliates shall
have the right to engage in other business activities during the continuation
of this Agreement; provided, however, that during the term of this Agreement,
the Members, their affiliates, and their respective directors, officers,
principals and agents, shall not be involved directly or indirectly in the
ownership, management or operation of any enterprise or provide services to
any enterprise that could reasonably be viewed as competing with the Product.
4.2 Right to Abandon. In the event that sales from the Product
during the one-year period commencing on the date the first informercial airs
on television (the "First Year") generate less than Two Million Dollars
($2,000,000) in gross sales of the Product, Vila Enterprises shall have the
option, in its sole and absolute discretion, to withdraw as a Member of the
Company and to disassociate Xxx Xxxx'x name, likeness and image from the
Product with no further obligation or interest in the Company whatsoever after
the date of such disassociation. In such event, however, Vile-Enterprises
shall execute the necessary documentation to return its ownership interest to
the Company.
ARTICLE V
CAPITAL ACCOUNTS; ALLOCATIONS; CERTAIN TAX MATTERS
5.1 Capital Accounts. A separate capital account (a "Capital
Account") shall be maintained for each Member in accordance with the
applicable regulations under Section 704 of the Internal Revenue Code of 1986,
as amended (the "Code") ("Regulations"), including, specifically Regulation
Section 1.704-1(b)(2)(iv).
5.2 Distributions.
(a) Distributions of Cash from Operations. Net Cash
Available for distribution to Members shall equal Net Cash Flow (ad defined in
Section 6.1 hereof) less amounts paid for the Management Fee, the Artists
Agency Fee and the Promotional Fee. Net Cash Available, excepting only
reasonable reserves, shall be distributed among the Members at least once in
each calendar year as follows:
(i) First, fifty percent (50%) to IMT and fifty
percent (50%) to Vila Enterprises until such time as the Company generates
$500,000 in aggregate Net Cash Available.
(ii) Second, after such time as the Company has
generated $500,000 in aggregate Net Cash Available, Net Cash Available shall
be distributed to IMT until such time as the principal and interest on the
loan by IMT to the Company (collectively, "Loan Payments"), referred to in
Section 3.2 of the Agreement, together with the amount of IMT's unreturned
Contribution plus a return thereon computed at the same rate as interest on
the IMT loan referred to in Section 3.2 hereof have been paid in full. The
Loan Payments and payments on and of IMT's Contribution shall be made pro rata
in accordance with the relative loan balance and contribution amounts.
(iii) Third, the balance of the Net Cash Available
for distribution shall be distributed fifty percent (50%) to IMT and fifty
percent (50%) to Vila Enterprises.
(b) Distributions Upon Dissolution or Termination. Upon
Dissolution or termination of the Company, and after payment or adequate
provision for the debts and obligations of the Company, the remaining assets,
if any, of the Company shall be sold and the proceeds of such sale shall be
distributed and applied in the following priority:
(i) First, to fund reserves for liabilities not then
due and owing and for contingent liabilities to the extend deemed appropriate,
provided that upon the expiration of such period of time as the Members shall
deem advisable, the balance of such reserves remaining after payment of such
contingencies shall be distributed in the manner hereinafter set forth in this
Section 5:2(b);
(ii) Second, to the members in accordance with and in
proportion to the positive balance in each Member's Capital Account, after
adjustment thereof for all distributions and allocations of net income and net
losses from all prior transactions and from all operations of the Company.
5.3 Allocation of Net Income. Net Income of the Company for any
year shall be allocated as follows and in the following order of priority;
(a) First, to the Members, equally up to an amount equal to
the excess, if any, of (i) net loss previously charged to the Members pursuant
to Section 5.4(c) hereof, over (ii) net income previously credited to the
Members pursuant to this Section 5.3(a);
(b) Second, any remaining balance of such net income, shall
be divided equally between the members.
5.4 Allocation of Net Loss. Net loss of the Company shall be
allocated as follows and in the following order of priority;
(a) First, the first $100,000 of net loss shall be
allocated to Vila Enterprises;
(b) Second, to each of the Members in equal shares of such
net loss to the extent of the excess, if any, of (A) net income previously
allocated to the Members pursuant to section 5.3 (b) over (B) net loss
previously allocated to the Members pursuant to this Section 5.4(b);
(c) Third, any remaining balance of such net loss shall be
divided equally between the Members.
5.5 Taxable Net Income and Losses.
Net income and net loss shall be as determined for reporting on the
Company's federal income tax return. All items of depreciation, gain, loss,
deduction or credit shall be determined in accordance with the Code and,
except to the extent otherwise required by the code, allocated to and among
the Members in the same percentages in which the Members share in net income
and net loss. Notwithstanding the foregoing, if the book value of property
(as such term is used in Regulation Section 1.704-1(b)(2)(iv)(g)). differs
from its tax basis, then for the purposes of this Agreement, all
determinations of income, gain, loss and deduction shall be determined with
respect to such book value in accordance with the rules of Regulation Section
1.704-1(b)(2).
5.6 Section 704(c)Allocations.
In accordance with Code Section 704(c) and the Regulations thereunder,
depreciation, amortization, gain, loss, and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial book value, such allocation to be
made by the Tax Matters Partner in accordance with the so-called "traditional
method" as noted under Regulation Section 1.704-3(b)(1).
ARTICLE VI
FEES, SEPARATE PROFIT AND OWNERSHIP LISTS
6.1 Services Rendered/Management Fee. Other than as provided in
this Article VI, no Member shall be compensated for any services rendered to
the Company except that IMT shall be entitled to a management fee equal to ten
percent (10%) of "Net Cash Flow" (the "Management Fee") in consideration of
its management of the Company. Net Cash Flow of the Company with respect to
any fiscal year shall be the amount by which (a) gross cash receipts of the
Company from all sources whatsoever other than proceeds attributable to
Contributions of the Members or the proceeds of loans or other indebtedness of
the Company exceed (b) all cash expenditures for operating costs and expenses
of the Company, excluding from such expenditures repayments of the principal
of loans and other indebtedness of the Company and those fees, costs and
expenses otherwise set forth in this Article VI.
6.2 Agency Commission. In accordance with a letter agreement
entered into with the Artists Agency, the Company shall pay to the Artists
Agency as an agency commission fee equal to nine percent (9%) of Net Cash
Flows ("Artist agency Fee').
6.3 No Separate Profit. The Members specifically agree that no
separate profit shall be made by either Member or its directors, officers,
principals or companies directly or indirectly affiliated with the Member, its
director, officers or principals on exploitation of the Product, including but
not limited to coverage, fees or Product costs, or any other similar fees
charged in running the Business, all of which shall belong to Company.
6.4 Ownership of Lists. Notwithstanding the foregoing, any
lists developed from the Business shall become the property of IMT provided
that IMT shall account ans pay to Vila Enterprises 50% of any and all net
income derived therefrom, after payment of agents' commission s as more
particularly set forth in a separate agreement.
6.5 B.V.T.V. Inc. Services Agreement. The Company is hereby
authorized to enter into separate agreements for services, including an
agreement with B.V.T.V, Inc. ("B.V.T.V'") for advertising and promoting the
product in the Infomercial and in the packaging. Pursuant to the agreement
with B.V.T.V, B.V.T.V, shall be paid a one-time fee of One Hundred Thousand
Dollars (4100,000) plus expenses incurred in connection with the production of
the infomercial (collectively, the "Promotional Fee").
ARTICLE VII
TAX MATTERS PARTNER
The "Tax Matters Partner" (as such term is defined in Section 6231
(a)(7) of the Code) of the Company shall be IMT. The Tax Matters Partner
shall not take any action whatsoever as such Tax Matters Partner unless such
action shall have been mutually approved by the Members. The Company's
accountant shall prepare tax returns and other required financial information
for the Company. The Company's taxable year shall be the same as its Fiscal
Year.
ARTICLE VIII
LIABILITY; EXCULPATION; INDEMNIFICATION
8.1 Liability of Members. A Member shall not be personally
liable for any debt, obligation or other liability of the Company, whether
arising in contact, tort, or otherwise.
8.2 Exculpation.
(a) For purposes of this Agreement, "Covered Person" shall
mean any Member, and any officer, director, shareholder, partner, member,
employee or agent of a Member, any affiliate thereof, and any authorized agent
or representative of the Company or any person who was a Member or is or was
designated by the Members to serve in any capacity at the request of the
Company.
(b) No Covered Person shall be liable to the Company or any
other Covered Person for any loss, damage or claim incurred by reason of any
act or omission performed or omitted by such Covered Person in good faith on
behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except
that a Covered Person shall be liable (i) for any sch loss, damage or claim
incurred by reason of such Covered Person's gross negligence or willful
misconduct, which, in either case, was material to such loss, damage or claim
or (ii) if such Covered Person personally gained in fact a financial or other
advantage to which such Covered Person was not legally entitled.
8.3 Indemnification.
(a) To the fullest extent permitted by applicable law, the
Company shall indemnify any Covered Person who was or is made a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding brought by or against the Company or otherwise, whether
civil, criminal, administrative or investigative, including, without
limitation, an action by or in the right of the Company to procure a judgement
in its favor, by reason of the fact that such Covered Person is or was in any
capacity at the request of the Company for any other partnership, corporation,
joint venture, trust, employee benefit plan or other enterprise, against all
expenses, including attorneys' fees and disbursements, judgements, fines and
amounts paid in settlement actually and reasonably incurred by such Covered
Person in connection with such action, suit or proceeding. Notwithstanding
the foregoing, no indemnification shall be provided to or on behalf of any
Covered Person if and to the extent that a judgement or other final
adjudication adverse to such Covered Person established that (i) the acts of
such Covered Person constituted a gross negligence or willful misconduct
which, in either case, was material to such judgement or other final
adjudication or (ii) such Covered Person personally gained in fact a financial
profit or other advantage to which such Covered Person was not legally
entitled.
(b) Any indemnification under subsection (a) of this
Section (unless ordered by a court) shall be made by the Company only as
authorized in the specific instance upon a determination that the
indemnification of the Covered Person is proper under the circumstances
because he or she has met the applicable standard of conduct set forth in
section 8.2 hereof. Such determination shall be made by the Members, or if
the Members so direct, by independent legal counsel in a written opinion. Any
indemnification payment shall be payable only out of and to the extent of the
Company's assets, and no Covered Person shall have any liability therefor.
(c) The Company shall, in the discretion of the Members,
pay expenses incurred in defending any action, suit or proceeding described in
subsection (a) above (including reasonable legal fees and expenses of counsel
and other experts) in advance of the final disposition of such action, suit or
proceeding upon receipt by the Company of an undertaking, in form satisfactory
to the Members or the Company's legal counsel, to repay such amount if it
shall be determined that the Covered Person is not entitled to be indemnified
as authorized by Section (a) above.
(d) The indemnification provided by this Section 8.3 shall
not be deemed exclusive of any other rights to indemnification to which those
sculling indemnification may be entitled under any agreement or otherwise.
The rights to indemnification and reimbursement or advancement of expenses
provided by, or granted, pursuant to, this Section 8.3 shall continue as to a
Covered person who has ceased to be a Member, officer, employee or agent (or
other person indemnified hereunder) and shall inure to the benefit of the
executors, administrators, legatees and distributees of such person.
ARTICLE IX
TRANSFERS
9.1 General Restrictions. No Member shall have the, right to
assign its rights or obligations under this Agreement to any other Person
without the prior written consent of the other Member.
9.2 Permitted Assignments Without Consent of Other Members.
Notwithstanding the provisions of Section 9.1 hereof, without the
consent of the other Members, a Member may assign its rights and obligations
hereunder to any entity under common control with such assigning Member or
assign to any Person such assigning Member's right to receive revenues
hereunder.
ARTICLE X
LIQUIDATION, WINDING-UP AND TERMINATION
10.1 Liquidation and Winding-Up. Upon the dissolution and
termination of the Company, the following shall be accomplished;
(a) The Business of the Company shall be wound up, and the
assets and properties of the Company shall be liquidated by the members as
promptly as possible, but in an orderly and businesslike manner so as not to
involve undue sacrifice.
(b) The assets of the Company shall be distributed to the
Members in accordance with Section 5.2(b) of this Agreement.
(c) A Certificate of Cancellation shall be filed with the
Secretary of State of the state of New Jersey by the Members.
10.2 Termination. The Company shall terminate when all property
and assets owned by the Company shall have been disposed of, and the net sale
proceeds, after payment of or provision for the amounts specified in Section
5.2(b), and any assets to be distributed in-kind shall have been distributed
to the Members as provided herein.
ARTICLE XI
GENERAL PROVISIONS
11.1 Arbitration. Any dispute, controversy or claim arising
under, out of, in connection with, or in relation to this Agreement or the
Business of the Company hereunder, or the making or validity of this
Agreement, or its interpretation, or any breach thereof, shall be determined
and settled by arbitration in New York City before a single neutral
arbitrator, in accordance with the rules then obtaining of the American
Arbitration Association. Any award or judgement rendered by the arbitrators
shall be final and conclusive upon the parties and a judgement thereon may be
entered int the highest court of any forum, State or Federal, having
jurisdiction.
11.2 Notices. Wherever provision is made in this Agreement for
the giving of any notice, such notice shall be in writing and shall be
delivered personally or sent by registered or certified mail (postage prepaid)
or facsimile transmission, in each case to the addresses or facsimile
telephone numbers therefor set forth in the preamble to this Agreement, and if
to the Company to:
c/o Kaufmann, Feiner, Yamin, Gilding & Xxxxxxx
000 Xxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
With a copies to:
x/x Xxxx, Xxxxx, Xxxxxxx & Pads
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
or to such other address in any such case, as any party hereto shall
have last designated by notice to the other party. Notice shall be deemed to
have been given on receipt (evidenced, in the case of facsimile transmission
by a confirmation notice). Any Member may change its address for notices by
giving written notice of such change to the other Members and the Company.
11.3 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties with respect tot he subject
matter hereof. This Agreement or the Articles of Organization may be amended
from time to time only on the mutual approval of the Members.
11.4 No Waivers. No delay on the part of any party in
exercising any right hereunder shall operate as a waiver thereof, nor shall
any waiver, express or implied, by any party of any right hereunder or of any
failure to perform or breach hereof by any other party constitute or be deemed
a waiver of any other right hereunder or of any other failure to perform or
breach hereof by the same or any other Member; whether of a similar or
dissimilar nature thereof.
11.5 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey applicable to
agreements made and entirely performed therein.
11.6 Further Assurances. Each of the Members hereby agrees, at
the request of any other Member, to execute and deliver all such other and
additional instruments and documents and to do such other acts and things as
may be reasonably necessary or appropriate to carry out the intent and
purposes of this Agreement.
11.7 No Third-Party Rights. This Agreement is made solely and
specifically between and for the benefit of the parties hereto, and their
respective successors and assigns (subject to the express provisions hereof
relating to successors and assigns), and is not intended to confer any
benefits upon, or create any rights in favor of, any Person other than the
parties hereto.
11.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Agreement shall
be binding when one or more counterparts, individually or taken together, bear
the signatures of each of the parties reflected herein as signatories.
11.9 Headings. The headings in this Agreement are solely for
convenience of reference and shall not affect the interpretation or
construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed, by their respective duly authorized officers or partners, of the
date first above written.
Signatures on Next Page
VILA ENTERPRISES LLC
/s/ Xxxxxx X. Xxxx
______________________ ____________________________
Witness Xxxxxx X. Xxxx, Manager
IMT'S PLUMBER, INC.
/s/ Xxxxx Xxx
______________________ _______________________
Witness , President
