INNMEDIA LLC
OPERATING AGREEMENT
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), IN RELIANCE UPON ONE (1) OR MORE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL ACT. IN ADDITION, THE ISSUANCE OF THIS SECURITY
WAS NOT QUALIFIED UNDER THE DELAWARE SECURITIES ACT, THE CALIFORNIA CORPORATE
SECURITIES LAW OF 1968 OR ANY OTHER STATE SECURITIES LAWS (COLLECTIVELY, THE
"STATE ACTS"), IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM QUALIFICATION
PROVIDED BY THE STATE ACTS. IT IS UNLAWFUL TO CONSUMMATE A SALE OR OTHER
TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN TO, OR TO RECEIVE ANY
CONSIDERATION THEREFOR FROM, ANY PERSON WITHOUT THE OPINION OF COUNSEL FOR
THE COMPANY THAT THE PROPOSED SALE OR OTHER TRANSFER OF THIS SECURITY DOES
NOT AFFECT THE AVAILABILITY TO THE COMPANY OF SUCH EXEMPTIONS FROM
REGISTRATION AND QUALIFICATION, AND THAT SUCH PROPOSED SALE OR OTHER TRANSFER
IS IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS. THE
TRANSFER OF THIS SECURITY IS FURTHER RESTRICTED UNDER THE TERMS OF THE
OPERATING AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE COMPANY.
TABLE OF CONTENTS
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ARTICLE 1 FORMATION.....................................................................................1
1.01 Name..........................................................................................1
1.02 Purpose; Powers...............................................................................1
1.03 Principal Place of Business...................................................................2
1.04 Qualification in Other Jurisdictions..........................................................2
1.05 Filings; Agent for Service of Process.........................................................2
1.06 Term..........................................................................................3
1.07 Title to Property.............................................................................3
ARTICLE 2 MEMBERS' CAPITAL CONTRIBUTIONS................................................................3
2.01 Initial Capital Contributions; Preferred Units................................................3
2.02 Additional Capital Contributions..............................................................4
2.03 Pre-Emptive Right.............................................................................4
2.04 Convertible Debt .............................................................................6
ARTICLE 3 ALLOCATION....................................................................................6
3.01 Losses........................................................................................6
3.02 Profits.......................................................................................7
3.03 Special Allocations...........................................................................7
3.04 Loss Limitation...............................................................................8
3.05 Curative Allocations..........................................................................8
3.06 Other Allocation Rules........................................................................9
3.07 Tax Allocations; Code Section 704(c)..........................................................9
ARTICLE 4 DISTRIBUTIONS.................................................................................9
4.01 Intent of Members Concerning Distributions ...................................................9
4.02 Distributions................................................................................10
ARTICLE 5 MANAGEMENT...................................................................................10
5.01 Management; Board of Managers................................................................10
5.02 Meetings of the Board of Managers............................................................11
5.03 Board of Managers' Powers....................................................................12
5.04 Major Decisions..............................................................................13
5.05 Duties and Obligations of the Board of Managers..............................................15
5.06 Compensation and Reimbursement...............................................................16
5.07 Management; Officers.........................................................................16
5.08 Business Plan ...............................................................................17
5.09 Agreements...................................................................................17
5.10 Milestone ...................................................................................18
ARTICLE 6 MEMBERS......................................................................................18
6.01 Authority; Liability to Third Parties........................................................18
6.02 Voting Rights ..............................................................................18
(ii)
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6.03 Withdrawal; Resignation......................................................................18
6.04 Partition ..................................................................................19
6.05 Confidentiality..............................................................................19
6.06 Other Instruments............................................................................20
6.07 Non-Solicitation.............................................................................20
ARTICLE 7 LIMITATION OF LIABILITY AND INDEMNIFICATION..................................................20
7.01 Limitation of Liability......................................................................20
7.02 Indemnification..............................................................................20
ARTICLE 8 REPRESENTATIONS AND WARRANTIES...............................................................22
8.01 In General...................................................................................22
8.02 Representations and Warranties...............................................................22
ARTICLE 9 ACCOUNTING, BOOKS AND RECORDS................................................................24
9.01 Accounting, Books and Records................................................................24
9.02 Reports......................................................................................24
9.03 Tax Matters..................................................................................25
ARTICLE 10 TRANSFERS; EQUITY INCENTIVE PLAN; TERMINATION OF EMPLOYMENT..................................26
10.01 Transfer of Units by Members.................................................................26
10.02 Other Transfer Provisions....................................................................26
10.03 Right of First Offer.........................................................................27
10.04 Certain Sales Restricted.....................................................................28
10.05 Prohibited Transfers.........................................................................28
10.07 Admission of Substituted Members.............................................................29
10.08 Representations Regarding Transfers; Legend..................................................29
10.09 Distributions and Allocations in Respect of Transferred Units................................30
10.10 Termination of Certain Rights................................................................31
10.11 Equity Incentive Plan .......................................................................31
10.12 Buy/Sell Agreement...........................................................................31
ARTICLE 11 CONVERSION; REGISTRATION RIGHTS..............................................................33
11.01 Right to Convert Preferred Units to Common Units.............................................33
11.02 Adjustment of Conversion Price...............................................................34
11.04 Registration Rights..........................................................................35
ARTICLE 12 DISSOLUTION AND WINDING UP...................................................................36
12.01 Dissolution Events...........................................................................36
12.02 Winding Up .................................................................................36
12.03 Compliance With Certain Regulatory Requirements; No Obligation to Restore Deficit
Capital Accounts.............................................................................37
12.04 Rights of Members............................................................................38
12.05 Notice of Dissolution; Termination...........................................................38
12.06 Allocations During Period of Liquidation.....................................................38
(iii)
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12.07 The Liquidator...............................................................................38
12.08 Form of Liquidating Distributions............................................................39
ARTICLE 13 POWER OF ATTORNEY............................................................................39
13.01 Managers as Attorneys-In-Fact................................................................39
13.02 Nature of Special Power......................................................................39
ARTICLE 14 AMENDMENT....................................................................................40
14.01 Amendment....................................................................................40
ARTICLE 15 DEFINITIONS..................................................................................40
ARTICLE 16 MISCELLANEOUS................................................................................49
16.01 Notices......................................................................................49
16.02 Binding Effect .............................................................................49
16.03 Time.........................................................................................49
16.04 Headings.....................................................................................50
16.05 Severability.................................................................................50
16.06 Variation of Terms...........................................................................50
16.07 Governing Law................................................................................50
16.08 Jurisdiction and Service of Process..........................................................50
16.09 Enforcement..................................................................................50
16.10 Counterpart Execution........................................................................50
16.11 Facsimile Signatures.........................................................................50
16.12 Representation by Counsel; Interpretation against............................................51
16.13 Further Assurances. ........................................................................51
16.14 Attorneys' Fees. ...........................................................................51
16.15 Successors and Assigns.......................................................................51
(iv)
INDEX
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Accepting Member...............................................................................................28
Accepting Member Ratio.........................................................................................40
Accountant's Notice............................................................................................31
Act............................................................................................................40
Adjusted Capital Account Deficit...............................................................................41
Administrative Services Agreements.............................................................................18
Affiliate......................................................................................................41
Agreement......................................................................................................41
All or Nothing Sale............................................................................................27
Allocation Year................................................................................................41
Annual Budget..................................................................................................42
Bankruptcy.....................................................................................................42
Base Price.....................................................................................................33
Board of Managers..............................................................................................10
Business........................................................................................................1
Business Day...................................................................................................42
Business Plan..................................................................................................17
Capital Account................................................................................................42
Capital Contributions..........................................................................................43
Capital Event..................................................................................................43
Certificate....................................................................................................43
Certificate of Cancellation....................................................................................43
Chairman.......................................................................................................43
Chief Executive Officer........................................................................................43
Code...........................................................................................................43
Commission................................................................................................Annex I
Common Units...................................................................................................43
Company........................................................................................................43
Company Acceptance Period......................................................................................27
Company Capital................................................................................................44
Company Minimum Gain...........................................................................................44
confidential information.......................................................................................19
Content Carriage Agreement.....................................................................................18
Contribution Date...............................................................................................4
Conversion Price...............................................................................................33
Convertible Debt................................................................................................6
Depreciation...................................................................................................44
Dissolution Event..............................................................................................36
Distribution Agreement.........................................................................................18
Effective Date.................................................................................................44
Electing Member................................................................................................31
Election Notice................................................................................................31
Equity Financing................................................................................................6
Equity Incentive Plan..........................................................................................31
(v)
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Excess Period..................................................................................................28
Excess Refused Units...........................................................................................28
Exchange Act..............................................................................................Annex I
First Offer Ratio..............................................................................................44
First Offer Units..............................................................................................27
Fiscal Year....................................................................................................44
Form S-3..................................................................................................Annex I
GAAP...........................................................................................................44
Gross Asset Value..............................................................................................45
Hilton.........................................................................................................45
Holder....................................................................................................Annex I
Indemnitee.....................................................................................................20
Initial Conversion Price.......................................................................................33
Initial Offering..........................................................................................Annex I
Insolvency Laws................................................................................................14
Involuntary Bankruptcy.........................................................................................42
Liquidation Period.............................................................................................38
Liquidation Preference.........................................................................................10
Liquidator.....................................................................................................38
LodgeNet.......................................................................................................45
Losses.........................................................................................................47
Majority Vote..................................................................................................46
Manager........................................................................................................46
Market Stand-Off..........................................................................................Annex I
matching services..............................................................................................29
Member.........................................................................................................46
Member Acceptance Period.......................................................................................27
Member Nonrecourse Debt........................................................................................46
Member Nonrecourse Debt Minimum Gain...........................................................................46
Member Nonrecourse Deductions..................................................................................46
Minimum Threshold Amount.......................................................................................13
New Media.......................................................................................................1
Non-Contributing Member.........................................................................................4
Nonrecourse Deductions.........................................................................................46
Nonrecourse Liability..........................................................................................46
Notice of Delinquent Contribution...............................................................................4
Offer..........................................................................................................27
Offer Notice...................................................................................................27
Offered Members................................................................................................27
Offered Securities..............................................................................................5
Officers.......................................................................................................46
Operating Agreement............................................................................................41
Permitted Transferee...........................................................................................46
Person.........................................................................................................47
Portal Use Date................................................................................................18
(vi)
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Pre-Emptive Offer...............................................................................................5
Preferred Unit Original Issue Price............................................................................47
Preferred Units...........................................................................................Annex I
Preferred Units' Initial Capital Contribution...................................................................3
President......................................................................................................47
Pro Rata Share..................................................................................................5
Profits........................................................................................................47
Purchase Price.................................................................................................31
Purchaser......................................................................................................27
Qualified Public Offering......................................................................................48
Reconstitution Period..........................................................................................36
Refused Securities..............................................................................................5
Refused Units..................................................................................................27
Register..................................................................................................Annex I
registered................................................................................................Annex I
Registrable Securities....................................................................................Annex I
Registrable Securities then outstanding...................................................................Annex I
registration..............................................................................................Annex I
Registration Expenses.....................................................................................Annex I
Regulations....................................................................................................48
Regulatory Allocations..........................................................................................8
Rule 144..................................................................................................Annex I
Sale Period....................................................................................................28
SEC.......................................................................................................Annex I
Securities Act..............................................................................................48, 2
Selling Expenses..........................................................................................Annex I
Stated Value...................................................................................................31
Subject Units..................................................................................................27
Subsidiary.....................................................................................................48
Tax Matters Partner............................................................................................25
Taxing Authority...............................................................................................26
Third Party....................................................................................................49
Transaction Documents..........................................................................................49
Transfer.......................................................................................................49
Unit...........................................................................................................49
Units..........................................................................................................49
Unpaid Liquidation Preference..................................................................................49
Violation.......................................................................................................5
Voluntary Bankruptcy...........................................................................................42
(vii)
INNMEDIA LLC
OPERATING AGREEMENT
This OPERATING AGREEMENT (the "AGREEMENT") is entered into and shall
be effective as of October 9, 2000 by and among InnMedia LLC, a Delaware
limited liability company (the "COMPANY"), and the Persons who are identified
as Members on EXHIBIT "A" attached hereto and who have executed a counterpart
of this Agreement as Members pursuant to the provisions of the Act, on the
following terms and conditions. Capitalized terms used herein shall have the
respective meanings assigned to such terms in Article 15 or elsewhere in this
Agreement.
W I T N E S S E T H:
WHEREAS, a Certificate of Formation has been filed with the
Secretary of State of the State of Delaware to organize the Company under and
pursuant to the Act;
WHEREAS, the parties hereto wish to enter into this Agreement to
provide for the governance of the Company upon the terms and provisions, and
subject to the conditions set forth herein;
WHEREAS, concurrent with the execution of this Agreement the parties
are entering into a Distribution and Carriage Agreement, a Content Carriage
Agreement and Administrative Services Agreements.
NOW, THEREFORE, in consideration of the mutual covenants expressed
herein, the parties agree as follows:
ARTICLE 1
FORMATION
1.01 NAME. The name of the Company is InnMedia LLC and all business
of the Company shall be conducted in such name. The Board of Managers may
change the name of the Company upon ten (10) Business Days' notice to the
Members.
1.02 PURPOSE; POWERS. The purposes of the Company are to aggregate,
create and distribute the content and services set forth on Exhibit "B"
attached hereto (the "NEW MEDIA") and to conduct such other activities as are
necessary and/or appropriate to carry out the foregoing purpose (collectively
the "BUSINESS"). In furtherance of the foregoing, concurrently with the
execution of this Agreement, the Members shall utilize the Company for their
source of New Media with the goals of:
(a) Expanding and improving the quality,
content, products, services and revenues offered and derived from the goods
and services in the in-room entertainment system that is provided to hotel
owners, franchisees, and guests;
(b) Offering hotel owners a compelling,
all-in-one service (including video/games/music on demand, television
programming, television Internet, interactive television and high speed
Internet access) that provides a better product, guest experience, and terms
than they can obtain by directly aggregating individual service solutions
from different providers;
(c) Improving service delivery efficiencies
as well as property, operational and network efficiencies by constructing a
standard, unified technological architecture over which to layer a mix of
conventional and innovative digital/telephony/broadcast services (e.g.,
taking advantage of economies of scale in bandwidth acquisition, server
distribution, set-top box and television purchasing, etc. and viewership
thresholds for media buyers, and ensuring the ability to deploy new,
digitally-based system features);
(d) Becoming the leading services and content
organization (taken at its broadest) for the in-room broadband entertainment
industry service to the hospitality industry;
(e) Serving all domestic hotels initially
(including Canada), expanding to international hotel locations, and finally,
offering the service to homes and the multiple dwelling unit market;
(f) Maximizing the advertising opportunities
based on attaining and exceeding viewership thresholds required for
significant media buyers; and
(g) Enhancing the interactive guest
experience and advertising revenues through personalized user interfaces
which are driven by advanced data collection, mining and analysis systems.
1.03 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
the Company is at 0000 Xxxxx Xxxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000.
The Board of Managers may change the principal place of business of the
Company to any other place within or without the State of California. The
Board of Managers may cause the Company to establish other offices or places
of business in such jurisdictions as the Board of Managers may determine.
1.04 QUALIFICATION IN OTHER JURISDICTIONS. The Company will
initially be qualified to do business in California. The Board of Managers
may cause the Company to be qualified or registered under applicable laws of
any jurisdiction in which the Company transacts business, and the Officers
are authorized to execute, deliver and file any certificates and documents
necessary to effect such qualification or registration.
1.05 FILINGS; AGENT FOR SERVICE OF PROCESS.
(a) Subject to Section 5.04 hereof, the Board of Managers
may take any and all actions it determines to be reasonably necessary to
maintain the status of the Company as a limited liability company under the
laws of the State of Delaware, including the preparation and filing of such
amendments to the Certificate and such other certificates, documents,
instruments and publications as may be required by law, including, without
limitation, action to reflect:
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(i) a change in the Company name; or
(ii) a correction of false or erroneous
statements in the Certificate or to make a change in any statement therein in
order that it shall accurately represent the agreement among the Members.
(b) The Board of Managers may cause to be executed and
filed, original or amended certificates and take any and all other actions as
it determines to be reasonably necessary to perfect and maintain the status
of the Company as a limited liability company or similar type of entity under
the laws of any other jurisdictions in which the Company engages in business.
(c) The registered agent for service of process on the
Company in the State of Delaware shall be CT Corporation System or any
successor thereto appointed by the Board of Managers in accordance with the
Act.
(d) Upon the dissolution and completion of the winding up
and liquidation of the Company in accordance with this Agreement, the Board
of Managers shall promptly cause to be executed and filed a certificate of
cancellation in accordance with the Act and the laws of any other
jurisdictions in which the Board of Managers deems such filing necessary or
advisable.
1.06 TERM. The term of the Company commenced on the date the
Certificate was filed in the office of the Secretary of State of the State of
Delaware in accordance with the Act and shall continue until the winding up
and liquidation of the Company and its business is completed following a
Dissolution Event, as provided in this Agreement and in accordance with the
Act.
1.07 TITLE TO PROPERTY. All property owned by the Company shall be
owned by the Company as an entity, and no Member shall have any ownership
interest in such Company property in its individual name, and each Member's
interest in the Company shall be personal property for all purposes. At all
times after the Effective Date, the Company shall hold title to all of its
property in the name of the Company and not in the name of any Member.
ARTICLE 2
MEMBERS' CAPITAL CONTRIBUTIONS
2.01 INITIAL CAPITAL CONTRIBUTIONS; PREFERRED UNITS.
(a) The Company's capital structure will initially consist
of 50,000,000 authorized Common Units and 25,000,000 authorized Preferred
Units.
(b) Concurrently with the execution of this Agreement, the
holders of the Preferred Units shall contribute or cause to be contributed to
the initial capital of the Company cash in the amounts set forth as Preferred
Units' Initial Capital Contribution (the "PREFERRED UNITS' INITIAL CAPITAL
CONTRIBUTION") on SCHEDULE 2.1 in exchange for their Preferred Units. The
Preferred Units' Initial Capital Contribution shall equal Two Million Dollars
($2,000,000) in the aggregate.
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(c) A Capital Account shall be established and maintained
for each Member.
2.02 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) Except as provided in Section 2.02(b) below, no Member
shall be required to contribute additional capital to the Company.
(b) If the Board of Managers determines, in accordance with
the provisions of Section 5.04 hereof, that the Company requires additional
capital beyond the Capital Contributions set forth in Section 2.01 hereof,
then the Board of Managers shall have the power to and is authorized to
deliver a Capital Contribution notice to the holders of the Preferred Units,
which notice shall include a contribution date ("Contribution Date") (which
date shall not be less than ten (10) business days following the effective
date of such Notice) upon which the holders of the Preferred Units shall be
obligated to contribute to the capital of the Company, in cash, the amount
required by the Board of Managers and in proportion to the number of
Preferred Units held by each Member of the Company; provided, however, that
the holders of the Preferred Units shall not be obligated to contribute
aggregate additional Capital Contributions pursuant to this Section 2.02(b)
in excess of Eight Million Dollars ($8,000,000) in the aggregate (with the
result that the aggregate Capital Contributions of the holders of the
Preferred Units, in addition to the Initial Capital Contribution made
pursuant to Section 2.01(b) above, shall in no event exceed Ten Million
Dollars ($10,000,000) in the aggregate. Notwithstanding the foregoing, in the
event that any holder of a Preferred Unit (the "Non-Contributing Member")
fails to contribute all or any portion of any additional capital such Member
is required to contribute pursuant to any applicable contribution notice,
then, in such event, the Board of Managers shall deliver a notice of
delinquent contribution within ten (10) business days following the
Contribution Date (the "Notice of Delinquent Contribution"), then, in such
event, the holders of Preferred Units shall thereafter for a period of thirty
(30) days following the date of the Delinquent Contribution Notice have the
right to require the Company to refund in full the contributions made by the
contribution Members in response to the Contribution Notice.
(c) If the Board of Managers determines, in accordance with
the provisions of Section 5.04 hereof, that the Company requires additional
capital beyond the Capital Contributions set forth in Section 2.01 hereof,
and in addition to or in lieu of the obligation of holders of Preferred Units
to contribute additional Capital pursuant to Section 2.02(b) above, then in
such event but subject to Section 2.03 of this Agreement, the Board of
Managers shall have the power to and is authorized, subject to any
limitations prescribed by law, to provide for the issuance of such additional
interests from time to time (including, but not limited to the issuance of
additional authorized, but unissued, Units), and to establish from time to
time the powers, preferences and rights with respect to such interests and
any qualifications, limitations or restrictions thereof as the Board of
Managers may determine to be appropriate under the circumstances, and the
Board of Managers shall have the power and authority to cause this Agreement
to be amended to reflect the terms and conditions of such interests and the
issuance thereof.
2.03 PRE-EMPTIVE RIGHT.
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(a) Except as contemplated by Section 2.03(f), at any time
prior to an initial public offering of the Company that is a Qualified Public
Offering, the Company shall not issue, sell, or exchange, agree or obligate
itself to issue, sell or exchange, or reserve or set aside for issuance, sale
or exchange, any interests or any securities convertible into or exercisable
or exchangeable for Units unless in each case the Company shall have first
offered to sell to each Member that portion of such Units or such other
securities (the "OFFERED SECURITIES") as the Units then held by such Member
bears to the total Units then held by all Members (the "PRO RATA SHARE"), at
a price and on such other terms as shall have been specified by the Company
in writing delivered to the Members, which offer (the "PRE-EMPTIVE OFFER")
shall specify the Offered Securities, the terms, including price at which
they are to be sold and by its terms shall remain open and irrevocable for a
period of thirty (30) days from receipt of the Pre-Emptive Offer; PROVIDED
that in the event that any Member does not elect to purchase its entire pro
rata portion all other Members that have exercised their full rights
hereunder shall have the right to purchase such unelected portion as among
themselves on a pro rata basis for an additional period of five (5) days from
receipt of the Pre-Emptive Offer.
(b) NOTICE OF ACCEPTANCE. Notice of each Member's intention
to accept, in whole or in part, any offer made pursuant to Section 2.03(a)
shall be evidenced by a writing signed by such Member and delivered to the
Company prior to the end of the thirty (30)day period, setting forth the
amount of the Offered Securities such Member elects to purchase.
(c) PERMITTED SALES OF REFUSED SECURITIES. In the event
that notices of acceptance are not given by the Members in respect of all the
Offered Securities, the Company shall have 180 days from the expiration of
the relevant period set forth in Section 2.03(a) to sell the Offered
Securities as to which a notice of acceptance has not been given by the
Members (the "REFUSED SECURITIES"), but only upon terms and conditions that
are no more favorable to such other Person or Persons or less favorable to
the Company than those set forth in the Pre-Emptive Offer.
(d) CLOSING. Upon the closing of the sale to such other
Person or Persons of all or less than all of the Refused Securities, the
Members shall purchase from the Company, and the Company shall sell to the
Members, the number of Offered Securities specified in the notices of
acceptance upon the terms and conditions specified in the Pre-Emptive Offer.
(e) FURTHER SALE. In each case, any Offered Securities not
purchased by the Members or other Person or Persons in accordance with this
Section 2.03 may not be sold or otherwise disposed of by the Company until
they are again offered to the Members under the procedures specified in this
Section 2.03.
(f) EXCEPTIONS. The rights of the Members under this
Section 2.03 shall not apply to issuances of any Units or other securities
(i) pursuant to Section 10.11 or pursuant to any other manager, advisor,
employee or consultant option or purchase plan, or similar benefit program or
agreement approved by the Board of Managers, (ii) as consideration for the
acquisition by the Company or any Subsidiary of the Company of another
business entity or other assets (other than cash or cash equivalents) or the
merger of any business entity with or into the Company or any Subsidiary of
the Company approved by the Board of Managers, (iii) in connection with a
firmly underwritten public offering approved by the Board of Managers, (iv)
-5-
pursuant to conversion rights applicable to Preferred Units or convertible
debt, (v) in connection with an equity split, equity dividend,
recapitalization or similar action, (vi) in connection with joint venture,
development or technology agreement approved by the Board of Managers, or
(vii) to third party lenders, including but not limited to financial
institutions, in financing transactions or to equipment or real estate
lessors in connection with bona fide leasing, financing or similar activity.
2.04 CONVERTIBLE DEBT. In consideration for the Company's review and
use of developmental research, arts and the materials used in the development
of the New Media concept, Hilton and LodgeNet shall be credited for their
respective actual out-of-pocket expenditures made through the date of
execution of this Agreement in connection with the Business, subject to the
following sentence. Hilton and LodgeNet shall provide evidence of such
amounts expended and such expenditures shall exclude internal labor
allocations and shall include only third party investment banking, external
consulting and external legal fees and costs. Such credit shall be in the
form of convertible debt issued by the Company, which debt shall accrue
interest at a rate per annum of six percent (6%), compounded annually. Such
debt and accrued interest shall, at the option of the holder, be either (a)
convertible ("CONVERTIBLE DEBT") into securities sold in the Company's first
round of third party equity financing ("EQUITY FINANCING") (for purposes of
this provision, funding supplied by Hilton and/or LodgeNet or other service
providers or hotel companies shall not be considered a third party equity
financing round) at the same price and upon the same terms and conditions as
the purchasers thereof pay for such securities in such Equity Financing, or
(b) repaid in cash concurrent with the closing of such Equity Financing, or
(c) any combination of the foregoing. Notwithstanding subsection (a) of the
preceding sentence, any equity into which such debt is converted shall be in
the form of a non-voting junior ownership interest (i.e., junior to Common
Units), as determined by the Board of Managers. Concurrent with such
conversion each party shall have the option to purchase additional non-voting
junior equity on the same terms and conditions and at the same price as the
Convertible Debt in order to maintain its pro rata ownership interest in the
Company.
ARTICLE 3
ALLOCATION
3.01 LOSSES. After giving effect to the special allocations in
Section 3.03, Losses of the Company for each fiscal year (or part thereof)
shall be allocated among the Members in the following order of priority:
(a) First, to the holders of Common Units in proportion to,
to the extent of, their respective positive Adjusted Capital Account
Balances, if any;
(b) Second, to the holders of Preferred Units in proportion
to, to the extent of, their respective positive Adjusted Capital Account
Balances, if any; and
(c) Thereafter, to the holders of Common Units, pro rata,
in proportion to their respective number of Common Units.
-6-
3.02 PROFITS. After giving effect to the special allocations in
Section 3.03, Profits of the Company for each fiscal year (or part thereof)
shall be allocated among the Members in the following order of priority:
(a) First, to the holders of Preferred Units, pro rata, in
proportion to, and to the extent of, the amounts required to be allocated
pursuant to this Section 3.02(a), until such times as the balance in the
Capital Accounts of such Members are equal to their respective Unpaid
Liquidation Preference; and
(b) Thereafter, to the holders of Common Units, pro rata,
in proportion to their respective number of Common Units.
3.03 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided
in Section 1.704-2(f) of the Regulations, notwithstanding any other provision
of this Article 3, if there is a net decrease in Company Minimum Gain during
any Allocation Year, each Member shall be specially allocated items of
Company income and gain for such Allocation Year (and, if necessary,
subsequent Allocation Years) in an amount equal to such Member's share of the
net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be
allocated to each Member pursuant thereto. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of
the Regulations. This Section 3.03(a) is intended to comply with the minimum
gain chargeback requirement in Section 1.704-2(f) of the Regulations and
shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(i) (4) of the Regulations, notwithstanding any
other provision of this Article 3, if there is a net decrease in Member
Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt
during any Allocation Year, each Member who has a share of the Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Section 1.704-2(i)(5) of the Regulations, shall
be specially allocated items of Company income and gain for such Allocation
Year (and, if necessary, subsequent Allocation Years) in an amount equal to
such Member's share of the net decrease in Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto.
The items to be so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section 3.03(b) is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) QUALIFIED INCOME OFFSET. In the event any Member
unexpectedly receives any adjustments, allocations, or distributions
described in Sections 1.704 -l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and gain
shall be specially allocated to such Member in an amount and manner
sufficient to
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eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of the Member as quickly as possible, provided that an
allocation pursuant to this Section 3.03(c) shall be made only if and to the
extent that the Member would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article 3 have been tentatively
made as if this Section 3.03(c) were not in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has an
Adjusted Capital Account Deficit at the end of any Allocation Year, each such
Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 3.03(d) shall be made only if and to the extent that
such Member would have an Adjusted Capital Account Deficit in excess of such
sum after all other allocations provided for in this Article 3 have been made
as if Section 3.03(c) and this Section 3.03(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Allocation Year shall be specially allocated to the Members in proportion to
the number of Units held by each Member.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse
Deductions for any Allocation Year shall be specially allocated to the Member
who bears the economic risk of loss with respect to the Member Nonrecourse
Debt to which such Member Nonrecourse Deductions are attributable in
accordance with Regulations Section 1.704-2(i) (1).
3.04 LOSS LIMITATION. Losses allocated pursuant to Section 3.01
hereof shall, to the extent possible, not exceed the maximum amount of Losses
that can be allocated without causing any Member to have an Adjusted Capital
Account Deficit at the end of any Allocation Year. In the event some but not
all of the Members would have Adjusted Capital Account Deficits as a
consequence of an allocation of Losses pursuant to Section 3.01 hereof, the
limitation set forth in this Section 3.04 shall be applied on a Member by
Member basis and Losses not allocable to any Member as a result of such
limitation shall be allocated to the other Members in accordance with the
positive balances in such Member's Capital Accounts so as to allocate the
maximum permissible Losses to each Member under Section 1.704-1(b)(2)(ii)(d)
of the Regulations. Any remaining Losses shall be allocated first to the
Members in proportion to the extent to which such Members bear the economic
risk with respect to such Losses and then to the Members in proportion to the
number of Units held by each Member.
3.05 CURATIVE ALLOCATIONS. The allocations set forth in Sections
3.03 and 3.04 (the "REGULATORY ALLOCATIONS") are intended to comply with
certain requirements of the Regulations. It is the intent of the Members
that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section
3.05. Therefore, notwithstanding any other provision of this Article 3 (other
than the Regulatory Allocations), to the extent permitted under the
Regulations, the Board of Managers shall make such offsetting special
allocations of Company income, gain, loss or deduction in whatever manner it
determines appropriate so that, after such offsetting allocations are made,
each Member's Capital Account balance is, to the extent possible, equal to
the Capital Account balance such Member would have
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had if the Regulatory Allocations were not part of the Agreement and all
Company items were allocated pursuant to Sections 3.01 and 3.02.
3.06 OTHER ALLOCATION RULES.
(a) Subject to Section 10.09 hereof, for purposes of
determining the Profits, Losses, or any other items allocable to any period,
Profits, Losses, and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Board of Managers using any
permissible method under Code Section 706 and the Regulations thereunder.
(b) The Members are aware of the income tax consequences of
the allocations made by this Article 3 and hereby agree to be bound by the
provisions of this Article 3 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the Company
within the meaning of Regulations Section 1.752-3(a) (3), the Members'
interests in Company profits shall be equal to the proportionate number of
Units held by each Member.
3.07 TAX ALLOCATIONS; CODE SECTION 704(c). For tax purposes, all
items of income, gain, loss, deduction, expense and credit, other than tax
items corresponding to items allocated pursuant to Sections 3.03, 3.04 and
3.05, shall be allocated in the same manner as are Profits and Losses;
PROVIDED, HOWEVER, that in accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deductions 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 Gross Asset Value (computed in
accordance with the definition of Gross Asset Value) using any method or
methods permitted by the applicable Regulations that the Board of Managers
determines to apply.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (ii) of the definition of Gross Asset Value,
subsequent allocations of income, gain, loss and deductions with respect to
such asset shall take account of any variation between the adjusted basis of
such asset for federal income tax purposes and its Gross Asset Value in the
same manner as under Code Section 704(c) and the Regulations thereunder using
any method or methods permitted by the applicable Regulations that the Board
of Managers determines to apply.
Any elections or other decisions relating to such allocations shall
be made by the Board of Managers in any manner that reasonably reflects the
purpose and intention of this Agreement.
ARTICLE 4
DISTRIBUTIONS
4.01 INTENT OF MEMBERS CONCERNING DISTRIBUTIONS. As of the date
hereof, it is the intent of the Members that the Company retain all surplus
cash flow in order to further the purposes of
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the Company and provide for the development and growth of the Business. As a
result, the Members acknowledge that it is their intent that the Company make
no operating distributions to the Members. The Members agree that they shall
vote, and their representatives serving on the Board of Managers shall vote,
in a manner consistent with the foregoing intentions.
4.02 DISTRIBUTIONS. Subject to Section 12.02, distributions of the
Company declared from time to time by the Board of Managers, if any, shall be
distributed to the Members in the following order of priority:
(a) PREFERRED UNIT LIQUIDATION PREFERENCE. First, to the
holders of Preferred Units, pro rata, an amount per Preferred Unit equal to
the Preferred Unit Original Issue Price plus any declared and unpaid
dividends on such Preferred Units (the "LIQUIDATION PREFERENCE"); and
(b) COMMON UNITS. Thereafter, the balance pro rata to the
holders of the Common Units.
ARTICLE 5
MANAGEMENT
5.01 MANAGEMENT; BOARD OF MANAGERS.
(a) The management of the Company shall be vested in the
Board of Managers (the "BOARD OF MANAGERS") designated by the Members as
provided in this Section 5.01 hereof, and subject to the limitations of
Section 5.04 hereof.
(b) The number of Managers on the Board of Managers shall
be four (4) unless otherwise agreed by all of the Members; provided, however,
that the number of Managers shall be increased to five (5) upon the hiring of
a Chief Executive Officer by the Company and such Chief Executive Officer
shall thereupon become a member of the Board of Managers. The initial Board
of Managers shall consist of two (2) appointees of each of Hilton and
LodgeNet as set forth on SCHEDULE 5.1 hereto, and said Schedule shall be
amended from time to time by the Managers to reflect the resignation or
removal of any Manager or the appointment of new or additional Managers
pursuant to this Agreement. Neither Hilton nor LodgeNet shall change its
appointees without the consent of the other party, such consent not to be
unreasonably withheld, delayed or conditioned; provided, however, that if an
appointee is no longer employed or otherwise engaged by the appointing party
such appointee may be changed to a new appointee with the consent of the
other party, which consent shall not be unreasonably withheld, delayed or
conditioned. Notwithstanding the foregoing, if at any time, Hilton or
LodgeNet shall hold less than fifty percent (50%) of its initial aggregate
Common and Preferred Units in the Company, it shall only be contractually
entitled to appoint one member of the Board of Managers and, if at any time,
a Hilton or LodgeNet shall hold less than twenty-five (25%) of its initial
aggregate Common and Preferred Units in the Company, it shall not
contractually be entitled to appoint any member of the Board of Managers, and
one or both, as the case may be, of the representatives appointed to the
Board of Managers by such party shall be deemed to have immediately resigned
as a member of the Board of Managers. The parties shall agree to vote their
Units of the Company in accordance with the terms of this provision.
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(c) Each Member, by signing this Agreement, hereby
designates the Persons identified on SCHEDULE 5.1 as Managers of the Company
until their successors are designated. A Manager shall remain in office until
removed by the Member designating such Manager or until his earlier death,
incapacity or resignation.
(d) A Manager may be removed at any time, with or without
cause, by the Members that designated such Manager, upon written notice
delivered to the Company and the other Members noticing such removal.
(e) In the event any Manager resigns, dies or is unwilling
or unable to serve as such or is removed from office by the Member that
designated such Manager, the Member that designated such Manager shall
promptly designate a successor to such Manager.
(f) Except as otherwise provided in this Agreement, the
Board of Managers shall act by the affirmative vote of a majority of the
entire Board of Managers.
(g) Each Manager shall perform his duties as a Manager in
good faith, in a manner he reasonably believes to be in the best interests of
the Company.
(h) The Board of Managers shall have the power, in
accordance with the provisions of Section 5.04 hereof, to delegate authority
to such committees of Managers, Officers, employees, agents and
representatives of the Company as it may from time to time deem appropriate.
Any delegation of authority to take any action must be approved by the same
vote of the Board of Managers as would be required for the Board of Managers
to approve such action directly.
(i) No Manager or Officer shall be liable under a judgment,
decree or order of court, or in any other manner, for any debt, obligation or
liability of the Company.
5.02 MEETINGS OF THE BOARD OF MANAGERS.
(a) The Board of Managers shall hold regular meetings no
less frequently than once every quarter during the Fiscal Year and shall
establish meeting times, dates and places and requisite notice requirements
(not shorter than those provided in Section 5.02(b)) and adopt rules or
procedures consistent with the terms of this Agreement. Each regular meeting
of the Board of Managers will be held at the Company's principal place of
business or such other place as the Board of Managers shall determine. At
such meetings the Board of Managers shall transact such business as may
properly be brought before the meeting, whether or not notice of such meeting
referenced the action taken at such meeting.
(b) Special meetings of the Board of Managers may be called
by any two (2) Managers. The call shall state the location of the meeting and
the nature of the business to be transacted. Notice of each such meeting
shall be given to each Manager by telephone, telecopy, telegram or similar
method or sent by reputable overnight delivery service at least forty-eight
(48) hours before the meeting. No actions other than those specified in the
notice may be considered at any special meeting unless unanimously approved
by the Managers. Any Manager may waive notice of, or the taking of any action
at, any meeting in writing before, at, or after such meeting. The attendance
of a Manager at a meeting shall constitute a waiver of notice of
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such meeting, except when a Manager attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting was not
properly called.
(c) Any one or more members of the Board of Managers or any
committee thereof may participate in a meeting of the Board of Managers or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation by such means shall constitute presence in person
at a meeting.
(d) At any meeting of the Board of Managers, three (3)
Managers shall constitute a quorum.
(e) Notwithstanding anything to the contrary in this
Section 5.02, any action required or permitted to be taken by the Board of
Managers or any committee thereof may be taken without a meeting if a consent
or consents in writing, setting forth the action so taken, shall be signed by
all of the members of the Board of Managers or such committee, as the case
may be, and the writing or writings are filed with the minutes of the
proceedings of the Board of Managers or such committee, as the case may be.
5.03 BOARD OF MANAGERS' POWERS.
(a) Until the hiring of a Chief Executive Officer by the
Company in accordance with Section 5.04, and the corresponding increase in
the number of Managers from four (4) to five (5), the Company shall not
engage in any of the following transactions or series of transactions or any
other transaction or series of transactions outside the ordinary course of
business of the Company in each case having a value in excess of $25,000
without the affirmative vote of the representative on the Board of Managers
of each of Hilton and LodgeNet: (i) any agreement (written or oral) relating
to the employment, wages, benefits or other compensation of any Person or
Persons; (ii) any long-term (in excess of 30 days) commitment to purchase or
spend Company assets or funds; (iii) any agreement (oral or written) or any
amendment or termination of any material contract or agreement with any
Member, vendor or other third party except for (A) the Distribution
Agreement, (B) the Content Carriage Agreement; and (C) the Administrative
Services Agreement. Without limiting the foregoing, until the Chief Executive
Officer of the Company is hired, Hilton and LodgeNet will consult with each
other regarding all significant developments, transactions and proposals
relating to the Company.
(b) Subject to the provisions of this Agreement, including
Section 5.03(a), the business and affairs of the Company shall be managed by
or under the direction of the Board of Managers, which may exercise all of
the powers of the Company that are not otherwise required by this Agreement
or the Act to be exercised by the Members. In addition to the powers and
authority expressly conferred upon them by statute or by this Agreement, the
Board of Managers is empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Company. In addition to,
and without limiting the foregoing, the Company shall take all actions
necessary to cause the board of directors or board of managers of each of its
Subsidiaries, if any, (or the general partner or managing member of each such
Subsidiary) to be comprised of the same Persons who serve as Managers of the
Company and that, in such
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capacity, each such Person shall have the same powers and authority with
respect to such Subsidiary as a Manager is entitled to exercise with respect
to the Company under this Agreement. Subject to Section 5.01(h) hereof, the
Board of Managers shall be entitled to delegate all or any part of its powers
as it shall deem appropriate or convenient to such officers of the Company or
other persons as it shall select in its discretion, subject to the
reservation of authority to approve the major decisions set forth in Section
5.04 and such other matters as shall require its approval under the terms of
this Agreement. The management of the day-to-day operations of the Company
shall be delegated, subject to Section 5.01(h), to the Officers.
5.04 MAJOR DECISIONS.
(a) In addition to any other rights provided by this
Agreement, for so long as at least that number of Preferred Units equal to at
least fifteen percent (15%) of the total number of issued and outstanding
Units of the Company (including Common Units) are outstanding, approval of
not less than sixty-six and two thirds percent (66 2/3%) of the outstanding
Preferred Units, voting as a single class, will be required for any action
approved by a majority of the holders of outstanding Common Units which (i)
would materially and adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Preferred Units; (ii) authorizes or creates any new class of units having a
preference over or on parity with the Preferred Units; (iii) reclassifies any
units into units having a preference over or on parity with the Preferred
Units as to dividends or assets of the Company; (iv) authorizes any dividend
or distribution with respect to Common Units; (v) effects any redemption or
repurchase of any Units of the Company (other than upon exercise by the
Company of its redemption rights as to Preferred Units as set forth herein
and its repurchase rights as to Common Units issued to employees, members of
the Board of Managers, consultants or advisors upon a termination of their
employment or other service relationship with the Company); or (vi) increases
the authorized number of the Preferred Units. Such Preferred Unit class
approval requirement shall be of no further force or effect following an
initial public offering that is a Qualified Public Offering.
(b) Until the occurrence of an initial public offering of
the Company which is a Qualified Public Offering or until such time as the
aggregate percentage of the total issued and outstanding Units held by
Hilton, on the one hand, and LodgeNet, on the other hand is less than fifteen
percent (15%) (the "MINIMUM THRESHOLD AMOUNT"), the following actions will
require the affirmative vote of the representative on the Board of Managers
of each of Hilton and LodgeNet (it being understood that from and after the
date that the Member's aggregate percentage of the total issued and
outstanding Units held is less than the Minimum Threshold Amount such
Member's affirmative vote of the representative on the Board of Managers, if
any, shall no longer be required by this Section 5.04(b)):
(i) Adopting or effecting any plan of sale, merger,
consolidation, dissolution or recapitalization of the Company;
(ii) Offering for sale or selling all or
substantially all of the assets of the Company;
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(iii) The issuance, sale or delivery by the Company
of any ownership interests of the Company (other than those
issued pursuant to the Equity Incentive Plan);
(iv) Making or agreeing to make any distribution to
any Member or declaring or paying any dividend on the
ownership interests of the Company;
(v) Amending, restating or terminating this Agreement
or other governing document of the Company;
(vi) Redeeming, purchasing or otherwise acquiring any
ownership interests of the Company (other than the repurchase
of Common Units from employees or officers of the Company upon
their termination) of employment;
(vii) Purchasing, leasing or otherwise acquiring any
asset or group of assets, in an aggregate amount of
consideration in excess of $250,000, or purchasing or
otherwise acquiring any direct or indirect equity interest in
any other entity, or all or substantially all of the assets of
any other person or entity;
(viii) Making any capital expenditure or series of
capital expenditures in excess of $250,000;
(ix) Engaging in any transaction or series of
transactions with LodgeNet or Hilton or any Affiliate or
employee of Hilton or LodgeNet, other than the transactions
specifically contemplated by the Distribution Agreement, the
Content Carriage Agreement or the Administrative Services
Agreements; provided, however, it shall not require the vote
or consent of the representative on the Board of Managers of
any interested Member in order for the Company to assert any
rights against, including termination of an agreement with, an
interested Member;
(x) Creating or incurring indebtedness in an
aggregate amount in excess of $1,000,000;
(xi) Material modifications or revisions to the
Business Plan;
(xii) Increasing the size of the Board of Managers,
other than upon the hiring of a Chief Executive Officer as set
forth above;
(xiii) Commencing a voluntary case or similar
proceeding under the U.S. Bankruptcy Code or under any other
applicable federal or state bankruptcy, insolvency or similar
law now or hereafter in effect (collectively "INSOLVENCY
LAWS"); consenting to or taking any other action that would
reasonably be expected to result in the entry of an order for
relief under any Insolvency Laws; consenting to the conversion
of an involuntary case or similar proceeding to a voluntary
case or similar proceeding under any Insolvency Laws; or
consenting to the appointment or taking of possession by a
receiver, trustee or other custodian
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of all or a substantial part of the Company's property or
otherwise making any assignment for the benefit of the
Company's creditors;
(xiv) any material tax elections by the Company,
including without limitation, an election under Section 754 of
the Code and the choice of a method for making allocations
under Section 704(c) of the Code;
(xv) any material decisions to be made by the Tax
Matters Partner of the Company;
(xvi) Engaging in an initial public offering of
securities of the Company pursuant to a registration statement
filed under the Securities Act;
(xvii) Hiring or firing the Chief Executive Officer
or Chief Financial Officer of the Company; or
(xviii) Making a request for additional capital
contributions pursuant to Section 2.02(b) or (c) above.
Following the earlier of: (a) a Qualified Public
Offering or (b) such time as Hilton and LodgeNet each maintains an aggregate
Percentage Unit in the Company of less than the Minimum Threshold Amount, the
foregoing actions will require approval of a majority of a quorum of the
Board of Managers.
5.05 DUTIES AND OBLIGATIONS OF THE BOARD OF MANAGERS. Subject to the
provisions of Section 5.04 hereof:
(a) The Board of Managers shall cause the Company to
conduct its business and operations separate and apart from that of any
Member or Manager or any of their respective Affiliates, including, without
limitation, (i) segregating Company assets and not allowing funds or other
assets of the Company to be commingled with the funds or other assets of,
held by, or registered in the name of, any Member or Manager or any of their
respective Affiliates, (ii) maintaining books and financial records of the
Company separate from the books and financial records of any Member or
Manager and their respective Affiliates, and observing all Company procedures
and formalities, including, without limitation, maintaining minutes of
Company meetings and acting on behalf of the Company only pursuant to due
authorization of the Members, (iii) causing the Company to pay its
liabilities from assets of the Company, and (iv) causing the Company to
conduct its dealings with third parties in its own name and as a separate and
independent entity.
(b) The Board of Managers shall take all actions which may
be necessary or appropriate (i) for the continuation of the Company's valid
existence as a limited liability company under the laws of the State of
Delaware and of each other jurisdiction in which such existence is necessary
to protect the limited liability of the Members or to enable the Company to
conduct the business in which it is engaged and (ii) for the accomplishment
of the Company's purposes in accordance with the provisions of this Agreement
and applicable laws and regulations.
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(c) Each Manager shall be required to devote only such time
to the affairs of the Company as may be necessary to attend meetings of the
Board of Managers and to provide overall strategic direction in the
management and operation of the Company and performing his or her duties
hereunder, and shall be free to serve any other Person or enterprise in any
capacity that such Manager may deem appropriate in his, her or its
discretion. Subject to the confidentiality provisions of Section 6.05,
neither this Agreement nor any activity undertaken pursuant hereto shall
prevent any Member or Manager or their respective Affiliates from engaging in
whatever activities they choose.
(d) Subject to Section 5.04(b), and any other applicable
provisions of this Agreement, the Board of Managers is hereby authorized to
cause the Company to conduct commercial business transactions with any Member
or Manager, acting on its own behalf, or any Affiliate of any Member or
Manager; PROVIDED that any such transaction shall be made on terms and
conditions that are no less favorable to the Company than if the transaction
had been made on an arm's-length basis with an independent third party.
5.06 COMPENSATION AND REIMBURSEMENT. No Manager, officer, employee,
or other individual who is also an employee of any Member shall be entitled
to receive any compensation from the Company or reimbursement of any
expenses, of any kind whatsoever; provided, however, that payments to a
Member pursuant to any agreement referred to in Section 5.09 below shall not
be prohibited by this Section 5.06 and Managers shall be entitled to receive
reimbursement of travel expenses to attend meetings of the Board of Managers.
5.07 MANAGEMENT; OFFICERS.
(a) GENERAL. Subject to the limitations set forth in
Section 5.03 above, the Board of Managers shall have the right to delegate
authority to act on behalf of the Company to Officers of the Company. The
Company may have as its Officers a Chairman, a President, a Chief Executive
Officer, a Chief Financial Officer, one or more Executive Vice Presidents,
one or more Vice Presidents, a Secretary, one or more Assistant Secretaries,
a Treasurer, one or more Assistant Treasurers and such other Officers as the
Board of Managers may determine. The initial Chairman of the Company shall be
Xxxxx Xxxxxxxx, subject to the provisions of Section 5.07(b) and (d) below.
Except as otherwise provided in this Section 5.07(a), the Officers of the
Company; including the Chairman, shall be elected and may be removed from
time to time by the Board of Managers.
(b) DUTIES OF OFFICERS. Except as may be otherwise provided
by the Board of Managers in a writing filed with the records of the Company,
a person holding the title of an Officer set forth below shall have the power
and the duties set forth below:
(i) CHAIRMAN. The Chairman's duties shall be
ministerial in nature, consisting of the ability to preside over Board of
Managers meetings and to vote at such meetings as a member of the Board of
Managers only. The Chairman shall not be an officer of the Company with the
power to bind the Company, nor shall the Chairman have the authority to
supervise the Officers of the Company independent of the Board of Managers.
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(ii) CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall, subject to the direction of the Board of Managers, have
general charge and supervision of the business of the Company including,
without limitation, supervising the management of the locations where the
Company is doing business, overseeing the design and implementation of new
business concepts and locations. In addition, the Chief Executive Officer
shall perform such other duties and shall have such other powers as the Board
of Managers may from time to time prescribe.
(iii) PRESIDENT. The President shall, subject to
the direction of the Board of Managers, have general charge and supervision
of the administration of the Company including, without limitation,
preparation of the Annual Budget, and an annual update of the Business Plan
for approval by the Board of Managers. In addition, the President shall
perform such other duties and shall have such other powers as the Board of
Managers shall from time to time prescribe.
(iv) CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of accounts of the properties and business
transactions of the Company, including account of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings, and
ownership interests. The books of account shall at all reasonable times be
open to inspection by any Manager.
(c) TENURE. Each Officer shall hold office until his
successor is appointed and qualified, unless a different term is specified by
the Board of Managers in appointing him or her, or until his or her earlier
death, resignation or removal.
(d) RESIGNATION AND REMOVAL. Any Officer may resign by
delivering written resignation to the Board of Managers at the Company's
principal office. Such resignation shall be effective upon receipt, in
accordance with the notice provisions in Section 16.01 of this Agreement,
unless it is specified to be effective at some other time or upon the
happening of some other event. Except as otherwise provided in a separate
written agreement between the Company and any Officer, any Officer, including
the Chairman, may be removed at any time, with or without cause, by the Board
of Managers, and all Officers shall serve in the sole discretion of the Board
of Managers.
(e) VACANCIES. The Board of Managers may fill any vacancy
occurring in any office, including the Chairman, for any reason and may, in
its discretion, leave any office unfilled for such period as it may
determine. Each such successor shall hold office for the unexpired term, if
any was specified for his or her predecessor, and until his or her successor
is appointed and qualified, or until his or her earlier death, resignation or
removal.
5.08 BUSINESS PLAN. Hilton and LodgeNet shall jointly prepare a
business plan for the Company (the "BUSINESS PLAN"), including a detailed
operating budget through December 31, 2001, a five-year financial plan and a
general description of key underlying assumptions and strategies for
presentation to the Board of Managers prior to sixty (60) days from the date
hereof.
5.09 AGREEMENTS.
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(a) Concurrent with the execution of this Agreement, the
Company and LodgeNet will execute a Distribution and Carriage Agreement
("DISTRIBUTION AGREEMENT").
(b) Concurrent with the execution of this Agreement, the
Company and Hilton will negotiate and execute a Content Carriage Agreement
("CONTENT CARRIAGE AGREEMENT").
(c) Concurrent with the execution of this Agreement, the
Company shall execute a Services Agreement ("Administrative Services
Agreements") with Hilton in substantially in the form of the Administrative
Services Agreement with LodgeNet or for services substantially similar to
Exhibit A(4) thereto.
5.10 MILESTONE. LodgeNet and Hilton shall use commercially
reasonable best efforts to ensure that the Company has a portal for Internet
access as soon as reasonably practicable after the execution of this
Agreement, which the parties currently estimate will be six (6) months
following the commencement of operations of the Company as set forth in the
Business Plan. When the Company has available a deployable portal, LodgeNet
shall convert to the Company's portal as soon as reasonably practicable
thereafter and in any event within ninety (90) days of such date (the "PORTAL
USE DATE"). Notwithstanding the foregoing, beginning January 1, 2001, the
Company shall be entitled to and LodgeNet shall promptly pay over to the
Company all cash flows, if any, derived by LodgeNet from the sale, marketing
or distribution by LodgeNet of any New Media services as defined in the
Distribution Agreement. As used in this Section 5.10, "cash flows" means (a)
revenues less (b) direct cost of sales and direct operating costs, including
connectivity costs. Hilton shall, until ninety (90) days following the Portal
Use Date, use commercially reasonable best efforts to cause LodgeNet's portal
to be utilized at Hilton owned, managed and licensed hotels that utilize
LodgeNet's services under the Master Services Agreement.
ARTICLE 6
MEMBERS
6.01 AUTHORITY; LIABILITY TO THIRD PARTIES. No Member has any
authority or power to act for or on behalf of the Company, to do any act that
would be binding on the Company, or to incur any expenditures on behalf of
the Company. No member shall be liable for the debts, obligations or
liabilities of the Company, including under a judgment decree or order of
court.
6.02 VOTING RIGHTS. No Member has any voting right except with
respect to those matters specifically set forth in this Agreement and as
required in the Act.
6.03 WITHDRAWAL; RESIGNATION. Except as otherwise provided in
Sections 10.09 and 12.02 and Article 11 hereof, no Member shall demand or
receive a return on or of its Capital Contributions without the consent of
the Board of Managers in accordance with the provisions of Section 5.04
hereof. Each Member hereby waives any and all rights such Member may have to
withdraw and/or resign from the Company pursuant to Section 18-603 of the Act
and hereby waives any and all rights such Member may have to receive the fair
value of such Member's interest in the Company upon such withdrawal,
resignation and/or retirement pursuant to Section 18-604 of the Act.
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6.04 PARTITION. Each Member waives any rights to have any Company
property partitioned, or to file a complaint or to institute any suit, action
or proceeding at law or in equity to have any Company property partitioned,
and each Member, on behalf of itself, its successors and its assigns, hereby
waives any such right.
6.05 CONFIDENTIALITY. Except as contemplated hereby or required by
law, a court of competent jurisdiction, or the rules and regulations of the
SEC, each Member shall keep confidential and shall not disclose to others and
shall use its reasonable efforts to prevent its Affiliates and any of its, or
its Affiliates' present or former employees, agents, and representatives from
disclosing to others without the prior written consent of the Board of
Managers any information that (a) pertains to this Agreement, any
negotiations pertaining hereto, any of the transactions contemplated hereby,
or the Business of the Company or (b) is confidential or proprietary
information of any Member or the Company. No Member shall use, and each
Member shall use its reasonable efforts to prevent its Affiliates and any of
its, or its Affiliates', present or former employees, agents, and
representatives (including the Managers designated by such Member) from
using, any information that (x) pertains to this Agreement, any negotiations
pertaining hereto, any of the transactions contemplated hereby, or the
Business of the Company, or (y) is the confidential or proprietary
information of any Member or the Company, except in connection with the
transactions contemplated hereby and the operations of the Business or as
otherwise permitted by the Board of Managers. The term "confidential
information" is used in this Section 6.05 to describe information that is
confidential, non-public or proprietary in nature, was provided to such
Member or its representatives by the Company, any other Member, or such
Persons' agents, representatives or employees, and relates, either directly
or indirectly, to the Company or the Business. Information that (1) is
available, or becomes available, to the public through no fault or action by
such Member and any of its, or its Affiliates', present or former employees,
agents and representatives, (2) becomes available on a non-confidential basis
from any source other than the Company, any other Member, any Affiliate of a
Member, or such Persons' present or former employees, agents and
representatives and such source is not prohibited from disclosing such
information by legal, contractual or fiduciary obligations, (3) is in the
possession of any Member prior to being furnished to such Member in
connection with the transactions contemplated hereby or in connection with
the Business, provided that the source of such information was not prohibited
from disclosing the information to such Member by legal, contractual or
fiduciary obligations, (4) is independently developed by the Member, (5) is
approved for release by written authorization of the Member owning such
information, and released within the terms of such approval, or (6) is
disclosed pursuant to the lawful requirement or request of a governmental
agency or disclosure is required or permitted by operation of law, court
order, civil process or stock exchange, shall not be deemed to be
confidential information. In addition to the foregoing, the Company shall not
(A) use in advertising or publicity the name of any Member, or any partner or
employee of any such Member, or any of such Member's Affiliates, or any trade
name, trademark, trade service, service xxxx, symbol or abbreviation,
contraction or simulation thereof owned by such Member, without the prior
written consent of such Member or (B) represent that any product or service
provided by the Company has been approved or endorsed by any Member without
the prior written consent of such Member and no Member shall issue an
independent press release with respect to this Agreement or the transaction
contemplated hereby without the prior written consent of the other Member.
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6.06 OTHER INSTRUMENTS. Each Member hereby agrees to execute and
deliver to the Company as soon as reasonably practicable, but in any event in
no more than ten (10) days after receipt of a written request therefor, such
other and further documents and instruments, statements of interest and
holdings, designations, powers of attorney and other instruments and to take
such other action as the Board of Managers deems necessary and appropriate
and reasonably requests to comply with any laws, rules or regulations as may
be necessary to enable the Company to fulfill its responsibilities under this
Agreement; PROVIDED, HOWEVER, that a Member shall not be required to execute
and deliver any document or instrument or to take any action that could
reasonably be expected to lead to liability or obligation on the part of any
Member.
6.07 NON-SOLICITATION. The Company agrees not to employ as an
employee or retain as a consultant any Person who at the time of execution of
this Agreement, or at any time during the term hereof, was an employee of or
consultant to either of the Members, or persuade or attempt to persuade any
employee of or consultant to the Members to leave the employ of either such
Member or to become employed as an employee by or retained as a consultant to
anyone other than such Member without the prior written consent of such
Member which consent shall not be unreasonably withheld, delayed or
conditioned and without the payment of any fee, cost or reimbursement;
provided, however, that this Section 6.07 shall not apply to any Person who
was not employed by or retained as a consultant by a Member during any of the
six (6) month period preceding the date of such offer, solicitation,
engagement or commencement of such business relationship.
ARTICLE 7
LIMITATION OF LIABILITY AND INDEMNIFICATION
7.01 LIMITATION OF LIABILITY. No Member (or any Member's Affiliates,
agents, officers, partners, employees, representatives, directors or
stockholders) or Manager shall be personally liable to the Company for
expenses, liabilities and losses (including attorneys' fees, judgments, fines
or penalties and amounts paid in settlement) arising out of or in connection
with the conduct of the Business by the Company or of an Affiliate of the
Company from the date of this Agreement except to the extent that (i)
exemption from liability or limitation thereof is not permitted under the Act
as in effect at the time such liability or limitation thereof is determined
or (ii) such liability arose or resulted from the gross negligence, willful
misconduct or fraudulent acts of such Person.
7.02 INDEMNIFICATION.
(a) Each person who was or is made a party or is threatened
to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
Person is or was a Member or Manager, director, Officer, employee or agent of
the Company or is or was serving at the request of the Company as a Manager,
director, Officer, employee or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise (including
service with respect to an employee benefit plan) (an "INDEMNITEE") shall be
indemnified and held harmless by the Company to the fullest extent
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authorized by the Act, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than such law
permitted the Company to provide prior to such amendment), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines
or penalties and amounts paid in settlement) reasonably incurred or suffered
by such Indemnitee in connection with the conduct of the Business by the
Company or an Affiliate of the Company from the date of this Agreement, other
than in either case expenses, liabilities and losses arising as a result of
such Indemnitee's gross negligence, willful misconduct or fraudulent acts;
PROVIDED, HOWEVER, that, except with respect to proceedings to enforce rights
to indemnification or as otherwise required by law, the Company shall not be
required to indemnify or advance expenses to any such Indemnitee in
connection with a proceeding initiated by such Indemnitee unless such
proceeding was authorized by the Board of Managers.
(b) The right to indemnification conferred in Section 7.02(a)
shall include the right to be paid by the Company the expenses (including
reasonable attorneys' fees) incurred in defending any such proceeding in advance
of its final disposition; PROVIDED, HOWEVER, that, if the Act so requires, an
advancement of expenses incurred by an Indemnitee in his capacity as a Member or
Manager (and not in any other capacity in which service was or is rendered by
such Indemnitee, including without limitation, service to an employee benefit
plan) shall be made only upon the delivery to the Company of an undertaking, by
or on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such Indemnitee is not entitled to indemnification
for such expenses under this Section 7.02(b) or otherwise. The rights to
indemnification and to advancement of expenses conferred in Section 7.02(a) and
this Section 7.02(b) shall continue as to an Indemnitee who has ceased to be a
Member or Manager and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators. Any repeal or modification of any of the
provisions of this Section 7.02 shall not adversely affect any right of
protection of an Indemnitee existing at the time of such repeal or modification.
(c) The rights to indemnification and to the advancement of
expenses conferred in this Section 7.02 shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute or
agreement or any vote of the Board of Managers or Members.
(d) With respect to the initiation, conduct or settlement of
litigation or other legal proceedings involving claims for monetary damages or
equitable or other relief, or both, from the Company and any Member (or its
Affiliates), such Member shall be entitled to both (i) approve in advance the
legal counsel selected to represent the Company and such Member jointly or to
retain at the Company's expense (subject to the provisions of this Article 7)
separate legal counsel and (ii) approve any admissions or acknowledgments of
culpability, responsibility or negligence of or otherwise relating to such
Member.
(e) The Company may, to the extent authorized by the Board of
Managers, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Company to the fullest extent of the provisions of
this Section 7.02 with respect to the indemnification and advancement of
expenses of Members or Managers of the Company.
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ARTICLE 8
REPRESENTATIONS AND WARRANTIES
8.01 IN GENERAL. As of the date hereof, each of the Members hereby
makes each of the representations and warranties applicable to such Member as
set forth in Section 8.02 hereof. All of such warranties and representations
shall survive the execution of this Agreement.
8.02 REPRESENTATIONS AND WARRANTIES. Each Member hereby severally (and
not jointly) represents and warrants as to itself that:
(a) DUE INCORPORATION OR FORMATION; AUTHORIZATION OF
AGREEMENT. Such Member is a corporation duly organized or a partnership or
limited liability company duly formed, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation or formation and has the
corporate, partnership, company or individual power and authority to own its
property and carry on its business as owned and carried on at the date hereof
and as contemplated hereby. Such Member is duly licensed or qualified to do
business and in good standing in each of the jurisdictions in which the failure
to be so licensed or qualified would have a material adverse effect on its
financial condition or its ability to perform its obligations hereunder. Such
Member has the corporate, partnership, company or individual power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
and the execution, delivery and performance of this Agreement has been duly
authorized by all necessary corporate, partnership or company action, to the
extent required. This Agreement constitutes the legal, valid and binding
obligation of such Member.
(b) NO CONFLICT WITH RESTRICTIONS; NO DEFAULT. Neither the
execution, delivery, and performance of this Agreement nor the consummation by
such Member of the transactions contemplated hereby (i) will conflict with,
violate, or result in a breach of any law, regulation, order, writ, injunction,
decree, determination, or award of any court, any governmental department,
board, agency, or instrumentality, domestic or foreign, or any arbitrator,
applicable to such Member, or (ii) will conflict with, violate, result in a
breach of, or constitute a default under any of the terms, conditions, or
provisions of the certificate of incorporation, bylaws, partnership agreement or
operating agreement, if any, of such Member or of any material agreement or
instrument to which such Member is a party or by which such Member is bound or
to which any of its material properties or assets is subject.
(c) GOVERNMENTAL AUTHORIZATIONS. There are no authorization,
consents, permits, licenses, or approvals of, or declarations, registrations or
filings with, any governmental or regulatory authority or any other person
required by such member in connection with the valid execution, delivery or
performance by such Member of this Agreement or the consummation of the
transactions consummated hereby, except where the failure to obtain or make any
of the foregoing would not have a material adverse effect on such Member's
ability to perform its obligation hereunder.
(d) LITIGATION. There are no actions, suits, proceedings, or
investigations pending or, to the knowledge of such Member, threatened against
or affecting such Member in any court or before or by any governmental
department, board, agency, or instrumentality,
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domestic or foreign, or any arbitrator which would, if adversely determined
(or, in the case of an investigation could lead to any action, suit, or
proceeding, which if adversely determined would) reasonably be expected to
materially impair such Member's ability to perform its obligations under this
Agreement; and such Member has not received any currently effective notice of
any default, and such Member is not in default, under any applicable order,
writ, injunction, decree, permit, determination, or award of any court, any
governmental department, board, agency, or instrumentality, domestic or
foreign, or any arbitrator that would reasonably be expected to materially
impair such Member's ability to perform its obligations under this Agreement
or to have a material adverse effect on the financial condition of such
Member.
(e) INVESTIGATION. Such Member's acquisition of its Unit is
being made for its own account for investment, and not with a view to the sale
or distribution thereof. Such Member is a sophisticated investor possessing an
expertise in analyzing the benefits and risks associated with acquiring
investments that are similar to the acquisition of its Units. Such Member is
financially able to bear the economic risk of an investment in the Company and
has no need for liquidity in the investment. Furthermore, the financial capacity
of such Member is of such a proportion that the total costs of such Member's
investment in the Company is not material when compared with such Member's total
financial capacity. Such Member (i) has received all information that such
Member deems necessary to make an informed investment decision with respect to
an investment in the Company, (ii) has had the unrestricted opportunity to make
such investigation as such Member desires pertaining to the Company and (iii)
has had the opportunity to ask questions of representatives of the Company and
such Member's investment.
(f) ACCREDITED INVESTOR. Such Member acknowledges that the
Units have not been registered under the Securities Act or qualified under any
applicable state securities laws in reliance on the Member's representations,
warranties, acknowledgments and agreements herein. Each Member certifies that
such Member is an "Accredited Investor" as defined in Rule 501(a) of Regulation
D of the Securities Act.
(g) DISCLOSURE. No representation or warranty of a Member
contained in this Agreement or any agreement referred to herein or in any
certificate or written statement furnished to the other Members by or on behalf
of such Member for use in connection with the transactions contemplated by this
Agreement or the other agreements referred to herein contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made. There is no fact known (or
which upon the reasonable exercise of diligence should be known) to such Member
(other than matters of a general economic nature) that has had, or could
reasonably be expected to result in, (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of such Member, or (ii) the impairment of the ability of such Member
to perform, or of the other Members to enforce, this Agreement.
(h) BROKERS OR FINDERS. Such Member has not incurred and will
not incur, directly or indirectly, as a result of any action taken by such
Member, any liability to or obligation of the Company for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or the transactions contemplated hereunder.
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ARTICLE 9
ACCOUNTING, BOOKS AND RECORDS
9.01 ACCOUNTING, BOOKS AND RECORDS.
(a) The Company shall keep on site at its principal place of
business each of the following:
(i) Separate books of account for the Company that
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the conduct of the Company and the operation of the Business in
accordance with this Agreement;
(ii) A current list of the full name and last known
business, residence or mailing address of each Member and Manager, both past and
present;
(iii) A copy of the Certificate and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which any amendment has been executed;
(iv) Copies of the Company's and all of its
Subsidiaries' federal, state, and local income tax returns and reports, if any,
for the three most recent years;
(v) Copies of the Transaction Documents and any
amendments thereto;
(vi) Copies of any writings permitted or required
under Section 18-502 of the Act regarding the obligation of a Member to perform
any enforceable promise to contribute cash or property or to perform services as
consideration for such Member's Capital Contribution;
(vii) The minutes of any meetings or other actions of
the Board of Managers or any committee thereof; and
(viii) Any written consents obtained from Members
pursuant to Section 18-302 of the Act regarding action taken by Members without
a meeting.
(b) The Company shall use the accrual method of accounting in
preparation of its financial reports and for tax purposes and shall keep its
books and records accordingly. Each Member shall be entitled to inspect and copy
the books and records of the Company during normal business hours at such time
and in such depth as such Member deems necessary upon reasonable advance notice
to the Company, and the Company will provide to such Member such other
information in its possession in connection with such materials as may be
requested by such Member.
9.02 REPORTS.
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(a) PERIODIC AND OTHER REPORTS. The Company shall cause to be
delivered to each Member the financial statements listed in clauses (i) and (ii)
below, prepared, in each case (other than with respect to Members' Capital
Accounts, which shall be prepared in accordance with this Agreement) in
accordance with GAAP consistently applied.
(i) As soon as practicable following the end of each
Fiscal Year (and in any event not later than sixty (60) days after the end of
such Fiscal Year) and at such time as distributions are made to the Members
pursuant to Article 12 hereof following the occurrence of a Dissolution Event, a
balance sheet of the Company as of the end of such Fiscal Year and the related
statements of operations, Members' Capital Accounts and changes therein, and
cash flows for such Fiscal Year, together with appropriate notes to such
financial statements and supporting schedules, all of which shall be audited and
certified by the Company's accountants, and in each case, to the extent the
Company was in existence, setting forth in comparative form the corresponding
figures for the immediately preceding Fiscal Year end.
(ii) As soon as practicable following the end of each
fiscal quarter (and in any event not later than thirty (30) days after the end
of each such fiscal quarter), a management report and an unaudited balance sheet
of the Company as of the end of such quarter and the related unaudited
statements of operations for such fiscal quarter and for the Fiscal Year to
date, in each case, to the extent the Company was in existence, setting forth in
comparative form the corresponding figures for the prior Fiscal Year's
corresponding fiscal quarter and interim period just completed. Each such
unaudited quarterly balance sheet and the related unaudited statements of
operations shall be prepared in a manner consistent with the preparation of the
Company's audited balance sheet and audited statements of operations, except for
the statements of cash flows and accompanying notes thereto, pursuant to Section
9.02(a)(i).
(b) INFORMATION FOR EARNINGS RELEASES. The Company shall also
cause to be delivered to each Member financial information so as to enable such
Member to prepare and disclose its earnings release information within thirty
(30) days following the end of such Member's fiscal year and within fifteen (15)
days following the end of such Member's fiscal quarter.
9.03 TAX MATTERS.
(a) TAX ELECTIONS. Subject to Section 5.04(b)(xiv) hereof, the
Board of Managers shall, without any further consent of the Members being
required (except as specifically required herein), make any and all elections
for federal, state, local, and foreign tax purposes as it determines are
appropriate; PROVIDED, HOWEVER, that no election shall be made to treat the
Company as other than a partnership for federal, state or local income tax
purposes without the unanimous approval of the Members.
(b) TAX PROCEEDINGS. Hilton is specifically authorized to act
as the initial "Tax Matters Partner" under the Code and in any similar capacity
under state or local law. Subject to Section 5.04(b)(xv) hereof, the Tax Matters
Partner shall, to the extent provided in Code Sections 6221 through 6231 and
similar provisions of federal, state, local or foreign law, elect to represent
the Company and the Members before taxing authorities or courts of competent
jurisdiction in tax matters affecting the Company; PROVIDED, HOWEVER, subject to
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Section 5.04(b)(xv) hereof, the Tax Matters Partner shall not (i) sign any
consent, (ii) enter into any settlement agreement or (iii) compromise any
dispute with the Internal Revenue Service or any other taxing authority without
the approval of the Board of Managers. The Board of Managers shall cause the
Company to file any tax returns and execute any agreements or other documents
relating to or affecting such tax matters. The Tax Matters Partner shall provide
notice (including a copy of all relevant documents) to all Members as follows:
(i) within ten (10) days after it receives notice from the Internal Revenue
Service or from any foreign, state or local governmental taxing authority (a
"TAXING AUTHORITY") of any administrative proceeding with respect to an
examination of or a proposed adjustment to, any item of income, gain, loss,
deduction or credit of the Company, (ii) from time to time, within the
reasonable discretion of the Tax Matters Partner, of the current status of any
administrative proceeding referred to in clause (i) hereof, (iii) with respect
to any request filed by the Company with any Taxing Authority for an
administrative adjustment to any item of income, gain, loss, deduction or credit
of the Company, a copy of such request at least ten (10) days prior to
submission, and (iv) a copy of any other non-ministerial notices or
communications received by the Company from any Taxing Authority. All reasonable
and customary costs incurred by the Tax Matters Partner in performing under this
subsection (b) shall be paid by the Company. Nothing in this Section 9.03(b)
shall limit the ability of a Member to take any action in his individual
capacity in connection with Tax audit matters relating to the Company that are
left to the determination of an individual Member under Sections 6221 through
6231 of the Code or any similar state or local provision.
(c) TAX INFORMATION. Necessary tax information shall be
delivered to each Member as soon as practicable after the end of each Fiscal
Year of the Company but not later than March 1 of each Fiscal Year.
ARTICLE 10
TRANSFERS; EQUITY INCENTIVE PLAN; TERMINATION OF EMPLOYMENT
10.01 TRANSFER OF UNITS BY MEMBERS.
(a) Prior to the Company's initial public offering which is a
Qualified Public Offering, neither Hilton nor LodgeNet may, directly or
indirectly, Transfer such Member's Units (other than to a Permitted Transferee
pursuant to the terms hereof) without the prior written approval of the Board of
Managers, which approval may be given or withheld in such Managers' or
representatives' sole and absolute discretion.
(b) No transfer of the Units of a Member (including to a
Permitted Transferee) shall be made if, in the opinion of counsel to the
Company, such Transfer (i) may not be effected without registration under the
Securities Act, or (ii) would result in the violation of any applicable state
securities laws.
10.02 OTHER TRANSFER PROVISIONS. Any purported Transfer by a Member of
all or any part of such Member's Units, or any economic rights associated with
such Member's Units in violation of this Article 10 shall be null and void and
of no force or effect and such purported transferee shall not be entitled to any
allocations or distributions with respect to such Units (or
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such economic rights) and shall have no right to any information or
accounting of the affairs of the Company, shall not be entitled to inspect
any books or records of the Company, and shall not have any of the rights of
a Member or assignee under the Act or this Agreement. The rights to such
allocations and distributions and the other rights set forth in this Section
10.02 shall continue to be held by the purported transferor of the Units (or
associated economic rights).
10.03 RIGHT OF FIRST OFFER. Subject to the consent requirements of
Section 10.01, the Transfer of all or any part of a Unit in the Company to any
Person other than a Permitted Transferee (a "PURCHASER") by Hilton or LodgeNet
(or a Permitted Transferee of the foregoing) shall be subject to a right of
first offer granted to the Company and a right of second offer to all other
Members on the terms set forth below.
(a) The transferring Member shall first deliver to the Company
and Hilton and LodgeNet (the "OFFERED MEMBERS") a written notice (an "OFFER
NOTICE"), that shall (a) state the transferring Member's intention to Transfer
Units to one or more Persons in a bona fide, arm's-length transaction, the
amount of Units to be Transferred (the "SUBJECT UNITS"), the purchase price
therefor (which shall be payable in cash) and a summary of the other material
terms of the proposed Transfer and (b) offer the Company and the Offered Members
the option to acquire all or a portion of such Subject Units upon the terms and
subject to the conditions of the proposed Transfer as set forth in the Offer
Notice (the "OFFER"); PROVIDED that such Offer may provide that it must be
accepted by the Company and the Offered Members (in the aggregate) on an all or
nothing basis (an "ALL OR NOTHING SALE"). The Offer shall remain open and
irrevocable for the periods set forth below (and, to the extent the Offer is
accepted during such periods, until the consummation of the sale contemplated by
the Offer). The Company shall have the right and option, for a period of thirty
(30) days after delivery of the Offer Notice (the "COMPANY ACCEPTANCE PERIOD"),
to accept all or any part of the Subject Units at the cash purchase price and on
the terms stated in the Offer Notice. Such acceptance shall be made by
delivering a written notice to the transferring Member and each of the Offered
Members within the Company Acceptance Period.
(b) If the Company shall fail to accept all of the Subject
Units offered pursuant to, or shall reject in writing, the Offer (the Company
being required to notify in writing to the transferring Member and each of the
Offered Members of its rejection or failure to accept in the event of the same),
then, upon the earlier of the expiration of the Company Acceptance period or the
date five days immediately after the giving of such written notice of rejection
or failure to accept such offer by the Company, each Offered Member shall have
the right and option, for a period of ten (10) days thereafter (the "MEMBER
ACCEPTANCE PERIOD"), to accept for purchase at the cash purchase price and on
the terms stated in the Offer Notice up to the amount of Subject Units so
offered and not accepted by the Company (the "REFUSED UNITS") equal to the
product of (a) the aggregate amount of Refused Units multiplied by (b) such
Offered Member's First Offer Ratio; provided, however, that, if the Offer
contemplated an All or Nothing Sale, the Offered Members who purchase Refused
Units pursuant to this Section 10.03 must, in the aggregate, accept the Offer
with respect to all, but not less than all, of the Refused Units, at the cash
purchase price and on the terms stated in the Offer Notice. Such acceptance
shall be made by an Offered Member by delivering a written notice to the Company
and the transferring Member within the Member Acceptance Period specifying the
amount of Units such Offered Member will purchase (the "FIRST OFFER UNITS"). If,
upon the expiration of the Member
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Acceptance Period, the aggregate amount of the Refused Units exceeds the
aggregate amount of First Offer Units (such excess being referred to herein
as "EXCESS REFUSED UNITS"), each Offered Member (each, an "ACCEPTING MEMBER")
who, during the Member Acceptance Period, accepted the Offer with respect to
the maximum amount of the Refused Units allocable to such Offered Member
pursuant to the first sentence of this Section 10.03(b), shall have the right
and option to accept within ten (10) days following conclusion of the Member
Acceptance period (the "EXCESS PERIOD") for purchase at the cash purchase
price and on the terms stated in the Offer Notice the amount of Excess
Refused Units equal to the product of (a) the aggregate amount of Excess
Refused Units multiplied by (b) such Accepting Member's Accepting Member
Ratio. All acceptances of Subject Units by an Offered Member pursuant to an
Offer shall be irrevocable.
(c) If effective acceptance shall not be received pursuant to
this Section 10.03 with respect to all of the Subject Units offered for sale
pursuant to the Offer Notice, then the transferring Member may Transfer all or
any portion of the Subject Units so offered for sale and not so accepted (or, in
the case of an All or Nothing Sale, all, but not less than all, of the Subject
Units offered for sale pursuant to the Offer Notice), at a cash price not less
than the price, and on terms not more favorable to the purchaser thereof than
the terms, stated in the Offer Notice at any time within ninety (90) days after
the expiration of the Member Acceptance Period or the Excess Period, as
applicable (the "SALE PERIOD"). In the event that all of the Subject Units are
not sold by the transferring Member during the Sale Period, the right of the
transferring Member to Transfer such Units shall expire and the obligations of
this Section 10.03 shall be reinstated.
(d) All Transfers of Subject Units to the Offered Members
pursuant to this Section 10.03 shall be made free and clear of all liens (other
than this Agreement) and shall be consummated contemporaneously at the offices
of the Company on the later of (a) a mutually satisfactory business day within
thirty (30) days after the expiration of the Member Acceptance Period or the
Excess Period, as applicable, and (b) the fifth business day following the
expiration or termination of all waiting periods under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1974 applicable to such Transfers, or at such
other time and/or place as the parties may agree. The delivery of certificates
or other instruments evidencing such Subject Units duly endorsed for transfer
shall be made on such date against payment of the purchase price for such
Subject Units.
10.04 CERTAIN SALES RESTRICTED. Each Member agrees that,
notwithstanding any provision of this Agreement to the contrary, it will not
Transfer or agree to Transfer Units to a Person (other than an Affiliate of such
Member) that to the knowledge of the transferring party is primarily engaged in
the Company's Business as then conducted.
10.05 PROHIBITED TRANSFERS. In the case of a Transfer or attempted
Transfer of Units that is not made in accordance with all applicable terms and
provisions of this Agreement, the parties engaging or attempting to engage in
such Transfer shall be liable to indemnify and hold harmless the Company and the
other Members from all cost, liability, and damage that the Company and any of
such indemnified Members may incur (including, without limitation, incremental
tax liabilities, attorneys' fees and expenses) as a result of such Transfer or
attempted Transfer and efforts to enforce the indemnity granted hereby.
10.06 INTENTIONALLY DELETED.
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10.07 ADMISSION OF SUBSTITUTED MEMBERS. Subject to the other provisions
of this Article 10, a transferee of Units may be admitted to the Company as a
substituted Member only upon satisfaction of the conditions set forth in this
Section 10.07:
(a) The Units with respect to which the transferee is being
admitted was acquired by means of a Transfer made in accordance with all
applicable terms and provisions of this Agreement;
(b) The transferee of Units (other than, with respect to
clauses (i) and (ii) below, a transferee that was a Member prior to the
Transfer) shall, by written instrument in form and substance reasonably
satisfactory to the Board of Managers (and, in the case of clause (iii) below,
the transferor Member), (i) make representations and warranties to each
nontransferring Member equivalent to those set forth in Article 8, (ii) accept
and adopt the terms and provisions of this Agreement, including this Article 10,
and (iii) assume the obligations of the transferor Member under this Agreement
with respect to the transferred Units. The transferor Member shall be released
from all such assumed obligations except (x) those obligations or liabilities of
the transferor Member arising out of a breach of this Agreement, and (y) those
obligations or liabilities of the transferor Member based on events occurring,
arising or maturing prior to the date of Transfer.
(c) The transferee pays or reimburses the Company for all
reasonable legal, filing, and other costs that the Company incurs in connection
with the admission of the transferee as a Member with respect to the transferred
Units; and
(d) Except in the case of a Transfer involuntarily by
operation of law, if required by the Board of Managers, the transferee (other
than a transferee that was a Member prior to the Transfer) shall deliver to the
Company evidence of the authority of such Person to become a Member and to be
bound by all of the terms and conditions of this Agreement, and the transferee
and transferor shall each execute and deliver such other instruments as the
Board of Managers reasonably deems necessary or appropriate to effect, and as a
condition to, such Transfer, including amendments to the Certificate or any
other instrument filed with the State of Delaware or any other state or
governmental authority.
10.08 REPRESENTATIONS REGARDING TRANSFERS; LEGEND.
(a) Each Member hereby severally (and not jointly) represents
to, and covenants and agrees with, the Company, for the benefit of the Company
and all Members, that (i) it is not currently making a market in Units and will
not in the future make a market in Units without the prior approval of the Board
of Managers, (ii) it will not Transfer its Units on an established securities
market, a secondary market (or the substantial equivalent thereof) within the
meaning of Code Section 7704(b) (and any Regulations, proposed Regulations,
revenue rulings, or other official pronouncements of the Internal Revenue
Service or Treasury Department that may be promulgated or published thereunder),
and (iii) in the event such Regulations, revenue rulings, or other
pronouncements treat any or all arrangements which facilitate the selling of
Company interests and which are commonly referred to as "matching services" as
being a secondary market or substantial equivalent thereof, it will not Transfer
any Units through a matching service that is not approved in advance by the
Board of Managers.
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Each Member further agrees that it will not Transfer any Units to any Person
unless such Person agrees to be bound by this Section 10.08(a) and to
Transfer such Units only to Persons who agree to be similarly bound.
(b) Each Member hereby severally (and not jointly) represents
and warrants to the Company and the Members that such Member's acquisition of
Units hereunder, as the case may be, is made as principal for such Members own
account and not for resale or distribution of such Units. Each Member further
hereby agrees that the following legend may be placed upon any counterpart of
this Agreement, the Certificate, or any other document or instrument evidencing
ownership of Units:
THE INTERESTS REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THESE INTERESTS HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE. SUCH INTERESTS MAY NOT BE OFFERED
FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, ASSIGNED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS THE HOLDER SHALL HAVE OBTAINED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE INTERESTS REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO FURTHER
RESTRICTION AS TO THEIR SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR ASSIGNMENT AS
SET FORTH IN THE COMPANY'S OPERATING AGREEMENT.
The Company shall cause such legend to be removed at such time as the
Company is advised by its counsel that such legend may be removed, or the
Company has received an opinion of counsel to a Member, in form and substance
reasonably satisfactory to the Company, that such legend may be removed.
10.09 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED UNITS. If
any Units are Transferred during any Allocation Year in compliance with the
provisions of this Article 10, Profits, Losses, each item thereof, and all other
items attributable to the transferred Units for such Allocation Year shall be
divided and allocated between the transferor and the transferee by taking into
account the varying number of Units held during the Fiscal Year in accordance
with Code Section 706(d), using any conventions permitted by law and selected by
the Board of Managers. All distributions on or before the date of such Transfer
shall be made to the transferor, and all distributions thereafter shall be made
to the transferee. Neither the Company nor any Member, Manager or Officer shall
incur any liability for making allocations and distributions in accordance with
the provisions of this Section 10.09, whether or not any Member, Manager or
Officer or the Company has knowledge of any Transfer of ownership of any Units
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10.10 TERMINATION OF CERTAIN RIGHTS. Upon the occurrence of an
initial public offering which is a Qualified Public Offering, Sections 10.01
and 10.03 hereof shall terminate.
10.11 EQUITY INCENTIVE PLAN. In order to promote the interests of
the Company, and to provide eligible persons with the opportunity to acquire
a proprietary interest in the Company as an incentive for them to remain in
the service of the Company, the Company shall adopt an equity incentive plan
("EQUITY INCENTIVE PLAN") under which it shall be authorized to issue options
and other forms of equity incentives to Officers, key management, employees,
consultants and advisors. The number of authorized units subject to such plan
and the details of the Plan and participants thereunder shall be determined
by the Board of Managers as soon as reasonably practicable after the
execution of this Agreement by the parties hereto.
10.12 BUY/SELL AGREEMENT.
(a) BUY/SELL ELECTION. Either Hilton or LodgeNet (the
"ELECTING MEMBER") shall have the right, but not the obligation, to implement
the buy/sell procedures set forth in this Section 10.12 by delivering written
notice ("ELECTION NOTICE") to the other party, LodgeNet or Hilton, as the
case may be as follows: (i) Hilton shall have the right to implement the
buy/sell provisions set forth in this Section 10.12 in the event that either:
(A) the Master Services Agreement is terminated by Hilton or (B) the
Distribution Agreement is terminated by InnMedia, in either case based on a
breach of said agreement by LodgeNet; and (ii) LodgeNet shall have the right
to implement the buy/sell provisions set forth in this Section 10.12 in the
event that either (A) the Master Services Agreement is terminated by LodgeNet
or (B) the Content Carriage Agreement is terminated by InnMedia, in either
case, based on a breach of said agreement by Hilton. The Election Notice
shall be delivered in writing within 120 days of such termination and shall
set forth a stated value (the "STATED VALUE"), determined in the sole
discretion of the Electing Member, for all of the assets of the Company.
(b) DETERMINATION OF THE PURCHASE PRICE. For purposes of
this Section 10.12, the purchase price ("PURCHASE PRICE") for Hilton's or
LodgeNet's Units shall equal one hundred percent (100%) of the aggregate
amount of cash which would be distributed to such Member pursuant to Section
12.02 if (i) the assets of the Company were sold for their Stated Value as of
the effective date of the Election Notice, (ii) the liabilities of the
Company were liquidated pursuant to Section 12.02(a), (iii) a reserve was not
established for liabilities of the Company pursuant to Section 12.03(a), and
(iv) the Company made its required distributions to the Members in cash
pursuant to Section 12.02. The Purchase Price shall include cash which would
be paid to such Member or any Affiliate of such Member in respect of debts
and liabilities owed to such Member or Affiliate by the Company as of the
effective date of the Election Notice. For purposes of this Section 10.12(b)
only, amounts receivable or payable between Hilton and LodgeNet or any
Affiliate thereof shall be considered as debts of the Company owed to Hilton
or LodgeNet, or such Affiliate, as the case may be. Within ten (10) days
following the effective date of any pertinent Election Notice, the certified
public accountants regularly employed by the Company shall determine, in
accordance with the provisions of this Section 10.12(b), the Purchase Prices
for the respective Units of Hilton and LodgeNet and shall deliver written
notice ("ACCOUNTANT'S NOTICE") of such Purchase Prices to Hilton and
LodgeNet. The determination by such accountants of such Purchase Prices
(including, without limitation, all components thereof) shall be deemed
conclusive with respect to both Hilton and LodgeNet.
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(c) NON-ELECTING MEMBER'S OPTION. For a period of sixty
(60) days following the effective date of the Accountant's Notice, the
Non-Electing Member shall have the option (on the terms and conditions set
forth in this Section 10.12) either (i) to purchase all, but not less than
all, of the Electing Member's entire Units for the Purchase Price thereof, or
(ii) to sell all, but not less than all, of the Non-Electing Member's entire
Units to the Electing Member for the Purchase Price thereof, by delivering
written notice of such election to the Electing Member within such sixty
(60)-day period. Failure of the Non-Electing Member to timely and validly
make an election in accordance with this Section 10.12(c) shall constitute an
election by the Non-Electing Member to sell its entire Unit for the Purchase
Price thereof to the Electing Member.
(d) CLOSING OF PURCHASE AND SALE. The closing of a purchase
and sale pursuant to this Section 10.12 shall be held at the principal office
of the Company in California within ninety (90) days following the earlier of
(i) the effective date of the election notice given by the Non-Electing
Member pursuant to Section 10.12(c) or (ii) the expiration of the sixty
(60)-day option period set forth in Section 10.12(c). The selling Member
shall transfer to the buying Member (or such buying Member's nominee(s)) the
entire Units of the selling Member free and clear of all liens, security
interests, and competing claims and shall deliver to the buying Member (or
such buying Member's nominee(s)) such instruments of transfer and such
evidence of due authorization, execution, and delivery, and of the absence of
any such liens, security interests, or competing claims, as the buying Member
(or such buying Member's nominee(s)) shall reasonably request. The buying
Member shall pay the Purchase Price for the selling Member's Unit by
delivering, at the closing, cash or one (1) or more certified or bank
cashier's checks made payable to the order of the selling Member (or the
Selling Member's nominee(s)) in an amount equal to the Purchase Price for the
selling Member's Unit.
(e) RELEASE AND INDEMNITY. On or before the closing of a
purchase and sale held pursuant to this Section 10.12, the buying Member
shall use such Member's reasonable efforts to obtain written releases of the
selling Member and such selling Member's Affiliates from all liabilities of
the Company and from all guaranties of such liabilities of the Company
previously executed by the selling Member (and/or such selling Member's
Affiliates). To the extent such releases cannot be obtained by the buying
Member, the buying Member shall indemnify and hold the selling Member free
and harmless from and against any and all claims, liabilities, causes of
action, liens, charges, and all other matters arising out of or in connection
with the business and affairs of the Company, whether arising prior to or
subsequent to the effective date of such closing, except for unknown
liabilities arising prior to the effective date of such closing and not taken
into account in calculating the Purchase Price for the selling Member's Unit.
(f) EFFECT OF BUY/SELL CLOSING. Upon the closing of the
purchase and sale pursuant to an Election Notice given by Hilton in
accordance with this Section 10.12, (i) the Administrative Services Agreement
between the Company and LodgeNet, (ii) the Distribution, (iii) the Content
Carriage Agreement and (iv) the Master Services Agreement dated as of the
date hereof, by and between LodgeNet and Hilton shall also terminate and upon
the closing of the purchase and sale pursuant to an Election Notice given by
LodgeNet in accordance with this Section 10.12, the Services Agreement
between the Company and Hilton shall also terminate.
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ARTICLE 11
CONVERSION; REGISTRATION RIGHTS
11.01 RIGHT TO CONVERT PREFERRED UNITS TO COMMON UNITS.
(a) Each holder of Preferred Units may at any time convert
any or all of such Units into such number of fully-paid and non-assessable
Common Units as is determined by dividing One Dollar ($1.00) (the "BASE
PRICE") by the then applicable "CONVERSION PRICE" for such units, determined
as herein provided. The initial Conversion Price shall be One Dollar ($1.00)
per unit (the "INITIAL CONVERSION PRICE"). The Conversion Price shall be
subject to adjustment as provided in Section 11.02.
(b) No adjustments with respect to conversion shall be made
on account of any accrued but unpaid dividends that may be declared but
unpaid on the Preferred Units surrendered for conversion; provided that no
dividends shall thereafter be paid on the Common Units unless such unpaid
dividends have first been paid to the holders entitled to payment at the time
of conversion of the Preferred Units.
(c) Before any holder of Preferred Units shall be entitled
to convert the same into Common Units, such holder shall surrender the
certificate or certificates therefor, duly endorsed, to the office of the
Company or any transfer agent for such Preferred Units and shall give written
notice to the Company at such office that the holder elects to convert the
same. The Company shall as soon as practicable thereafter, issue and deliver
at such office to that holder of Preferred Units, certificates for the number
of full Common Units to which the holder shall be entitled, together with
cash in lieu of any fraction of a unit as hereinafter provided, and, if less
than all of the Preferred Units represented by such certificate are
converted, a certificate representing the Preferred Units not converted. Such
conversion shall be deemed to have been made as of the date the certificate
for the Preferred Units is surrendered in accordance with the foregoing
requirements and the person or persons entitled to receive the Common Units
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Unit on such date. If the conversion is in
connection with an offer of securities registered pursuant to the Securities
Act, the conversion may, at the option of any holder tendering Preferred
Units for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person(s) entitled
to receive the Common Units issuable upon such conversion of the Preferred
Units shall not be deemed to have converted such Preferred Units until
immediately prior to the closing of such sale of securities.
(d) The Company shall at all times reserve and keep available
out of its authorized but unissued Common Units the full number of Common Units
deliverable upon conversion of all the then outstanding Preferred Units and
deliverable pursuant to Section 2.04 above and shall, at its own expense, take
all such actions and obtain all such permits and orders as may be necessary to
enable the Company lawfully to issue such Common Units upon the conversion of
such Preferred Units. The Company shall from time to time in accordance with
applicable laws increase the authorized amount of its Common Units if at any
time the number of Common Units remaining unissued and available for issuance
shall not be sufficient to permit conversion of the Preferred Units in
accordance with the applicable conversion provisions
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hereof. The Company covenants that all Common Units which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, provided
that the Company shall not be responsible for any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Preferred Units
which is being converted. The Company will take all such action as may be
necessary to assure that all such Common Units may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the securities may be listed.
(e) No fractional unit shall be issued upon conversion of
units of Preferred Units and the number of Common Units to be issued shall be
rounded up or down to the nearest whole unit determined on the basis of the
total number of Preferred Units the holder is at the time converting into
Common Units and the number of Common Units issuable upon such aggregate
conversion.
(f) Preferred Units which are converted into Common Units
as provided herein shall not be reissued and shall no longer be considered as
authorized.
(g) The Company will at no time close its transfer books
against the transfer of any Preferred Units or of any Common Units issued or
issuable upon the conversion of any Preferred Units in any manner which
interferes with the timely conversion of such Preferred Units, except as may
otherwise be required to comply with applicable laws and this Agreement.
(h) The Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and
delivery of Common Units, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to the Company
the amount of any such tax, or it is established to the satisfaction of the
Company that such tax has been paid.
11.02 ADJUSTMENT OF CONVERSION PRICE.
(a) In the event the Company should at any time or from
time to time after the Issuance Date fix a record date for the effectuation
of a split or subdivision of the outstanding Common Units or the
determination of holders of Common Units entitled to receive a dividend or
other Distribution payable in additional Common Units or Common Unit
Equivalents, then, following such record date (or the date of such dividend,
Distribution, split or subdivision if no record date is fixed), the
Conversion Price shall be appropriately decreased so that the number of
Common Units issuable on conversion of each Preferred Unit shall be increased
in proportion to such increase in the number of Common Units Outstanding. If
the number of Common Units Outstanding at any time after the Issuance Date is
decreased by a combination of the Common Units Outstanding, then, following
the record date of such combination, the Conversion Price shall be
appropriately increased so that the number of Common Units issuable on
conversion of each Preferred Unit shall be decreased in proportion to such
decrease in the number of Common Units Outstanding.
(b) In the event the Company (a) declares a Distribution
payable in securities of other persons, evidences of indebtedness issued by
this Company or other persons, assets
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(excluding cash dividends) or options or rights other than options or rights
to subscribe for or purchase Common Units or Convertible Securities; or (b)
offers for subscription PRO RATA to the holders of its Common Units any
additional units of any class or any other rights, then, in each such case
for the purpose of this 11.02, the holders of Preferred Units shall be
entitled to a proportionate unit of any such Distribution or additional units
or rights as though they hold the number Common Units which their Preferred
Units are convertible into as of the record date fixed for the determination
of the holders of Common Units of the Company entitled to receive such
Distribution.
(c) If at any time or from time to time there shall be a
recapitalization of the Common Units, provision shall be made so that the
holders of Preferred Units shall thereafter be entitled to receive upon
conversion of Preferred Units the number of units or other securities or
property of the Company or otherwise, to which a holder of Common Units
deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 11.02 with respect to the
rights of the holders of Preferred Units after the recapitalization to the
end that the provisions of this Section 11.02 (including adjustment of the
Conversion Price then in effect and the number of units purchasable upon
conversion of units of Preferred Units) shall be applicable after that event
as nearly equivalent as may be practicable.
(d) The provisions of this Section 11.02 shall similarly
apply to successive issuances, sales, dividends or other Distributions,
subdivisions and combinations on or of the Common Units after the Issuance
Date.
(e) Upon the occurrence of each adjustment or readjustment
of any Conversion Price of Preferred Units pursuant to this Section 11.02,
the Company, at its expense, shall compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Units subject to such adjustment a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any holder of Preferred Units, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustment
and readjustment, (ii) the Current Conversion Price for the Preferred Units
at the time in effect, and (iii) the number of Common Units and the amount,
if any, of other property which at the time would be received upon the
conversion of Preferred Units.
11.03 AUTOMATIC CONVERSION. Each Preferred Unit shall be
automatically converted into Common Units immediately upon (i) the occurrence
of the closing of a firm commitment underwritten public offering covering
primary sales of Common Units (represented by shares of capital stock of the
Company) involving gross proceeds to the Company or its successor of Fifty
Million Dollars ($50,000,000) or more; or (ii) upon the written consent of
the holders of at least sixty-six and two thirds percent (66 2/3%) of the
outstanding Preferred Units.
11.04 REGISTRATION RIGHTS. Members of Preferred Units, following
conversion to Common Units, shall have the registration right as set forth in
Annex 1 attached hereto and incorporated herein.
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ARTICLE 12
DISSOLUTION AND WINDING UP
12.01 DISSOLUTION EVENTS.
(a) DISSOLUTION. The Company shall dissolve and shall
commence winding up and liquidating upon the first to occur of any of the
following (each a "DISSOLUTION EVENT"):
(i) Subject to Section 5.04(b)(i), the unanimous
action or written consent of the Board of Managers; or
(ii) A judicial determination that an event has
occurred that makes it not reasonably practicable to carry on the Business in
conformity with this Agreement.
The Members hereby agree that, notwithstanding any provision of the
Act, the Company shall not dissolve prior to the occurrence of a Dissolution
Event.
(b) RECONSTITUTION. If it is determined, by a court of
competent jurisdiction, that the Company has dissolved prior to the
occurrence of a Dissolution Event, then within an additional ninety (90) days
after such determination (the "RECONSTITUTION PERIOD"), Members holding a
majority of the total issued and outstanding Units may elect to reconstitute
the Company and continue its business on the same terms and conditions set
forth in this Agreement by forming a new limited liability company on terms
identical to those set forth in this Agreement. Unless such an election is
made within the Reconstitution Period, the Company shall liquidate and wind
up its affairs in accordance with Section 12.02 hereof. If such an election
is made within the Reconstitution Period, then:
(i) The reconstituted limited liability company
shall continue until the occurrence of a Dissolution Event as provided in
Section 12.01(a); and
(ii) The Certificate and this Agreement shall
automatically constitute the Certificate and Agreement of the reconstituted
Company. All of the assets and liabilities of the dissolved Company shall be
deemed to have been automatically assigned, assumed, conveyed and transferred
to the new Company. No bond, collateral, assumption or release of any
Member's or the Company's liabilities shall be required; PROVIDED that the
right of the Members to select successor managers and to reconstitute and
continue the Business shall not exist and may not be exercised unless the
Company has received an opinion of counsel that the exercise of the right
would not result in the loss of limited liability of any Member and neither
the Company nor the reconstituted limited liability company would cease to be
treated as a partnership for federal income tax purposes upon the exercise of
such right to continue.
12.02 WINDING UP. Upon the occurrence of (i) a Dissolution Event or
(ii) the determination by a court of competent jurisdiction that the Company
has dissolved prior to the occurrence of a Dissolution Event (unless the
Company is reconstituted pursuant to Section 12.01(b) hereof), the Company
shall continue solely for the purposes of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members,
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and no Member shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Company's business and
affairs, provided that all covenants contained in this Agreement and
obligations provided for in this Agreement shall continue to be fully binding
upon the Members until such time as the Property has been distributed
pursuant to this Section 12.02 and the Certificate has been canceled pursuant
to the Act. The Liquidator shall be responsible for overseeing the winding up
and dissolution of the Company, which winding up and dissolution shall be
completed within ninety (90) days after (x) the occurrence of the Dissolution
Event or (y) the last day on which the Company may be reconstituted pursuant
to Section 12.01(b) hereof, as applicable. The Liquidator shall take full
account of the Company's liabilities and Property and shall cause the
Property or the proceeds from the sale thereof (as determined pursuant to
Section 12.08 hereof), to the extent sufficient therefor, to be applied and
distributed, to the maximum extent permitted by law, in the following order:
(a) FIRST, to creditors (including Members and Managers who
are creditors) in satisfaction of all of the Company's debts and other
liabilities (whether by payment or the making of reasonable provision for
payment thereof), including, without limitation, to the setting up of any
reasonable reserves which the liquidation shall determine to be reasonably
required;
(b) SECOND, to the holders of the Preferred Units, in
satisfaction of the Liquidation Preference in accordance with Section 4.02
hereof; and
(c) THE BALANCE, if any, shall be distributed ratably to
the holders of Common Units in accordance with Section 4.02 hereof.
It is intended that the distributions set forth in this
Section 12.02 comply with the requirement of Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2) that liquidating distributions be made in accordance
with positive Capital Accounts. However, if the balances in the Capital
Accounts do not result in such requirement being satisfied, no change in the
amounts of distributions pursuant to Section 4.02 shall be made, but rather,
items of income, gain, loss, deduction and credit will be reallocated among
the Members so as to cause the balances in the capital Accounts to be in the
amounts necessary so that, to the extent possible, such result is achieved.
12.03 COMPLIANCE WITH CERTAIN REGULATORY REQUIREMENTS; NO OBLIGATION
TO RESTORE DEFICIT CAPITAL ACCOUNTS. In the event the Company is "liquidated"
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), and any
Member has a deficit balance in such Member's Capital Account (after giving
effect to all contributions, distributions and allocations for all Allocation
Years, including the Allocation Year during which such liquidation occurs),
such Member shall have no obligation to make any contribution to the capital
of the Company with respect to such deficit, and such deficit shall not be
considered a debt owed to the Company or to any other Person for any purpose
whatsoever. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the Members pursuant to this
Article 12 may be:
(a) Distributed to a trust established for the benefit of
the Members for the purpose of liquidating Company assets, collecting amounts
owed to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such
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trust shall be distributed to the Members from time to time, in the
reasonable discretion of the Liquidator, in the same proportions as the
amount distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to Section 12.02 hereof; or
(b) Withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized portion
of any installment obligation owed to the Company; PROVIDED that such
withheld amounts shall be distributed to the Members as soon as practicable.
12.04 RIGHTS OF MEMBERS. Except as otherwise provided in this
Agreement, each Member shall look solely to the property of the Company for
the return of its Capital Contribution and has no right or power to demand or
receive property other than cash from the Company. If the assets of the
Company remaining after payment or discharge of the debts or liabilities of
the Company are insufficient to return such Capital Contribution, the Members
shall have no recourse against the Company or any other Member, Manager or
Officer.
12.05 NOTICE OF DISSOLUTION; TERMINATION.
(a) In the event a Dissolution Event occurs or an event
occurs that would, but for the provisions of Section 12.01, result in a
dissolution of the Company, the Board of Managers shall, if it determines
such to be appropriate under the circumstances, within thirty (30) days
thereafter, provide written notice thereof to each of the Members and to all
other parties with whom the Company regularly conducted business (as
determined in the discretion of the Board of Managers) and shall publish
notice thereof in a newspaper of general circulation in each place in which
the Company regularly conducts business (as determined in the discretion of
the Board of Managers).
(b) Upon completion of the distribution of the Company's
property as provided in this Article 12, the Company shall be terminated, and
the Liquidator shall cause the filing of the Certificate of Cancellation
pursuant to Section 18-203 of the Act and shall take all such other actions
as may be necessary to terminate the Company.
12.06 ALLOCATIONS DURING PERIOD OF LIQUIDATION. During the period
commencing on the first day of the Fiscal Year during which a Dissolution
Event occurs and ending on the date on which all of the assets of the Company
have been distributed to the Members pursuant to Section 12.02 hereof (the
"LIQUIDATION PERIOD"), the Members shall continue to share Profits, Losses,
gain, loss and other items of Company income, gain, loss or deduction in the
manner provided in Article 3 hereof.
12.07 THE LIQUIDATOR.
(a) DEFINITION. The "Liquidator" shall mean a Person (who
may be an existing Officer, Manager or Member) appointed by the Board of
Managers to oversee the liquidation of the Company.
(b) FEES. The Company shall pay such fees to the Liquidator
for its service performed pursuant to this Article 12 and reimburse the
Liquidator for its reasonable costs and expenses incurred in performing those
services as are approved by the Board of Managers.
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(c) EXONERATION AND INDEMNIFICATION. The Liquidator shall
have the same limitations on liability and rights to indemnification as a
Manager pursuant to Article 7 of this Agreement.
12.08 FORM OF LIQUIDATING DISTRIBUTIONS. For purposes of making
distributions required by Section 12.02 hereof, the Liquidator may determine
whether to distribute all or any portion of the Company's property in-kind or
to sell all or any portion of the Company's property and distribute the
proceeds therefrom.
ARTICLE 13
POWER OF ATTORNEY
13.01 MANAGERS AS ATTORNEYS-IN-FACT. Each Member hereby makes,
constitutes, and appoints each Manager, severally, with full power of
substitution and resubstitution, its true and lawful attorney-in-fact for it
and in its name, place, and stead and for its use and benefit, to sign,
execute, certify, acknowledge, swear to, file, publish and record (i) all
certificates of formation, amended name or similar certificates, and other
certificates and instruments (including counterparts of this Agreement) that
the Board of Managers may deem necessary to be filed by the Company under the
laws of the State of Delaware or any other jurisdiction in which the Company
is doing or intends to do business; (ii) any and all amendments, restatements
or changes to this Agreement and the instruments described in clause (i), as
now or hereafter amended, or otherwise that the Board of Managers may deem
necessary to effect a change or modification of the Company in accordance
with the terms of this Agreement, including, without limitation, amendments,
restatements or changes to reflect (A) any amendments adopted by the Board of
Managers or the Members in accordance with the terms of this Agreement, (B)
the admission of any substituted Member and (C) the disposition by any Member
of its Unit in the Company, except that such power of attorney does not cover
any actions that could reasonably be expected to lead to liability or
obligation on the part of any Member; (iii) all certificates of cancellation
and other instruments which the Board of Managers deems necessary or
appropriate to effect the dissolution and termination of the Company pursuant
to the terms of this Agreement and (iv) any other instrument of a ministerial
nature (and which in any event creates no liability or obligation and makes
no admission against interest with respect to any Member) which is now or may
hereafter be required by law to be filed on behalf of the Company or is
deemed necessary by the Board of Managers to carry out fully the provisions
of this Agreement in accordance with its terms. Each Member authorizes each
such attorney-in-fact to take any further ministerial action which such
attorney-in-fact shall consider necessary or appropriate in connection with
any of the foregoing, hereby giving each such attorney-in-fact full power and
authority to do and perform each and every act or thing whatsoever requisite
to be done in connection with the foregoing as fully as such Member might or
could do personally, and hereby ratifies and confirms all that any such
attorney-in-fact shall lawfully do, or cause to be done, by virtue thereof or
hereof except that such power-of-attorney does not cover any actions which
could reasonably be expected to lead to liability or obligation on the part
of any Member.
13.02 NATURE OF SPECIAL POWER. The power of attorney granted to each
Manager only for so long as he or she remains a Manager pursuant to this
Article 13:
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(a) Is a special power of attorney coupled with an interest
and is irrevocable;
(b) May be exercised by any such attorney-in-fact by
listing the Members executing any agreement, certificate, instrument, or
other document with the single signature of any such attorney-in-fact acting
as attorney-in-fact for such Members; and
(c) Shall survive and not be affected by the subsequent
Bankruptcy, insolvency, dissolution, cessation of existence, death or
disability of a Member and shall survive the delivery of an assignment by a
Member of the whole or a portion of its Units in the Company (except that
where the assignment is of such Member's entire Units in the Company and the
assignee, with the consent of the Board of Managers, is admitted as a
substituted Member, the power of attorney shall survive the delivery of such
assignment for the sole purpose of enabling any such attorney-in-fact to
effect such substitution) and shall extend to such Member's, or assignee's
successors and assigns.
ARTICLE 14
AMENDMENT
14.01 AMENDMENT. Following a Qualified Public Offering or such time
as Hilton and LodgeNet each maintains less than the Minimum Threshold Amount,
this Agreement may be amended by the consent or approval of Members holding
not less than sixty-six and two thirds percent (66 2/3%) of the total issued
and outstanding Units of the Company; EXCEPT that it shall not be amended
without the consent of each Member adversely affected if such amendment would
(i) modify the limited liability of such Member, (ii) increase the capital
contributions required to be made by such Member, or (iii) alter the interest
of such Member in Profits and Losses except as permitted in Section 2.03
herein. Except as otherwise provided in the preceding sentence, any amendment
to this Agreement shall be made only in accordance with the approval
requirements of Section 5.04(b).
ARTICLE 15
DEFINITIONS
Capitalized words and phrases used in this Agreement have the
following meanings:
"ACCEPTING MEMBER RATIO" means, with respect to an Accepting Member,
a fraction, the numerator of which shall be the total number of Units
(including, but not limited to, the Refused Units previously subscribed for
pursuant to Section 10.03(b)) held by such Accepting Member, and the
denominator of which shall be the total number of Units (including, but not
limited to, the Refused Units previously subscribed for pursuant to Section
10.03(b)) held by all Accepting Members who desire to purchase Excess Refused
Units.
"ACCEPTING MEMBER" shall have the meaning set forth in Section
10.03(b) hereof.
"ACT" means the Delaware Limited Liability Company Act, 6 Del. C.
Section 18-10 1, ET SEQ., as amended from time to time (or any corresponding
provisions of succeeding law).
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"Adjusted Capital Account" means, with respect to any Member, the
amount of such Member's Capital Account increased by any amounts which such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Allocation Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such
Member is deemed to be obligated to restore pursuant to the penultimate
sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
"ADMINISTRATIVE SERVICES AGREEMENTS" shall have the meaning set forth
in Section 5.09(c).
"AFFILIATE" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any officer, director, general partner, member or trustee of such
Person or (iii) any Person who is an officer, director, general partner, member
or trustee of any Person described in clauses (i) or (ii) of this sentence. For
purposes of this definition, the terms "controlling," "controlled by" or "under
common control with" shall mean 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, or
the power to elect at least 50% of the directors, managers, general partners, or
persons exercising similar authority with respect to such Person or entities;
PROVIDED, HOWEVER, that for the purpose of this Agreement, the Company and any
of its Subsidiaries shall be considered not to be Affiliates of any Member or
its Subsidiaries, and each Member and its Subsidiaries shall be considered not
to be Affiliates of the Company or any of its Subsidiaries.
"AGREEMENT" or "OPERATING AGREEMENT" means this Agreement of InnMedia
LLC, as amended from time to time. Words such as "herein," "hereinafter,"
"hereof," "hereto" and "hereunder" refer to this Agreement as a whole, unless
the context otherwise requires.
"ALLOCATION YEAR" means (i) the period commencing on the Effective Date
and ending on December 31, 2000, (ii) any subsequent Fiscal Year or (iii) any
portion of the period described in clauses (i) or (ii) for which the Company is
required to allocate Profits, Losses and other items of Company income, gain,
loss or deduction pursuant to Article 3 hereof.
"ALL OR NOTHING SALE" shall have the meaning set forth in
Section 10.03(a) hereof.
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"ANNUAL BUDGET" means the annual budget of the Company prepared by the
President that has been approved by the Board of Managers in accordance with
this Agreement.
"BANKRUPTCY" means, with respect to any Person, a "Voluntary
Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with
respect to any Person (i) the inability of such Person generally to pay its
debts as such debts become due, or an admission in writing by such Person of its
inability to pay its debts generally or a general assignment by such Person for
the benefit of creditors, (ii) the filing of any petition or answer by such
Person seeking to adjudicate itself as bankrupt or insolvent, or seeking for
itself any liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of such Person or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking, consenting to, or acquiescing in the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Person or for any substantial part of its Company property or (iii)
corporate action taken by such Person to authorize any of the actions set forth
above. An "Involuntary Bankruptcy" means, with respect to any Person, without
the consent or acquiescence of such Person, the entering of an order for relief
or approving a petition for relief or reorganization or any other petition
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or other similar relief under any present or future bankruptcy,
insolvency or similar statute, law or regulation, or the filing of any such
petition against such Person which petition is not be dismissed within ninety
(90) days, or without the consent or acquiescence of such Person, the entering
of an order appointing a trustee, custodian, receiver or liquidator of such
Person or of all or any substantial part of the Company property of such Person
which order is not be dismissed within ninety (90) days.
"BOARD OF MANAGERS" shall mean the Board of Managers established
pursuant to Section 5.01 of this Agreement.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York, New York.
"BUSINESS PLAN" shall have the meaning set forth in Section 5.08.
"CAPITAL ACCOUNT" means, with respect to any Member, the Capital
Account maintained for such Member in accordance with the following provisions:
(i) To each Member's Capital Account there shall be credited
(A) the amount of cash and the Gross Asset Value of any property contributed by
such Member to the Company, (B) such Member's distributive share of Profits and
any items in the nature of income or gain which are specially allocated pursuant
to Section 3.03, Section 3.04 or Section 3.05 hereof, and (C) the amount of any
Company liabilities assumed by such Member in accordance with Regulations
Section 1.704-1(b)(2)(iv)(c) or which are secured by any Company property
distributed to such Member.
(ii) To each Member's Capital Account there shall be debited
(A) the amount of cash and the Gross Asset Value of any property distributed by
the Company to such Member, (B) such Member's distributive share of Losses and
any items in the nature of expenses or losses which are specially allocated
pursuant to Section 3.03, Section 3.04 or Section 3.05 hereof, and
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(C) the amount of any liabilities of such Member assumed by the Company in
accordance with Regulations Section 1.704-1(b)(2)(iv)(c) or which are secured
by any property contributed by such Member to the Company.
(iii) In the event Units are Transferred in accordance with
the terms of this Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent it relates to the Transferred Units.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b)(4), and shall be interpreted and applied in a
manner consistent with such Regulations. Each Member shall have the initial
capital account as set forth on SCHEDULE 2.1.
"CAPITAL CONTRIBUTIONS" means, with respect to any Member, the net
value of any property contributed to the Company with respect to the Units in
the Company held or purchased by such Member as reflected in Article 2 of this
Agreement, including additional capital contributions, if any, made in
accordance with the terms of this Agreement.
"CAPITAL EVENT" means (a) the issuance or sale of Units or other equity
interests in the Company to any unaffiliated third party or parties, (b) the
sale of all or substantially all of the assets of the Company or all of the
membership interests in the Company to an unaffiliated third party, (c) a
Qualified Offering, (d) a merger or consolidation of the Company involving an
unaffiliated third party or (e) dissolution or liquidation of the Company.
"CERTIFICATE" means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company, as originally executed and amended, modified, supplemented or restated
from time to time, as the context requires.
"CERTIFICATE OF CANCELLATION" means a certificate filed in accordance
with 6 Del. C. Section 18-203.
"CHAIRMAN" means the Chairman of the Board of Managers, including any
interim Chairman. The initial Chairman shall be Xxxxx Xxxxxxxx.
"CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of the
Company, including any interim Chief Executive Officer. The initial Chief
Executive Officer shall be selected by the Board of Managers.
"CODE" means the United States Internal Revenue Code of 1986, as
amended from time to time.
"COMMON UNITS" means all Units other than the Preferred Units.
"COMPANY" means Inn Media LLC, the limited liability company formed
pursuant to this Agreement and the Certificate, and the limited liability
company continuing the business of the Company in the event of dissolution of
the Company as herein provided.
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"COMPANY ACCEPTANCE PERIOD" shall have the meaning set forth in Section
10.03(a) hereof.
"COMPANY CAPITAL" means an amount equal to the sum of all of the
Members' Adjusted Capital Account Deficits determined immediately prior to the
allocation to the Members of any Profits or Losses, increased by the aggregate
amount of Profits to be allocated to the Members pursuant to Section 3.02 or
decreased by the aggregate amount of Losses to be allocated to the Members
pursuant to Section 3.01.
"COMPANY MINIMUM GAIN" shall have the meaning set forth in Section
1.704-2(b)(2) and 1.704-2(d) of the Regulations for "partnership minimum gain."
"CONTENT CARRIAGE AGREEMENT" shall have the meaning set forth in
Section 5.09(b).
"DEPRECIATION" means, for each Allocation Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Allocation Year, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such Allocation Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such Allocation Year bears to such beginning adjusted tax basis; PROVIDED,
HOWEVER, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such Allocation Year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Managers.
"DISSOLUTION EVENT" shall have the meaning set forth in Section 12.01
hereof.
"DISTRIBUTION AGREEMENT" shall have the meaning set forth in Section
5.09(a).
"EFFECTIVE DATE" means October 9, 2000.
"EXCESS REFUSED UNITS" shall have the meaning set forth in Section
10.03(b) hereof.
"EXCESS PERIOD" shall have the meaning set forth in Section 10.03(b)
hereof.
"FIRST OFFER UNITS" shall have the meaning set forth in Section
10.03(b) hereof.
"FIRST OFFER RATIO" means, with respect to (a) an Offered Member and
(b) determining the rights thereof in connection with an Offer, a fraction, the
numerator of which shall be the total number of Units held by such Offered
Member, and the denominator of which shall be the total number of Units held by
all of the Offered Members.
"FISCAL YEAR" means for financial accounting, federal, state and local
income tax purposes the calendar year or such other fiscal year that may be
required by law for federal income tax purposes.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
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"GROSS ASSET VALUE" means with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market value
of such asset, as determined by the Board of Managers; PROVIDED that the
initial Gross Asset Values of the asset contributed to the Company pursuant
to Section 2.01 hereof shall be as set forth on SCHEDULE 2.1;
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values (taking Code Section
7701(g) into account), as determined by the Board of Managers as of the
following times: (A) the acquisition of an additional interest in the Company by
any new or existing Member in exchange for more than a DE MINIMIS Capital
Contribution; (B) the distribution by the Company to a Member of more than a DE
MINIMIS amount of Company property as consideration for an interest in the
Company; and (C) the liquidation of the Company within the meaning of
Regulations Section 1.704l(b)(2)(ii)(g); PROVIDED that an adjustment described
in clauses (A) and (B) of this paragraph shall be made only if the Board of
Managers reasonably determines that such adjustment is necessary to reflect the
relative economic interests of the Members in the Company;
(iii) The Gross Asset Value of any item of Company assets
distributed to any Member shall be adjusted to equal the gross fair market value
(taking Code Section 7701(g) into account) of such asset on the date of
distribution as determined by the Board of Managers; and
(iv) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph
(vi) of the definition of "Profits" and "Losses."
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (i), (ii) or (iv), such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
"HILTON" means Hilton Hotels Corporation, a Delaware corporation.
"INDEMNITEE" shall have the meaning set forth in Section 7.02 hereof.
"LIQUIDATION PERIOD" has the meaning set forth in Section 12.06 hereof.
"LIQUIDATION PREFERENCE" has the meaning set forth in Section 4.02(a)
hereof.
"LIQUIDATOR" has the meaning set forth in Section 12.07(a) hereof.
"LODGENET" means LodgeNet Entertainment Corporation, a Delaware
corporation.
"LOSSES" has the meaning set forth in the definition of "Profits" and
"Losses."
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"MAJORITY VOTE" means, with respect to actions to be taken by Members,
the affirmative vote of or consent of Members holding at least a majority of the
Units then held by all Members entitled to vote or consent on such action.
"MANAGER" means any of the individuals elected by the Members to serve
on the Board of Managers.
"MEMBER" means any Person (i) who is referred to as such on SCHEDULE
2.1 or who has become a substituted Member pursuant to the terms of this
Agreement and (ii) who has not ceased to be a Member.
"MEMBER ACCEPTANCE PERIOD" shall have the meaning set forth in Section
10.03(b) hereof.
"MEMBER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"MEMBER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"OFFER" shall have the meaning set forth in Section 10.03(a) hereof.
"OFFERED MEMBERS" shall have the meaning set forth in Section 10.03(a)
hereof.
"OFFER NOTICE" shall have the meaning set forth in Section 10.03(a)
hereof.
"OFFERED SECURITIES" shall have the meaning set forth in Section
2.03(a) hereof.
"OFFICERS" shall mean each of the individuals elected by the Board of
Managers to serve as Officers of the Company in accordance with Section 5.07
hereof.
"PERMITTED TRANSFEREE" means, with respect to any Member, (i) any
Subsidiary or (ii) any corporation, partnership, joint venture, limited
liability company, association or other entity which owns, directly or
indirectly, greater than 50% of the ownership interest of the outstanding equity
securities or interests, the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such Member or
any person who is controlled by or under common control with the Member or the
Subsidiary. For purposes of this definition, the terms "controlled by" or "under
common control with" shall mean the possession of more
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than 50% of the ownership interest of the outstanding equity securities or
interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such entity.
"PERSON" or "PERSON" means any individual, partnership (whether general
or limited), limited liability company, corporation, trust, estate, association,
nominee or other entity.
"PORTAL USE DATE" shall have the meaning set forth in Section 5.10.
"PRE-EMPTIVE OFFER" shall have the meaning set forth in Section 2.03(a)
hereof.
"Preferred Unit ORIGINAL ISSUE PRICE" shall mean the amount paid per
Preferred Unit to the Company by a Member acquiring Preferred Units from the
Company.
"PREFERRED UNITS" means Units entitled to receive the Liquidation
Preference with respect to such Units.
"PRESIDENT" means the President of the Company, including any interim
President. The initial President shall be selected by the Board of Managers.
"PROFITS" and "LOSSES" mean, for each Allocation Year, an amount equal
to the Company's taxable income or loss for such Allocation Year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(i) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition of "Profits" and "Losses" shall be added to such
taxable income or loss;
(ii) any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this definition of
"Profits" and "Losses" shall be subtracted from such taxable income or loss;
(iii) in the event the Gross Asset Value of any Company asset
is adjusted pursuant to subparagraphs (ii), (iii), or (iv) of the definition of
Gross Asset Value, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the Gross Asset Value of the asset) or an item
of loss (if the adjustment decreases the Gross Asset Value of the asset) from
the disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses;
(iv) gain or loss resulting from any taxable disposition of
Company property shall be computed by reference to the Gross Asset Value of the
Company property disposed of, notwithstanding that the adjusted tax basis of
such Company property differs from its Gross Asset Value;
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(v) in lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Allocation
Year, computed in accordance with the definition of Depreciation;
(vi) to the extent an adjustment to the adjusted tax basis of
any Company asset pursuant to Code Section 734(b) is required, pursuant to
Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's interest in the Company, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the basis of
the asset) or loss (if the adjustment decreases such basis) from the disposition
of such asset and shall be taken into account for purposes of computing Profits
or Losses; and
(vii) notwithstanding any other provision of this definition,
any items that are specially allocated pursuant to Section 3.03 and Section 3.04
hereof shall not be taken into account in computing Profits or Losses.
"PRO RATA SHARE" shall have the meaning set forth in Section 2.03(a)
hereof.
"PURCHASER" shall have the meaning set forth in Section 10.03 hereof.
"QUALIFIED PUBLIC OFFERING" means a firmly underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Common Units for the Company in which the gross
cash proceeds to the Company are at least $50 million.
"RECONSTITUTION PERIOD" has the meaning set forth in Section 12.01(b)
hereof.
"REFUSED SECURITIES" shall have the meaning set forth in Section
2.03(c).
"REFUSED UNITS" shall have the meaning set forth in Section 10.03(b)
hereof.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations are amended from
time to time.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 3.03
hereof.
"SEC" means the Securities and Exchange Commission.
"SALE PERIOD" shall have the meaning set forth in Section 10.03(c)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBJECT UNITS" shall have the meaning set forth in Section 10.03(a)
hereof.
"SUBSIDIARY" means any corporation, partnership, joint venture, limited
liability company, association or other entity in which such Person owns,
directly or indirectly, more than 50% of the outstanding equity securities or
interests, the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such entity.
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"TAXING AUTHORITY" shall have the meaning set forth in Section 9.03(b)
hereof.
"TAX MATTERS PARTNER" has the meaning set forth in Section 9.03(b)
hereof.
"THIRD PARTY" shall mean any Person who is not a Member, a Manager, an
Officer or an Affiliate of the Company or any Affiliate thereof.
"TRANSACTION DOCUMENTS" shall mean the Distribution Agreement, the
Carriage Content Agreement and the Master Services Agreement.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer,
sale, pledge or hypothecation or other disposition and, as a verb, voluntarily
or involuntarily attempting to transfer, sell, pledge or hypothecate or
otherwise dispose of.
"UNIT" or "UNITS" means an ownership interest or interest in the
Company (including both Preferred Units and Common Units), including any and all
benefits to which the holder of such interests may be entitled as provided in
this Agreement, together with any and all obligations of such Person to comply
with the terms and provisions of this Agreement. The Units of each Member as of
the Effective Date are set forth in SCHEDULE 2.1.
"UNPAID LIQUIDATION PREFERENCE" means with respect to each holder of
Preferred Units, the difference between the Liquidation Preference applicable to
such holder, less the aggregate amount of distributions previously paid to such
holder pursuant to Section 4.02(a) hereof.
ARTICLE 16
MISCELLANEOUS
16.01 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement to Terms shall be given in writing and shall be
deemed effectively given (a) upon personal delivery to the party to be notified,
(b) upon facsimile transmission (if the receiving machine confirms receipt
through answer back and the sending machine prints a paper copy of the
answerback message), (c) on the first business day after timely deposit with a
reputable overnight courier service for next-day delivery or (d) seventy-two
(72) hours after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, addressed as follows, or to such other address
as such Person may from time to time specify by notice to the Board Managers (x)
if to the Company, to the address determined pursuant to Section 1.03 hereof;
(y) if to the Managers, to the address set forth in SCHEDULE 5.1 hereto; and (z)
if to a Member, to the address set forth in SCHEDULE 2.1 hereto. Notice received
after 5:00 P.M. (recipient's time) on a Business Day or on a Saturday, Sunday or
legal holiday shall be effective the next regular business day.
16.02 BINDING EFFECT. Except as otherwise provided in this Agreement,
every covenant, term, and provision of this Agreement shall be binding upon and
inure to the benefit of the Members and their respective successors,
transferees, and permitted assigns.
16.03 TIME. In computing any period of time pursuant to this Agreement,
the day of the act, event or default from which the designated period of time
begins to run shall not be
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included, but the time shall begin to run on the next succeeding day. The
last day of the period so computed shall be included, unless it is a
Saturday, Sunday or legal holiday, in which event the period shall run until
the end of the next day which is not a Saturday, Sunday or legal holiday.
16.04 HEADINGS. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define, or limit the scope, extent, or intent of this Agreement or any provision
hereof.
16.05 SEVERABILITY. Except as otherwise provided in the succeeding
sentence, every provision of this Agreement is intended to be severable, and, if
any term or provision of this Agreement is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
16.06 VARIATION OF TERMS. All terms and any variations thereof shall be
deemed to refer to masculine, feminine, or neuter, singular or plural, as the
identity of the Person or Person may require.
16.07 GOVERNING LAW. The internal laws of the State of Delaware shall
govern the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties arising hereunder.
16.08 JURISDICTION AND SERVICE OF PROCESS. Any action or proceeding
brought by any party to this Agreement or any of the other agreements described
in Section 5.09 hereof against another party, arising out or related to this
Agreement or such other agreements shall be brought in a state or federal court
of competent jurisdiction located in the County of Los Angeles, State of
California and the parties submit to the IN PERSONAM jurisdiction of such courts
for purposes of any such action or proceeding. Each of the parties hereto
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
certified mail, postage prepaid, to the party at its address set forth in
SCHEDULE 2.1 hereof.
16.09 ENFORCEMENT. Each of the parties hereto acknowledges and agrees
that the rights acquired by each party hereunder are unique and that irreparable
damage would occur in the event that any of the provisions of this Agreement to
be performed by the other party were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, in addition to any other
remedy to which the parties hereto are entitled at law or in equity, each party
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement by the other party and to enforce specifically the terms and
provisions hereof in any federal or state court to which the parties have agreed
hereunder to submit to jurisdiction.
16.10 COUNTERPART EXECUTION. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Members had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
16.11 FACSIMILE SIGNATURES. Any signature page of this Agreement
delivered by a fax machine or telecopy machine shall be binding to the same
extent as an original signature page, with regard to any agreement subject to
the terms hereof or any amendment thereto. Any party
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who delivers such a signature page agrees to later deliver an original
counterpart to any party which requests it.
16.12 REPRESENTATION BY COUNSEL; INTERPRETATION. The parties hereto are
sophisticated and have each been represented by counsel who have carefully
negotiated the provisions of this Agreement. Accordingly, the parties do not
believe that the presumption of Section 1654 of the California Civil Code and
similar rules relating to the interpretation of contracts against the drafter of
any particular clause should be applied in the case of the aforementioned
documents and therefor waive its effects.
16.13 FURTHER ASSURANCES. Hilton and LodgeNet agree to do any further
acts and execute such additional documents as the other may reasonably require
to confirm this Agreement and carry out the purpose of this Agreement.
16.14 ATTORNEYS' FEES. In the event Hilton or LodgeNet breaches any of
the terms of this Agreement, whereby the party not in default employs attorneys
to protect or enforce its rights hereunder and prevails, then the defaulting
party agrees to pay the other party reasonable attorneys' fees so incurred by
such other party. EACH PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION SEEKING SPECIFIC PERFORMANCE OF ANY PROVISION OF THIS AGREEMENT, FOR
DAMAGES FOR ANY BREACH UNDER THIS AGREEMENT, OR OTHERWISE FOR ENFORCEMENT OF ANY
RIGHT OR REMEDY HEREUNDER.
16.15 SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
set forth in Article 10 hereof, this Agreement shall inure to the benefit of and
shall bind the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned have executed and entered into this
Agreement as of the Effective Date.
HILTON HOTELS CORPORATION, a
Delaware corporation
By:
-----------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: Executive Vice President
LODGENET ENTERTAINMENT
CORPORATION, a Delaware corporation
By:
------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
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EXHIBIT "A"
MEMBERS
Hilton Hotels Corporation
LodgeNet Entertainment Corporation
EXHIBIT "A"
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SCHEDULE 2.1
OPERATING AGREEMENT OF
INNMEDIA LLC
MEMBERS
INITIAL CAPITAL INITIAL CAPITAL INITIAL PERCENTAGE
NAME AND ADDRESS CONTRIBUTION ACCOUNT UNIT--PREFERRED
------------------------- ------------------- --------------- -------------------
Hilton Hotels Corporation $1,000,000 $1,000,000 50%
LodgeNet Entertainment $1,000,000 $1,000,000 50%
Corporation
SCHEDULE 2.1
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SCHEDULE 5.1(b)
OPERATING AGREEMENT OF
INNMEDIA LLC
MANAGERS
MANAGER DESIGNATING MEMBER
------- ------------------
Xxxxx Xxxxxxxx LodgeNet
Xxxxx Bankers LodgeNet
Xxxxxx Xxxxxxxxxx Hilton
Xxx Xxxxxx Hilton
SCHEDULE 5.1(b)
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ANNEX I
REGISTRATION RIGHTS
SECTION 1
GENERAL
1.1 DEFINITIONS. Terms not otherwise defined herein, shall have the
meaning ascribed to such term in the Agreement. In addition, as used in this
Annex, the following terms shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities
Act subsequently adopted by the SEC which permits inclusion or incorporation
of substantial information by reference to other documents filed by the
Company with the SEC.
"HOLDER" means any person owning of record Preferred Unit
Registrable Securities that have not been sold to the public.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act.
"PREFERRED UNITS" means the Preferred Units issued pursuant to
the Agreement.
"QUALIFIED PUBLIC OFFERING" means a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act covering the offer and sale of Common Units for the Company in which the
gross cash proceeds to the Company are at least $50 million.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Units of the Company
issued or issuable upon conversion of the Preferred Units; and (b) any Common
Units of the Company issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in replacement of,
the securities described in clause (a). Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to
the public either pursuant to a registration statement or Rule 144 or sold in
a private transaction in which the transferor's rights under Section 2 hereof
are not assigned.
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"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
units determined by calculating the total number of the Company's Common
Units that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 2.1 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements
of counsel for the Company, reasonable fees and disbursements of a single
special counsel for the Preferred Unit Holders, blue sky fees and expenses
and the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"RULE 144" means Rule 144 of the Securities Act.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
SECTION 2
REGISTRATION
2.1 PIGGYBACK REGISTRATIONS. Following a Qualifying IPO, the Company
shall notify all Holders of Registrable Securities in writing at least thirty
(30) days prior to the filing of any registration statement under the Securities
Act for purposes of a public offering of equity securities of the Company
(including, but not limited to, registration statements relating to secondary
equity offerings of securities of the Company, but excluding registration
statements relating to employee benefit plans or with respect to corporate
reorganizations or other transactions under Rule 145 of the Securities Act) and
will afford each such Holder an opportunity to include in such registration
statement all or part of such Registrable Securities held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 2.1 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities.
In such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.1 shall be conditioned upon such Holder's
participation
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in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. In no event will
shares of any other selling holder be included in such registration which
would reduce the number of shares which may be included by Holders without
the written consent of holders of not less than a majority of the Registrable
Securities proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.1 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.2 hereof.
2.2 EXPENSES OF REGISTRATION. All Registration Expenses under Section
2.1 shall be borne by the Company and all Selling Expenses incurred in
connection with any registrations hereunder, shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of shares so
registered.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders holding more than fifty percent (50%) of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to one hundred eighty (180) days or, if earlier, until the Holder or Holders
have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as
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shall be reasonably requested by the Holders, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder who holds Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
(g) Furnish, at the request of more than fifty percent
(50%) of the Holders participating in the registration, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to more than fifty
percent (50%) in interest of the Holders requesting registration, addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to
more than fifty percent (50%) in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.4 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect six
(6) years after the date of the Company's Qualified Public Offering. In
addition, a Holder's registration rights shall expire if (a) the Company has
completed its initial public offering and is subject to the provisions of the
Exchange Act, and (b) all Registrable Securities held by and issuable to such
Holder may be sold under Rule 144 during any ninety (90) day period.
2.5 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2.2 that
the selling Holders shall furnish to the Company such
A-4
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
2.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Section 2.1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer, director, underwriter
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained in
this Section 2.6(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be unreasonably withheld,
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, partner, officer, director, underwriter or controlling person of
such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, legal counsel, controlling person,
underwriter or other such Holder, or partner, director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such
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Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, legal counsel, controlling person,
underwriter or other Holder, or partner, officer, director, legal counsel or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under
this Section 2.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.6.
(d) If the indemnification provided for in this Section
2.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The obligations of the Company and Holders under this
Section 2.7 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Annex. No Indemnifying
Party, in the defense of any such claim or litigation,
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shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
2.7 ASSIGNMENT OF REGISTRATION RIGHTS. The piggyback registration
rights pursuant to this Section 2 may be assigned by a Holder to a transferee or
assignee of Registrable Securities which (a) is a subsidiary, parent, general
partner, limited partner or retired partner of a Holder, (b) is a Holder's
family member or trust for the benefit of an individual Holder or family member
of the Holder, or (c) acquires at least all of such holder's Registrable
Securities (as adjusted for stock splits and combinations); provided, however,
(A) the transferor shall, within twenty (20) days after such transfer, furnish
to the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned, (B) such transferee shall agree to be subject to all
restrictions set forth in this Annex, and (C) such transferee must not be a
person or entity deemed by the Board of Directors of the Company, in its
reasonable judgment, to be a competitor of the Company.
2.8 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.9 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Article II, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.9 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Annex, the Company shall not, without the prior written consent of the
Holders of more than fifty percent (50%) of the Registrable Securities then
outstanding, enter into any agreement with any Holder or prospective Holder of
any securities of the Company that would grant such Holder registration rights
senior to those granted to the Holders hereunder.
2.10 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the representative of the
underwriters of Common Stock (or other securities) of the Company not less than
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(a) such agreement shall apply only to the Company's
initial public offering; and
(b) all officers and directors of the Company and holders
of at least one percent (1%) of the Company's voting securities enter into
similar agreements.
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.10 shall
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not apply to a registration relating solely to employee benefit plans on Form
S-1 or Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4
or similar forms that may be promulgated in the future. The Company may
impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction.
2.11 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request: a written
statement by the Company as to its compliance with the reporting requirements
of said Rule 144 of the Securities Act, and of the Exchange Act (at any time
after it has become subject to such reporting requirements); a copy of the
most recent annual or quarterly report of the Company; and such other reports
and documents as a Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing it to sell any such securities without
registration.
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